Mixed Questions pt. 1

Question 1

Describe the steps to implement a new audit program?

Answer 1

1. Determine goal / objective
2. Gather all laws, rules and regulations
3. Identify available resources (staff, equipment, space)
4. Assess staff skills / strengths / weaknesses
5. Determine timelines
6. Identify pros and cons
7. Develop alternatives
8. Present to management

Question 2

Define work papers and their purpose

Answer 2

Work papers consist of evidence gathered by the auditor to show work performed, methodology used, procedures followed and conclusions developed. Work papers show that due professional care was followed.

Purpose:

1. Facilitate the purpose of the audit
2. Explain procedures followed, opinions formed & findings
3. Coordinate and organize the auditors work
4. Provide a permanent historical record of data examined and methods used
5. Serves as a guide in subsequent audits

Question 3

What are the components of audit risk?

Answer 3

AR = Inherent Risk X Control Risk X Detection Risk

Inherent Risk – certain things built into the company that cannot be changed by the auditor (e.g. management philosophy).

Control Risk – Risk that material misstatement that occurred will not be prevented or detected by the entity’s internal controls. Cannot be changed by the auditor

Detection Risk – Risk that the auditor will not detect a material misstatement. Can be altered by changing the auditor’s procedures

Question 4

Name the items found on the point sheet?

Answer 4

1. Observation – what the auditor determined from audit techniques
2. Judgment Criteria – Standards, Regulations, audit principals, law
3. Effect – what happened, the undesirable results
4. Cause – the reason the finding occurred
5. Discussion with Auditee – auditee’s position and basis include date of interview & names of auditee rep and SCO auditor
6. Conclusion – auditor’s summation of the observation
7. Recommendation – suggested solution
8. Basis for Recommendation – include alternates considered and rationale for recommendation chosen
9. APS Identification
   * Auditee,
   * audit period and audit ID number
   * Index number
   * Cross-referencing information
   * Preparation info – auditor initials, date APS prepared
   * Review info – date APS reviewed and supervisor initials

Question 5

Discuss the Audit Process

Answer 5

1. Preliminary Review
   
   1. Background
   2. APM (Audit Planning Memorandum)
   3. Risk Assessment
   4. Entrance Conference
2. Audit Fieldwork
   
   1. Exit Conference
   2. Management Control Questionnaire
   3. Bridging document
3. Lead Sheets
   
   1. Purpose
   2. Scope
   3. Procedures
   4. Conclusion
4. APS (Audit Point Sheets)
   
   1. Condition
   2. Cause
   3. Effect
   4. Criteria
   5. Discussion with Auditee
   6. Recommendation
   7. Summary
5. Reporting (Draft – if findings; Auditee Response – if findings; Final Report)

Question 6

What are the types of Evidential Matter?

Answer 6

1. Inspection
2. Observation
3. Inquiries
4. Confirmation

Note: organization chart, policies & procedures, accounting manuals, interviews, letters of confirmation

Question 7

What is a Planning Memorandum and what does it consist of?

Answer 7

The Planning Memorandum contains all the information necessary to support the estimated staffing requirements and related costs and identify target completion dates. It includes:

1. Name of auditee
2. Audit Period
3. Audit ID Number
4. Review Scope, Objectives & Criteria
5. Background Information
6. Strategy and major phases of audit work
7. Budget Resources (staff, hours)
8. Milestones and target dates (audit calendar)
9. Staff assignments
10. Management approval

Question 8

What are the functions of a Staff Management Auditor?

Answer 8

1. PLANNING - the work for the year, providing information for applicable contracts
2. BUDGETING – staff, time and funds
3. DIRECTING – staff and resources
4. REVIEWING – staff work to ensure in accordance with standards
5. EVALUATING – staff work to ensure objectives were met
6. REPORTING – to upper management progress of staff and project
7. TRAINING – equipping team staff members with tools needed to further their careers
8. COMPLEX – performing the more complex assignments

Question 9

Name the types of audits performed by the State Controller’s Office

Answer 9

1. Financial Audits
2. Performance Audits – Economy & Efficiency
3. Attestation Engagements
4. Single Audit Act
5. Non-audit Services

Question 10

What are the control agencies and their primary functions?

Answer 10

Department of General Services (DGS)

• Oversees all major procurements
• Contract management
• Oversees all major state construction projects

Department of Finance (DOF)

• Oversees preparation of the Governor’s Budget
• Approves all budget change proposals
• Oversees the State’s uniform accounting system

Department of Personnel Administration (DPA)

• Oversees labor collective bargaining process
• Oversees use of various employee classifications by departments
• Develop classification plans

State Controller’s Office (SCO)

• Oversees fiscal affairs of the state
• Maintains the official accounting records of the state
• Reports the financial operations and conditions of the State Controller’s Office
• Audits all disbursements from state treasury
• Provides fiscal assistance and guidance to local governments

State Personnel Board (SPB)

• Oversees civil service testing and hiring process

Not sure of the following

Board of Equalization (BOE)

• Administer and collect fees and taxes

Legislative Analyst’s Office (LAO)

• provide fiscal & policy advice to the legislature
• review and analyze the operations and finances of state government

Office of Administrative Law (OAL)

• enforce the laws which allow CA state agencies to adopt rules and regulations / oversee publications of CC & Rs

Question 11

What are the Audit Bureaus of the SCO?

Answer 11

1. Financial Audits
2. ITUPA
3. Local Government
4. Local Government Compliance
5. Mandated Cost
6. MATS
7. Operations
8. CORE
9. State Agency Audits

Question 12

Define the auditing standards and name three categories

Answer 12

Auditing standards are a general measure of the quality and adequacy of the work performed. They relate to the auditor’s professional qualifications, the quality of audit effort and characterizes of professional and useful audit reports:

1. General Standards
2. Standards of Field Work
3. Standards of Reporting

Question 13

Describe how you would organize the audit package?

Answer 13

1. Audit Report Section
   
   1. Final Report
   2. Auditee’s Response
   3. Draft Report
   4. Summary of Findings (audit point sheets)
2. Preliminary Section
   
   1. General Review
   2. Preliminary Correspondence
   3. Audit Plan
   4. Entrance Conference
3. Field Audit work papers section
   
   1. Exit conference
   2. Internal Control

Question 14

List the advantages and disadvantages of statistical v judgmental sampling

Answer 14

Advantages

1. Sample results are objective
2. May provide a more accurate method to drawing conclusions
3. May save time and money
4. Samples may be combined and evaluated even though accomplished by different auditors

​Disadvantages

1. Costs more to train staff
2. Number of items selected may be higher
3. Does not allow for the use of specific knowledge of organization and population being tested

Question 15

Generally Accepted Auditing Standards require that statistical sampling methods be documented in the working papers. What should be identified in the scope of the working papers for this sample methodology?

Answer 15

1. The objectives of the audit tests to be performed
2. Definition of the attributes / characteristics being tested and deviation conditions
3. Definition of the population (e.g. all items making up the account balance or class of transactions being tested)
4. Definition of the sampling unit
5. The tolerable deviation rate
6. The acceptable risk of over reliance
7. Estimate the population deviation rate
8. Initial sample size
9. Method of sample selection (random, systematic, statistical, stratified, haphazard)
10. Sampling procedures performed
11. List of errors
12. Evaluation of sample results
13. Summary of overall conclusions

Question 16

What methods are used to audit EDP Systems?

Answer 16

1. Audit “around” the system – Manual audit of input and output documents.
2. Controlled processing – Review an actual processing run and compare to expected output.
3. Use “test data” – Fictitious transactions run through the system, some data valid and other data with various errors. See if system output is appropriate.
4. Controlled Reprocessing – Take actual data and reprocess off-site, compare off-site output generated to output originally generated by audtee’s system.

Question 17

When relying on the data electronically generated by an agency, entity or program, what are the controls that should be exercised?

Answer 17

• General Controls
• Application Controls

Refer to Audit Manual for details of each – Internal Control – Computer Systems

Question 18

What is SCOs Audit Authority?

Answer 18

Government Code Section 12410

The Controller shall superintend…. Fiscal concerns of state and audit all claims against the state and any disbursements of state monies.

Question 19

What are the components of the Scope paragraph?

Answer 19

A – Audit / Accordance

P – Planned / Performed

M – Material Misstatement

E – Examining Evidence

A – Assessing / Accounting Principles

M – Made by Management

1. We conducted our audit in accordance with generally accepted auditing standards
2. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements
3. The audit includes examining on a test basis, evidence supporting the amounts and disclosures in the FS
4. An audit also includes assessing the accounting principles used and significant estimates made by management
5. We believe our audit provides a reasonable basis for our opinion

Question 20

How would you go about in establishing an assignment budget and meeting the assigned deadline?

Answer 20

1. Define Available Resources
   
   1. Staff
   2. Equipment
   3. Money
2. Consult with management
3. Review budgets of similar engagements
4. Determine limitations, restrictions and special circumstances
   
   1. Deadlines
   2. Staff
   3. Money
   4. Travel
   5. Special equipment
5. Develop a work plan
   
   1. List activities necessary to implement the plan
   2. Staff responsibilities
   3. Timeframes / deadlines for individual tasks and as a team
   4. Proposed solutions for dealing with contingencies
6. Submit plan and budget to management
7. Monitor staff’s progress and provide feedback
   
   1. Review team member’s work as it is completed
   2. Provide direction as needed
   3. Adjust audit tasks and procedures to meet deadline without compromising the quality of the audit

Question 21

How can the computer assist you when auditing?

Answer 21

1. Generate / select random samples from electronic files
   
   1. Statistical sample
   2. Attribute sample
   3. Stratified samples
2. Scan complete files for unusual items or trends
3. Check arithmetic computations, recalculating
4. Compare fields in a file against a standard or specific criteria and printing exceptions
5. Sort, re-sequence or summarize data and perform analyses to a form suitable to the auditor
6. Control totals
7. Simplify working papers by automating
8. Perform audit test on voluminous records in less time

Question 22

SAS 94 requires auditors to consider how an entity’s use of information technology and manual procedures may affect controls relevant to the audit. Application controls consist of three controls. What are those three controls and provide examples of each as they relate to electronically generated data?

Answer 22

1. Input Controls
   
   1. Appropriate personnel properly authorize transactions
   2. Documents are reviewed for completeness, correctness and accuracy
   3. Physical security over terminals, passwords, and use logs
   4. Transmittal control
   5. Control totals
2. Processing Controls
   
   1. Key verification
   2. Check digit
3. Output Controls
   
   1. Error correction procedures
   2. Error logs
   3. Post processing reviews