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Flashcards in A6-2 Deck (17)
1

Which of the following is not true regarding audit documentation for a specific audit?

a.

Audit documentation should demonstrate compliance with quality control standards.

b.

Audit documentation should indicate which member(s) of the audit team performed and reviewed the audit work.

c.

Audit documentation should be sufficient to enable members of the audit team with supervisory responsibilities to understand the nature, timing, extent, and results of auditing procedures performed.

d.

Audit documentation should demonstrate compliance with the standards of fieldwork

Choice "a" is correct. Quality control standards relate to the conduct of a firm's audit practice as a whole, and compliance with such standards would not be demonstrated by audit documentation for one specific audit engagement.

Choice "c" is incorrect. Audit documentation should clearly indicate the work performed and the evidence obtained.

Choice "b" is incorrect. Audit documentation should indicate which parties performed and reviewed the work.

Choice "d" is incorrect. Audit documentation should demonstrate compliance with the standards of fieldwork. It should indicate an appropriate level of planning and supervision, that a sufficient understanding of the entity and its environment, including its internal control, was obtained, and that a sufficient level of appropriate evidence was obtained

2

The permanent (continuing) file of audit documentation most likely would include copies of the:

a.

Attorney's letters.

b.

Lead schedules.

c.

Debt agreements.

d.

Bank statements.

Choice "c" is correct. The permanent file includes items with continuing audit significance, such as debt agreements.

Choice "b" is incorrect. Lead schedules would be included in the current audit documentation since they are applicable to the current year's audit only.

Choice "a" is incorrect. Attorney's letters would be included in the current audit documentation since they are applicable to the current year's audit only.

Choice "d" is incorrect. Bank statements would be included in the current audit documentation since they are applicable to the current year's audit only.

3

Audit documentation serves mainly to:

a.

Monitor the effectiveness of the CPA firm's quality control activities.

b.

Satisfy the auditor's responsibilities concerning the Code of Professional Conduct.

c.

Provide the principal support for the auditor's report.

d.

Document the level of independence maintained by the auditor.

Choice "c" is correct. Audit documentation serves mainly to provide: 1) the principal support for the auditor's report; 2) assistance in the planning, conduct, and supervision of the audit; 3) accountability; and 4) useful information.

Choice "b" is incorrect. Audit documentation does not satisfy the auditor's responsibilities concerning the Code of Professional Conduct.

Choice "a" is incorrect. Audit documentation does not monitor the effectiveness of the CPA firm's quality control activities.

Choice "d" is incorrect. Audit documentation does not document the level of independence maintained by the auditor.

4

The permanent file of the audit documentation for an engagement generally would notinclude:

a.

Lease agreements.

b.

Working trial balance.

c.

Flowchart of internal control.

d.

Bond indenture agreements.

Choice "b" is correct. A working trial balance is a part of the current year's audit documentation.

Choice "d" is incorrect. Bond indenture agreements are typically found in the permanent file.

Choice "a" is incorrect. Lease agreements are typically found in the permanent file.

Choice "c" is incorrect. An internal control flowchart is typically found in the permanent file.

5

An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for:

a.

Cash flow increases and decreases.

b.

Reclassifications and adjustments.

c.

Audit objectives and assertions.

d.

Reconciliations and tickmarks.

 

Choice "b" is correct. The working trial balance generally contains a column for adjustments and reclassifications.

Choice "a" is incorrect. The working trial balance does not ordinarily contain information about cash flows.

Choice "c" is incorrect. Audit objectives and assertions are contained in the audit plan, which is generally kept separate from the working trial balance.

Choice "d" is incorrect. Reconciliations and tickmarks are found in other parts of the audit documentation.

6

Which of the following factors would least likely affect the nature and extent of audit documentation?

a.

The content of the representation letter.

b.

The nature of the specific audit procedures.

c.

The extent to which judgment was required in performing the specific audit procedures.

d.

The risk of material misstatement.

Choice "a" is correct. The content of the representation letter will generally not affect the nature and extent of audit documentation. Factors affecting the nature and extent of audit documentation include:

The risk of material misstatement;

The extent to which judgment was required in performing the work and evaluating the results;

The nature of the specific auditing procedure;

The significance of the evidence obtained;

The nature and extent of any problems identified; and

The need to document conclusions that may not be obvious.

7

Which of the following documentation is required for an audit in accordance with generally accepted auditing standards?

a.

A list of the procedures performed and the findings obtained.

b.

An indication in the audit documentation that the accounting records agree or reconcile with the financial statements.

c.

A management representation letter that summarizes the timing and details of the auditor's planned fieldwork.

d.

A flowchart or an internal control questionnaire that evaluates the effectiveness of the entity's internal control.


Explanation

Choice "b" is correct. The quantity, type, and content of audit documentation vary with the circumstances, but it should be sufficient to show that the accounting records agree or reconcile with the financial statements.

Choice "d" is incorrect. The auditor's understanding of internal control can be documented in a variety of different ways. Flowcharts and internal control questionnaires are two methods that might be used to assist the auditor in obtaining an understanding of internal control, but they generally do not provide information about the effectiveness of the entity's internal controls.

Choice "c" is incorrect. An engagement letter (and not a representation letter) summarizes the timing and details of the auditor's planned field work.

Choice "a" is incorrect. A list of procedures and findings is required for an agreed-upon procedures engagement, not for an audit.

8

Audit documentation should be prepared in enough detail so that:

a.

An experienced auditor who has no previous connection with the audit can understand the procedures performed and the evidence obtained.

b.

An experienced auditor who has worked with the client in the past can understand the procedures performed and the evidence obtained.

c.

A reader of the financial statements who has a background in financial analysis can understand the procedures performed and the evidence obtained.

d.

A reader of the financial statements who has no previous connection with the audit can understand the procedures performed and the evidence obtained.

Choice "a" is correct. Audit documentation should be prepared in enough detail so that an experienced auditor who has no previous connection with the audit can understand the procedures performed and the evidence obtained.

Choice "b" is incorrect. The requirement is that audit documentation be detailed enough that an experienced auditor who has no previous connection with the audit can understand the procedures performed and the evidence obtained. This is a higher standard than simply requiring the audit documentation to be appropriate for an auditor who is already familiar with the client.

Choices "d" and "c" are incorrect. Readers of the financial statements typically would not have access to the audit documentation.

9

Which of the following is not true about the report release date?

a.

It is often the date on which the report is delivered to the client.

b.

It is the date on which the auditor grants the client permission to use the report.

c.

It is defined as the date after which existing documentation must not be deleted, and additions to the documentation file must be documented as such.

d.

It is used to define the beginning of the retention period.

Choice "c" is correct. The documentation completion date (and not the report release date) is defined as the date after which existing documentation must not be deleted, and additions to the documentation file must be documented as such.

Choice "a" is incorrect. The report release date is often the date on which the report is delivered to the client.

Choice "b" is incorrect. The report release date is the date on which the auditor grants the client permission to use the report.

Choice "d" is incorrect. The report release date is used to define the beginning of the retention period.

10

Which best describes the documentation completion date?

a.

Five years from the report release date, based on auditing standards.

b.

Sixty days from the report release date, based on PCAOB standards.

c.

Seven years from the report release date, based on auditing standards.

d.

Forty-five days from the report release date, based on PCAOB standards.

Choice "d" is correct. According to PCAOB standards, the documentation completion date is forty-five days following the report release date.

Choice "b" is incorrect. According to auditing standards, the documentation completion date is sixty days following the report release date.

Choices "c" and "a" are incorrect. Seven years and five years refer to the required retention period under PCAOB standards and auditing standards, respectively.

11

Audit documentation should:

a.

Show that the accounting records agree or reconcile with the financial statements.

b.

Be considered the primary support for the financial statements being audited.

c.

Not be permitted to serve as a reference source for the client.

d.

Not contain critical comments concerning management.

Choice "a" is correct. Audit documentation should show that the accounting records agree or reconcile with the financial statements.

Choice "c" is incorrect. Audit documentation may be permitted to serve as a reference source for the client.

Choice "d" is incorrect. Audit documentation may contain critical comments concerning management (e.g., documentation of disagreement with the opinions of management, such as accounts receivable valuation).

Choice "b" is incorrect. Audit documentation is not the support for the FS. The client's books and records are the support for the FS. Audit documentation should be the principal support for the work the auditor has done to support the opinion provided on the auditor's report.

12

An audit supervisor reviewed the work performed by the staff to determine if the audit was adequately performed. The supervisor accomplished this by primarily reviewing which of the following?

a.

Working papers.

b.

Analytical procedures.

c.

Checklists.

d.

Financial statements.

Choice "a" is correct. Audit documentation, or working papers, comprises the principal record of audit procedures performed, evidence obtained, and conclusions reached. Reviewing the working papers allows a supervisor to understand the work performed and the evidence obtained, and to evaluate whether the audit was adequately performed.

Choice "c" is incorrect. Checklists might be used within the audit documentation, but checklists alone would not provide a comprehensive record of the audit procedures performed, the evidence obtained, and conclusions reached.

Choice "b" is incorrect. Analytical procedures might be documented within the working papers, but such procedures alone would not provide a comprehensive record of the audit procedures performed, the evidence obtained, and conclusions reached.

Choice "d" is incorrect. Reviewing the financial statements would provide no information regarding the audit procedures performed, the evidence obtained, or conclusions reached, and therefore would provide no basis on which to review the work performed by the staff.

13

Which of the following statements is most accurate regarding sufficient and appropriate documentation?

a.

Sufficient and appropriate documentation should include evidence that the audit working papers have been reviewed.

b.

Audit documentation is the property of the client, and sufficient and appropriate copies should be retained by the auditor for at least five years.

c.

If additional evidence is required to document significant findings or issues, the original evidence is not considered sufficient and appropriate and therefore should be deleted from the working papers.

d.

Accounting estimates are not considered sufficient and appropriate documentation.

Choice "a" is correct. Sufficient and appropriate documentation should include evidence that the audit working papers have been reviewed.

Choice "d" is incorrect. Accounting estimates are considered a significant finding or issue that should be documented by the auditor.

Choice "c" is incorrect. Additional evidence supplements the original evidence. The original evidence should not be deleted from the working papers. 

Choice "b" is incorrect. Audit documentation is the property of the auditor. For audits of nonissuers, audit documentation should be retained for at least five years. For audits of issuers, audit documentation should be retained for at least seven years.

14

Which of the following would not be considered a significant audit finding that should be included in audit documentation?

a.

Determination that there is substantial doubt about the entity's ability to continue as a going concern.

b.

Discovery of a material sale recorded in the current year that properly belonged in the subsequent year.

c.

Implementation of a new accounting standard to account for a complex and unusual transaction.

d.

Retirement of the accounts payable manager and subsequent hiring of a replacement.

Choice "d" is correct. Significant audit findings do not include staffing changes at the client.

Choice "b" is incorrect. Discovery of a material sale recorded in the current year that properly belonged in the subsequent year represents a possible material misstatement in the financial statements. Possible material misstatements are considered to be significant audit findings.

Choice "a" is incorrect. When substantial doubt about an entity's ability to continue as a going concern exists, there is likely to be a modification to the auditor's standard report. Items resulting in report modifications are generally considered to be significant audit findings.

Choice "c" is incorrect. Matters related to the application of accounting principles to complex and unusual transactions are considered to be significant audit findings.

15

An auditor ordinarily uses a working trial balance resembling the financial statements without footnotes, but containing columns for:

a.

Expense and revenue summaries.

b.

Reclassifications and adjustments.

c.

Accruals and deferrals.

d.

Reconciliations and tickmarks.

Choice "b" is correct. An auditor's working trial balance generally contains columns for reclassifications and adjustments.

Choice "d" is incorrect. Reconciliations and tickmarks are included within audit documentation, but would not necessarily be shown in columns on the working trial balance.

Choice "c" is incorrect. Accruals and deferrals are included within audit documentation, but would not necessarily be shown in columns on the working trial balance.

Choice "a" is incorrect. Expense and revenue summaries are included within audit documentation, but would not necessarily be shown in columns on the working trial balance.

16

The audit documentation that makes up the current file most likely would include a copy of the:

a.

Pension plan contract.

b.

Articles of incorporation.

c.

Bank reconciliation.

d.

Flowchart of the internal control.

 

Choice "c" is correct. The audit documentation that makes up the current file most likely would include a copy of the bank reconciliation.

Choice "a" is incorrect. The audit documentation that makes up the permanent file would include a copy of the pension plan contract.

Choice "b" is incorrect. The audit documentation that makes up the permanent file would include a copy of the articles of incorporation.

Choice "d" is incorrect. The audit documentation that makes up the permanent file would include a flowchart of the internal control.

17

Which of the following documents the procedures that are applied and the conclusions reached in an audit engagement?

a.

Audit guide.

b.

Auditor's report.

c.

Management representation letter.

d.

Working papers.

Choice "d" is correct. Working papers should include the procedures that are applied and the conclusions reached in an audit engagement.

Choice "c" is incorrect. The management representation letter is where the client asserts that all material matters have been adequately disclosed to the auditor.

Choice "a" is incorrect. The accounting firm may have an overall audit guide on how to perform an audit, but it would not have the conclusions related to a specific audit.

Choice "b" is incorrect. An auditor's report does not list the specific procedures used in an audit engagement.