Requirements for engagement documentation Flashcards
(7 cards)
Which of the following would more likely be included in the current file rather than the permanent file?
A. Audit program.
B. Control flowcharts.
C. Long-term debt account information.
D. Board of director meeting minutes.
A. Audit program.
An auditor’s documentation should
A. Not be permitted to serve as a reference source for the client.
B. Not contain critical comments concerning management.
C. Show that the accounting records agree or reconcile with the financial statements.
D. Be considered the primary support for the financial statements being audited.
C. Show that the accounting records agree or reconcile with the financial statements.
(Choice A) The audit documentation may be used by the client as a reference source. For example, errors identified through the confirmation process might be adjusted based on the auditor’s documentation.
(Choice B) The audit documentation should document the work performed and provide sufficient appropriate evidence to support the opinion. In the process, critical comments concerning management or managerial practices may arise, which could be documented in the documentation. Such comments (worded, of course, in a positive manner) may appear later in the management letter that provides recommendations to the client.
(Choice C) The audit documentation must show that the accounting records have been agreed to or reconciled with the financial statements.
(Choice D) The audit documentation provides the primary support for the OPINION RENDERED on the financial statements being audited, not the financial statements themselves.
The audit working paper that reflects the major components of an amount reported in the financial statements is the
A. Interbank transfer schedule.
B. Carryforward schedule.
C. Supporting schedule.
D. Lead schedule.
D. Lead schedule.
Audit documentation (ie, working papers) supports the audit opinion and provides evidence that the audit complies with GAAS requirements. The working papers include the F/S prepared by the client and an audit program designed to test management assertions associated with material classes of transactions, account balances, and disclosures.
A lead schedule is a working paper that summarizes like accounts associated with a F/S amount. For example, a lead schedule may list the client’s various cash accounts; the totals of these accounts are footed by the auditor and support the cash amount reported on the balance sheet. In contrast, supporting schedules are working papers documenting the results of the audit procedures performed to validate lead schedule information (Choice C).
(Choice A) Interbank transfer schedules show transfers between cash accounts. They are used to validate that transfers from one cash account are recorded in the same period as receipts in the associated cash account. These schedules help the auditor determine if kiting has inflated the ending cash account balance.
(Choice B) Carryforward schedules show that the account balances (ie, ending information) in the prior year audit are carried forward as the beginning balances for the current year audit.
Things to remember:
A lead schedule is a working paper that summarizes like accounts (ie, various cash accounts) associated with a F/S amount (ie, cash).
Which of the following factors is most likely to affect the extent of the documentation of the auditor’s understanding of a client’s system of internal controls?
A. The industry and the business and regulatory environments in which the client operates.
B. The degree to which information technology is used in the accounting function.
C. The relationship between management, the board of directors, and external stakeholders.
D. The degree to which the auditor intends to use internal audit personnel to perform substantive tests.
B. The degree to which information technology is used in the accounting function.
GAAS requires the auditor to document an understanding of the client’s system of internal controls, focusing on those activities or accounts that present the greatest risk of material misstatement. The extent of control documentation will most likely be impacted by the extent to which the client’s accounting function uses information technology (eg, computer systems).
Computer systems process large dollar amounts of information using a complex set of rules. This complexity increases the risk of material misstatement, requiring the auditor to obtain a greater understanding and more documentation to reflect the:
Flow of accounting information through the systems
Edits that ensure financial statement information is processed, summarized, and presented accurately
(Choices A and C) Understanding and documenting the client’s industry, business, and regulatory environment and the relationship between management and the board of directors are aspects of the auditor’s risk assessment process. However, the extent of documentation associated with these factors is consistent with all clients, even those with limited use of information technology.
(Choice D) Whether the external auditor uses internal audit personnel assistance is based on internal audit objectivity and independence. It has no impact on the extent of documentation required.
Things to remember:
The extent of information technology (eg, computer systems) in the client’s accounting process impacts the amount of internal control documentation required. The more complex the systems, the greater the risk of misstatement. Therefore, more documentation is required to reflect the controls embedded in the systems.
Which of the following is not an objective that is intended to be achieved by proper audit documentation?
A. Assisting in the planning and performance of the engagement.
B. Comparing actual time spent to engagement budgets.
C. Retaining a record of matters that may be of continuing significance in future audits.
D. Enabling supervisors to direct and supervise the engagement.
B. Comparing actual time spent to engagement budgets.
Sufficient audit documentation provides primary support for the audit report. An experienced auditor not involved in the audit should be able to determine the work performed, who performed the work and when, and conclusions reached in support of the audit opinion.
Audit working papers provide this sufficient audit documentation by including an audit program indicating the engagement planning, performance, and supervision. Matters of future significance should be included in the working papers. Comparing time spent to budgeted engagement time does not support the audit report so it does not constitute audit documentation. Proper audit documentation can still exist without any record of time spent on an engagement.
(Choices A and C) Proper audit documentation can assist in the planning and performance of an engagement and will include significant matters that can be carried forward to future engagements when they have continuing significance.
(Choice D) Documentation provides a record of work performed and conclusions drawn, which assists supervisors as they evaluate and direct the engagement.
Things to remember:
Proper audit documentation assists in the planning, performance, supervision, and evaluation of an engagement. Such documentation will include significant matters that can be carried forward to future engagements when they have continuing significance.
Which of the following is a primary purpose of audit documentation?
A. To support that the audit was performed in accordance with GAAS.
B. To prevent legal liability related to the audit performed.
C. To assure that fraudulent financial reporting did not occur.
D. To maintain professional judgment.
A. To support that the audit was performed in accordance with GAAS.
Which of the following is generally included or shown in the auditor’s working papers for the audit of a nonpublic company?
A. The procedures used by the auditor to verify the personal financial status of members of the client’s management team.
B. Analyses that are designed to be a part of, or a substitute for, the client’s accounting records.
C. Excerpts from authoritative pronouncements that support the underlying generally accepted accounting principles used in preparing the financial statements.
D. The manner in which exceptions and unusual matters disclosed by the auditor’s procedures were resolved or treated.
D. The manner in which exceptions and unusual matters disclosed by the auditor’s procedures were resolved or treated.
(Choice A) This answer is incorrect because the personal financial status of the client’s management team is not relevant to the fairness of the client company’s financial statements.
(Choice B) This answer is incorrect because audit workpapers may serve as a useful reference to the client but may not be regarded as a part of, or a substitute for, the client’s accounting records.
(Choice C) This answer is incorrect because reference to pertinent authoritative pronouncements in the audit workpapers is sufficient to support compliance with GAAP, excerpts from the pronouncements need not be provided.
(Choice D) This answer is correct because audit workpapers generally include the manner in which exceptions and unusual matters were resolved. The workpapers should contain support for the auditor’s conclusions concerning significant aspects of the examination.
