Completing fieldwork and reviewing significant areas

Finish the evidence argument

Completion brings together findings that may cut across several balances and disclosures. A late legal development can change a provision, the cash forecast and the going concern conclusion. An unexplained journal can undermine confidence in management's other explanations. Experienced team members therefore assess unresolved matters together and involve the engagement partner in significant judgements.

For each significant area, establish what could be wrong, what the evidence now demonstrates, whether the financial statements need changing and whether any evidence gap remains. A signed checklist records work; the conclusion must explain why that work answers the risk. These lessons use the supplied guide's 2024 study context and the linked historical standards.

Concept sources: ASA 330, December 2021, paragraphs 25–30 — evaluating evidence and documenting conclusions; the workflow is an original study arrangement.

Close accounting estimates without demanding certainty

An accounting estimate is needed when an amount cannot be observed directly. Fair values, impairment calculations, credit losses and provisions can depend on uncertain outcomes. The auditor evaluates reasonableness under the reporting framework; the task is not to prove that management predicted the eventual outcome exactly.

Uncertainty, complexity and subjectivity shape the response. A quoted market price and a valuation using several unobservable inputs need different evidence. For fair value, ask whether assumptions reflect the required measurement perspective, including market participants where applicable. A mathematically correct model can still use an inappropriate method or unsupported assumptions.

Tests of controls support these approaches where the auditor intends to rely on controls, or where substantive procedures alone cannot provide sufficient appropriate evidence. They do not replace substantive work. When a significant risk is addressed only substantively, include tests of details.

Concept sources: ASA 540, December 2022, paragraphs 16–30 and A41–A42 — estimate risks, three evidence approaches, controls and significant assumptions.

Challenge the estimate as a whole. Check model calculations, reconcile inputs to reliable records, investigate method changes and compare assumptions with other audit evidence. A business forecasting rapid recovery for impairment purposes while predicting falling demand in its cash forecast needs to explain the inconsistency. Climate exposure or a major disruption may make historical patterns less useful, requiring fresh support and clearer uncertainty disclosures.

At completion, reconsider the risk assessment and evaluate recognition, measurement, presentation and disclosure. Give contradictory evidence the same serious consideration as supporting evidence. The result may be a reasonable estimate, a misstatement requiring evaluation, or an unresolved inability to obtain evidence. Those are different conclusions with different reporting consequences.

Concept sources: ASA 540, December 2022, paragraphs 23–26 and 31–36 — testing methods, assumptions and data; disclosures; consideration of all relevant evidence.

Look for patterns of bias and possible fraud

Individually plausible estimates may collectively reveal a consistent preference for higher profit. Selective correction of favourable errors, repeated optimistic assumptions and unexplained changes in estimation methods merit investigation. An indicator of management bias is not automatically a misstatement in a particular estimate. Intentional deception, however, raises a fraud issue.

The response to fraud risk operates at two levels. Across the engagement, match staff and supervision to the risk, scrutinise accounting policy choices and introduce unpredictability into procedures. At assertion level, design work that addresses the suspected mechanism. Unsupported final journals, altered documentation, unusual access to records, missing assets, delays in providing evidence or pressure to accept incomplete explanations may change the audit response; none proves fraud by itself.

Management override remains a significant risk in every entity. Required work includes testing journals and other adjustments, examining estimates for bias and reviewing the rationale for significant unusual transactions. The retrospective review of prior estimates looks for patterns using what management knew at the time. A later adverse outcome does not, by itself, invalidate a reasonable earlier judgement.

If a misstatement suggests fraud, reconsider other locations, balances and evidence, including management representations. A small amount may still matter because it reveals who was involved or how controls were defeated. In an owner-managed business, close involvement can deter employee theft while concentrating the opportunity for override. Smaller size does not remove the auditor's fraud responsibilities.

Concept sources: ASA 240, December 2023, paragraphs 29–38, A14, A22, A28 and A46–A47, Appendix 3; ASA 540, December 2022, paragraph 32 — fraud responses, override, retrospective review and bias.

Resolve related parties and unusual transactions

Completeness is a central concern: testing only management's list cannot establish that the list is complete. Compare it with information obtained from minutes, ownership records, prior files, significant agreements and relevant confirmations. Stay alert to counterparties connected through people or structures that are not obvious from a trading name.

Significant related party transactions outside ordinary business activities give rise to significant risks. Examine the agreement and its commercial purpose, compare terms with management's explanation, inspect authorisation and evaluate accounting and disclosure. Approval alone may be weak evidence where the parties can collude. A claim that terms are equivalent to an arm's length transaction needs support covering relevant terms and circumstances, rather than an assertion that the price looks reasonable.

When an undisclosed relationship emerges, tell the team, establish the transactions involved, investigate why identification controls failed and reconsider whether others remain undisclosed. Apparently intentional concealment changes the fraud assessment. At completion, consider qualitative significance as well as amount: users may care who benefited even when a transaction is relatively small.

Concept sources: ASA 550, December 2021, paragraphs 15–16, 18 and 21–26, A38–A46 — identification, significant unusual transactions, arm's length assertions and final evaluation.

Separate litigation accounting from litigation evidence

A pending case does not automatically belong only in a contingent-liability note. First determine the appropriate accounting. Under IAS 37/AASB 137, a provision is recognised where a past event creates a present obligation, an outflow is probable and a reliable estimate can be made. A contingent liability may instead be a possible obligation, or a present obligation that fails the outflow or reliable-measurement criteria. It is generally disclosed unless the possibility of outflow is remote. Apply another standard where the particular obligation falls within that standard's scope.

The audit difficulty is often completeness: an unresolved dispute may have no ledger balance. Enquire of management and relevant legal staff, read governance minutes and legal correspondence, and inspect legal expense accounts. Connect each identified dispute to its possible financial effects and disclosure requirements.

Concept sources: AASB 137, December 2022 compilation, paragraphs 2, 5, 10, 14 and 27–30 — provisions and contingent liabilities; ASA 502, December 2021, paragraphs 3–4 — completeness procedures.

Internationally, litigation requirements sit in ISA 501; Australia addresses them separately in ASA 502. Where identified or suspected litigation creates a material-misstatement risk, seek direct communication with external legal counsel through an enquiry prepared by management and sent by the auditor. A direct reply helps corroborate case completeness, status and financial implications. Management's own representation letter serves a different purpose.

Australia adds a requirement to endeavour to obtain a representation from in-house counsel where that person has primary responsibility and is best placed to corroborate management. Investigate material disagreement between management and counsel. Update enquiries for new cases referred to lawyers between the original request and signing the auditor's report.

A missing legal response does not automatically determine the opinion. Assess alternative evidence. If communication is refused, inadequately answered or prohibited and alternatives cannot provide sufficient appropriate evidence, consider a qualified opinion or disclaimer according to the possible effects and their pervasiveness. An established material accounting error follows the misstatement route instead.

Concept sources: ASA 502, December 2021, conformity statement, paragraphs 5–7, Aus 5.1–Aus 5.2 and Aus 7.1–Aus 7.2 — legal enquiries, Australian additions, representations and unresolved evidence; ASA 705, December 2023, paragraphs 7–9 — opinion consequences.

Sources and further reading

• ASA 540, December 2022 — Accounting estimates: paragraphs 18–36.
• ASA 240, December 2023 — Fraud: paragraphs 29–38 and Appendix 3.
• ASA 550, December 2021 — Related parties: paragraphs 18–27.
• ASA 502, December 2021 — Litigation and claims: requirements 4–7 and Australian additions.
• AASB 137, December 2022 compilation: recognition and disclosure principles corresponding to IAS 37.