#5 Requirements for engagement documentation

Question 1

Influences on audit internal control documentations

Answer 1

*Types of potential misstatement(errors or fraud)
*Factors that affect the risk of material misstatement

!!GAAS requires auditor to document an understanding of Client’s system of internal controls. With emphasis on activities or accounts that present the highest risk of material misstatement

Question 2

Objectives of preparing audit documentation

Answer 2

*Establish a written record that supports the auditor’s conclusions
*Provide evidence that the audit was planned and performed according to GAAS and relevant legal and regulatory requirements

Auditors should document each step of an audit, including risk assessment procedures performed. Extent of audit documentation is influenced by various factors such as the nature, size, and complexity of the entity, including its internal controls.

Question 3

Sufficient audit documentation should

Answer 3

*Indicate auditors performing the work, procedures performed, and audit timing
*Evidence that the audit met GAAS and legal requirements
*Provide primary support for the audit report
*Summarize issues identified and professional judgements used to reach conclusions.

Question 4

Nonattest services regarding independence

Answer 4

Audit performed under Generally Accepted Auditing Standards (GAAS) must follow AICPA code of conduct.

Auditors can:
*Record transactions
*Generate unsigned checks
*Process payroll
*Bookkeeping services
*Prepare reconciliation

Auditors cannot(management functions)
*Approve transactions
*Approve checks
*Review and approve payroll
*Supervise or manage bookkeeping
*Evaluate or approve reconciliation

Answer 5

Permanent File:
*Company bylaws
*Articles of incorporations
*Minutes (board, shareholder meetings)
*Control flowcharts
*Long-term debt agreements
*Equity account analyses

!!Permanent file holds client documentation that is ongoing importance, lasts multi year, and supports numerous audits.

Current File:
*Audit program
*Trial balance
*Lead schedules
*Auditor reconciliations
*Auditor analysis
*Responses to information requests

!! Current file contains documentation related to that year’s engagement, including the audit program, reconciliations or specific analyses, and direct supporting evidence.