4.14 + AUDIT PROGRAM / AUDIT PLAN

Question 1

4.14 - AUDIT PROGRAM / AUDIT PLAN

A document in an auditor’s working papers includes the following statement:

“Our audit is subject to the inherent risk that material errors and fraud, including defalcations, if they exist, will not be detected. However, we will inform you of fraud that comes to our attention, unless it is inconsequential.”

The above passage is most likely from a (an)

A) Letter of audit inquiry.
B) Comfort letter.
C) Engagement letter.
D) Representation letter

Answer 1

C) Engagement letter.

In establishing an understanding with the client, the auditor includes a provision that the prevention and detection of
fraud are the responsibilities of management, not the auditor.

In addition, it indicates that and audit provides reasonable, but not absolute, assurance that the financial statements are free of material misstatement due to error or fraud and it is possible that material errors or fraud will not be detected. It further indicates the auditor’s responsibility to communicate any knowledge or suspicion of fraud detected during the engagement.

A comfort letter may address the auditor’s independence; compliance with
requirements of the Securities Act of 1933; unaudited financial statements and other unaudited financial information; tables, statistics, and other financial information included in the securities offering, and negative assurance in regard to compliance with Regulation S-K. It would not, however, refer to the risk of nondetection of errors or fraud.

A letter of audit inquiry is from the client to an entity with which it does business and would not refer to “our audit”. Nor would a representation letter from the client to the auditor refer to “our audit”.

Question 2

4.14 - AUDIT PROGRAM / AUDIT PLAN

The audit working paper that reects
the major components of an amount reported in the financial statements is
the

A) Supporting schedule.
B) Interbank transfer schedule.
C) Carryforward schedule.
D) Lead schedule

Answer 2

D) Lead schedule

Lead schedules are the working paper that reflects the major components of an amount reported in the financial statements.

Supporting schedules provide the detail that makes up each of the major components that are indicated on the lead schedules.

Working Trial Balance —A listing of ledger accounts with current year -end balances (as well as last year’s ending balances), with columns for adjusting and reclassifying entries as well as for final balances for the current year. Typically both balance sheet an d income
statement accounts are included. 

Question 3

4.14 - AUDIT PROGRAM / AUDIT PLAN

Audit Program/Audit Plan
1-5

Answer 3

1. Obtain schedule from client
   - Reperformance – (foot, tie to PY and GL)
2. I CORRIIA - audit procedures/sub test
3. U- PERCV - management assertions
4. Revenues & Expense/ Gains & Losses/ Contra Accounts
5. Generic tests
   a. Cut-Off Tests
   b. Board of Directors Minutes
   c. Perform Subsequent Events
   d. Read F/S and Footnotes

Question 4

4.14 - AUDIT PROGRAM / AUDIT PLAN

AUDIT DOCUMENTATION & WORKPAPER DEFICIENCIES

In analyzing working paper for weaknesses, examine the following:

C
C
H
I
T
F

Answer 4

CCHITF:

• Comment on Exceptions -Comments in the body of the working paper or tickmark legend may refer to unusual circumstances or indications of a problem. Make sure each exceptional item has been resolved and that the resolution has been documented.
• Conclusions - Closing comments at the bottom of the working paper should be
  reviewed to ensure they are consistent with the information in the audit
  documentation. They are usually wrong.
• Heading - The name of the client, title of the working paper (such as the account being analyzed), and audit year should all be included.
• Initials - Each person who prepared or reviews a working paper should initial it.
• Tickmarks (symbols) - amounts on the working paper are often verified arithmetically or by comparison with other accounts.
• Foot - Check the mathematical accuracy of the schedule.

Question 5

4.14 - AUDIT PROGRAM / AUDIT PLAN

Which of the following sets of information does an auditor usually confirm
on one form?

A) Accounts payable and purchase commitments.

B) Accounts receivable and accrued interest receivable.

C) Cash in bank and collateral for loans.

D) Inventory on consignment and contingent liabilities.

Answer 5

C) Cash in bank and collateral for loans.

A standard bank confirmation requests information about the cash held in the bank and whether any collateral has been pledged for loans on the same form.

Accounts payable represents existing liabilities to vendors while purchase commitments represent future commitments. These may not be with the same vendors and would not likely be confirmed on the same form.

Inventory on consignment would be confirmed with consignees while contingent liabilities would be confirmed with attorneys and others.

Accounts receivable do not bear interest and would be confirmed separately from notes receivable, which do bear
interest.

Question 6

4.14 - AUDIT PROGRAM / AUDIT PLAN

An auditor’s documentation serves mainly to

A) Satisfy the auditor’s responsibilities concerning the Code of Professional Conduct.

B) Provide the principal support for the auditor’s report.

C) Document the level of independence maintained by the auditor.

D) Monitor the effectiveness
of the CPA firm’s quality control procedures.

Answer 6

B) Provide the principal support for the auditor’s report.

Audit documentation aids in supervision, provides support for the audit report, and supports that a GAAS audit was
performed.

Documentation will provide evidence that the auditor complied with the Code of Professional Conduct, including
maintaining independence, but that is not its primary purpose.

It will also provide evidence of the effectiveness of quality control procedures but does not monitor them.