When considering whether to perform substantive procedures at an interim date, the auditor should consider factors such as:
The control environment and other relevant controls
The availability of information at a later date that is necessary for the auditor’s procedures
The objective of the substantive procedure
The assessed risk of material misstatement
The nature of the class of transactions or account balance and relevant assertions
The auditor’s ability to reduce detection risk for misstatements that exist at the period end by performing substantive procedures or substantive procedures combined with tests of controls to cover the remaining period
(AU-C 330.A61)
If the auditor detects misstatements at an interim date, the auditor should consider modifying the planned nature, timing, or extent of the substantive procedures covering the remaining period. (AU-C 330.24)
Extent of Substantive Procedures
The greater the risk of material misstatement, the greater the extent of substantive procedures. In designing tests of details, the auditor normally thinks of the extent of testing in terms of the sample size, which is affected by the planned level of detection risk, tolerable misstatement, expected misstatement, and the nature of the population. However, the auditor also should consider other matters, such as selecting large or unusual items from a population rather than sampling items from the population.
Evaluating the Sufficiency and Appropriateness of the Audit Evidence Obtained
The auditor must form a conclusion as to whether sufficient appropriate audit evidence has been obtained to reduce to an appropriately low level the risk of material misstatements in the financial statements. (AU-C 330.27 and .28) The auditor’s judgment as to what constitutes sufficient appropriate audit evidence is influenced by factors such as the following:
Significance of the potential misstatement in the relevant assertion and the likelihood of its having a material effect, individually or aggregated with other potential misstatements, on the financial statements
Effectiveness of management’s responses and controls to address the risks
Experience gained during previous audits with respect to similar potential misstatements
Results of audit procedures performed, including whether such audit procedures identified specific instances of fraud or error
Source and reliability of available information
Persuasiveness of the audit evidence
Understanding of the entity and its environment, including its internal control
(AU-C 330.A75)
If the auditor concludes that he or she has not obtained sufficient evidence, the auditor:
Attempts to obtain such evidence.
Expresses a qualified opinion or disclaims an opinion if unable to obtain that evidence.
(AU-C 330.29)
Documentation
The auditor should document the following:
The overall responses to address the assessed risks of misstatement at the financial statement level
The nature, timing, and extent of further audit procedures
The linkage of those procedures with the assessed risks at the relevant assertion level
The results of the audit procedures
The conclusions reached with regard to the use in the current audit of audit evidence about the operating effectiveness of controls that was obtained in a prior audit
Basis for not using external confirmations
Agreement of financial statements with underlying accounting records
(AU-C 330.30–.33)
Testing at Interim Dates
Convenience-Timed Tests
Some audit tests can be applied at any convenient selected date before the balance sheet date and completed as part of year-end procedures. Examples are:
Tests of details of the additions to, and reduction of, accounts such as property, investments, debt, and equity
Tests of details of transactions affecting income and expense accounts
Tests of accounts that are not generally audited by testing the details of items composing the balance sheet, such as warranty reserves and certain deferred charges
Analytical procedures applied to income or expense accounts
The common denominator in these tests is that the nature and extent of procedures applied are not necessarily influenced by doing a portion of the testing before the balance sheet date. For example, the auditor may decide to vouch all property additions and retirements over a specified dollar amount. The nature and extent of the test are not influenced by whether the testing is done all at year-end or one portion is done at an interim date and the remainder at year-end.
Misstatements Detected at Interim Dates
If the auditor confirms accounts receivable as of October 31 and discovers an error in the receivables balance, how should that misstatement be handled, given that the opinion is on the balance sheet as of December 31, not October 31?
As a practical matter, the auditor should evaluate the results of interim testing to assess the possibility of misstatement at the balance sheet date. This evaluation is influenced by:
The potential implications of the nature and cause of the misstatements detected at the interim date
The possible relationship to other phases of the audit; for example, do the misstatements detected indicate a need to reconsider the assessment of control risk?
Corrections that the entity subsequently records
The results of auditing procedures that cover the remaining period
This assessment may cause the auditor to reperform principal substantive tests at year-end or to otherwise expand the scope of substantive tests at
