Audit Documentation

Question 1

Audit documentation should be prepared so as to enable an individual to understand the procedures performed, audit evidence obtained, and conclusions reached. The individual is

A reasonable prudent investor.

All auditors on the engagement team.

An experienced auditor with no previous connection to the audit.

The partner on the engagement team.

Answer 1

An experienced auditor with no previous connection to the audit.

This answer is correct because the professional standards require that audit documentation be understandable to an experienced auditor with no previous connection to the audit.

Question 2

Audit documentation of the audit of a nonpublic company should be retained

The longer of five years, or the legal requirements.

As long as it is relevant to the current year audit.

Until the client selects another auditor.

For as long as the CPA is involved in public accounting.

Answer 2

The longer of five years, or the legal requirements.

This answer is correct because the professional standards require auditors to retain working papers the longer of five years, or the legal requirements.

Question 3

An auditor’s working papers will generally be least likely to include documentation showing how the

Client’s schedules were prepared.

Engagement had been planned.

Client’s internal control had been reviewed and evaluated.

Unusual matters were resolved.

Answer 3

Client’s schedules were prepared.

This answer is correct because while client-prepared schedules will be identified, little detail will be provided as to how they were prepared.

Question 4

During the course of the audit of a nonpublic company, the auditor prepares and accumulates audit working papers. A primary purpose of the audit working papers is to

Aid the auditor in adequately planning his work.

Provide a point of reference for future audit engagements.

Support the underlying concepts included in the preparation of the basic financial statements.

Support the auditor’s opinion.

Answer 4

Support the auditor’s opinion.

This answer is correct because the primary purposes of audit workpapers are to support the auditor’s opinion and to aid in conducting and supervising the audit engagement.

Question 5

Although the quantity and content of audit working papers vary with each particular engagement, an auditor’s permanent files most likely include

Schedules that support the current year’s adjusting entries.

Prior years’ accounts receivable confirmations that were classified as exceptions.

Documentation indicating that the audit work was adequately planned and supervised.

Analyses of capital stock and other owners’ equity accounts.

Answer 5

Analyses of capital stock and other owners’ equity accounts.

This answer is correct because permanent files include information affecting more than 1 year, such as analyses of capital stock and other owners’ equity accounts. While these accounts include few transactions annually, they have substantial balances which carry over to each following year.

Question 6

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

Accounting estimates are not considered sufficient and appropriate documentation.

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

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.

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

Answer 6

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

This answer is correct because the review of audit working papers (and its documentation) are required.

Question 7

Which of the following is generally included or shown in the auditor’s working papers for the audit of a nonpublic company?

The procedures used by the auditor to verify the personal financial status of members of the client’s management team.

Analyses that are designed to be a part of, or a substitute for, the client’s accounting records.

Excerpts from authoritative pronouncements that support the underlying generally accepted accounting principles used in preparing the financial statements.

The manner in which exceptions and unusual matters disclosed by the auditor’s procedures were resolved or treated.

Answer 7

The manner in which exceptions and unusual matters disclosed by the auditor’s procedures were resolved or treated.

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.

Question 8

Which of the following factors most likely would affect an auditor’s judgment about the quantity, type, and content of the auditor’s working papers?

The assessed level of control risk.

The likelihood of a review by a concurring (second) partner.

The number of personnel assigned to the audit.

The content of the management representation letter.

Answer 8

The assessed level of control risk.

The requirement is to identify a factor that would most likely affect the auditor’s judgment about the quantity, type, and content of the working papers. Answer (a) is correct because the Professional Standards state that the assessed level of control risk will affect the quantity, type and content of working papers. AU-C 230 provides a listing of this and other factors. For example, the quantity, type and content of working papers will be affected by whether tests of controls have been performed.

Question 9

Which of the following eliminates voluminous details from the auditor’s working trial balance by classifying and summarizing similar or related items?

Account analyses.

Supporting schedules.

Control accounts.

Lead schedules.

Answer 9

Lead schedules.

This answer is correct because lead schedules serve to accumulate similar or related information before it is transferred to the working trial balance.

Question 10

The current file of an auditor’s working papers most likely would include a copy of the

Bank reconciliation.

Pension plan contract.

Articles of incorporation.

Flowchart of the internal control procedures.

Answer 10

Bank reconciliation.

This answer is correct because the current file will include items of particular significance to the current year’s audit, such as bank reconciliations.

Question 11

An auditor’s working papers serve mainly to
Provide the principal support for the auditor’s report.

Satisfy the auditor’s responsibilities concerning the Code of

Professional Conduct.

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

Document the level of independence maintained by the auditor.

Answer 11

Provide the principal support for the auditor’s report.

The requirement is to identify a primary purpose of an auditor’s working papers. AU-C 230 states that working papers serve mainly to provide the principal support for the auditor’s report and to aid the auditor in the conduct and supervision of the audit.

Question 12

The permanent file of an auditor’s working papers generally would not include

Bond indenture agreements.

Lease agreements.

Working trial balance.

Flowchart of internal control.

Answer 12

Working trial balance.

The requirement is to identify the least likely item to be included in the permanent file of an auditor’s working papers. Answer (c) is correct because permanent files include information affecting a number of years’ audits, and the working trial balance relates most directly to the current and, to a limited extent, the subsequent year’s audit. Answers (a), (b), and (d) are all incorrect because bond indenture agreements, lease agreements, and a flowchart of internal control affect more years’ audits than does a specific year’s working trial balance.

Question 13

An auditor finds several errors in the financial statements that the client prefers not to correct. The auditor determines that the errors are not material in the aggregate. Which of the following actions by the auditor is most appropriate?

Document the errors in the summary of uncorrected errors, and document the conclusion that the errors do not cause the financial statements to be misstated.

Document the conclusion that the errors do not cause the financial statements to be misstated, but do not summarize uncorrected errors in the working papers.

Summarize the uncorrected errors in the working papers, but do not document whether the errors cause the financial statements to be misstated.

Do not summarize the uncorrected errors in the working papers, and do not document a conclusion about whether the uncorrected errors cause the financial statements to be misstated.

Answer 13

Document the errors in the summary of uncorrected errors, and document the conclusion that the errors do not cause the financial statements to be misstated.

This answer is correct because the professional standards require a summary of uncorrected misstatements (other than those considered trivial) and the auditor’s conclusion about them.

Question 14

Which of the following statements is correct about actions taken after the documentation completion date?

An auditor must not make any amendments to audit documentation before the end of the specified retention period.

An auditor must not make any additions to audit documentation before the end of the specified retention period.

An auditor must not make any changes to audit documentation before the end of the specified retention period.

The auditor must not make any deletions to audit documentation before the end of the specified retention period.

Answer 14

The auditor must not make any deletions to audit documentation before the end of the specified retention period.

Correct! After the documentation completion date, the auditor is prohibited from deleting any of the existing audit documentation.

Question 15

Which of the following statements is most accurate regarding audit documentation requirements?

The auditor should document findings that could result in a modification of the auditor’s report.

If different audit procedures were performed due to a lack of responsiveness by the client, the lack of responsiveness should not be included in the working papers.

If an oral explanation serves as sufficient support for the work the auditor performed, the explanation should be documented in the working papers.

If the results of audit procedures indicate a need to revise the previous assessment of risk, the new assessment should be documented and the original assessment should be removed.

Answer 15

The auditor should document findings that could result in a modification of the auditor’s report.

Correct! Among other matters, auditors should document all significant audit findings or issues, which include any matters that could result in modification of the auditor’s report.

Question 16

Which of the following statements ordinarily is correct concerning the content of audit documentation?

Whenever possible, the auditor’s staff, not the entity’s employees, should prepare schedules and analyses.

It is preferable to have negative figures indicated in red figures instead of parentheses to emphasize amounts being subtracted.

It is appropriate to use calculator tapes with names or explanations on the tapes, rather than writing separate lists into the audit documentation.

The analysis of asset accounts and their related expense or income accounts should not appear on the same working paper.

Answer 16

It is appropriate to use calculator tapes with names or explanations on the tapes, rather than writing separate lists into the audit documentation.

The auditing procedures documented, and the audit documentation itself, should be both efficient and effective. This means that it would be appropriate to use calculator tapes with names or explanations on the tapes, rather than writing separate lists into the documentation, as long as the nature of the work performed and the conclusions reached were clearly evident. Rewriting the lists would take additional time without necessarily offering more persuasive evidence.

Question 17

Which of the following is not required documentation for an audit, in accordance with generally accepted auditing standards?

A flowchart or an internal control questionnaire that evaluates the effectiveness of the entity’s internal control policies and procedures.

A client engagement letter that summarizes the timing and details of the auditor’s planned field work.

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

The basis for the auditor’s conclusions when the assessed level of control risk is at the maximum level for all financial statement assertions.

Answer 17

A flowchart or an internal control questionnaire that evaluates the effectiveness of the entity’s internal control policies and procedures.

While flowcharts and internal control questionnaires both provide an accepted means of documenting the auditor’s understanding of the internal control structure, neither is required. Furthermore, neither is used to evaluate the effectiveness of internal control; they are used to document an understanding of internal control.

Question 18

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

A flowchart or narrative of the accounting system describing the recording and classification of transactions for financial reporting.

An audit program setting forth in detail the procedures necessary to accomplish the engagement’s objectives.

A letter signed by the client acknowledging responsibility for preparing requested audit scheduled by specific due dates.

An internal control questionnaire identifying policies and procedures that assure specific objectives will be achieved.

Answer 18

An audit program setting forth in detail the procedures necessary to accomplish the engagement’s objectives.

GAAS require that a written audit program be prepared that details the audit procedures considered necessary to achieve the objectives of the audit.

Question 19

Using microcomputers in auditing may affect the methods used to review the work of staff assistants because

The audit field work standards for supervision may differ.

Documenting the supervisory review may require the assistance of consulting services personnel.

Supervisory personnel may not have an understanding of the capabilities and limitations of microcomputers.

Working paper documentation may not contain readily observable details of calculations.

Answer 19

Working paper documentation may not contain readily observable details of calculations.

The use of microcomputers impacts the manner in which audit documentation is completed and displayed. If a spreadsheet program is used to create the documentation, it may not contain readily observable details of calculations because the formulas will be hidden in the cells.

Question 20

The permanent file of an auditor’s documentation generally would not include

Bond indenture agreements.

Lease agreements.

Working trial balance.

Flowchart of internal control structure.

Answer 20

Working trial balance.

The working trial balance would NOT appear in the permanent file. It is normally included in the current year audit documentation.

Question 21

Which of the following pairs of accounts would an auditor most likely analyze on the same audit documentation?

Notes receivable and interest income.

Accrued interest receivable and accrued interest payable.

Notes payable and notes receivable.

Interest income and interest expense.

Answer 21

Notes receivable and interest income.

Notes receivable and interest income would most likely be analyzed on the same working paper as they are directly related to each other. Interest income is earned on notes receivable and is a function of the interest rate and the principal balances on the notes.

Question 22

An auditor’s documentation serves mainly to

Provide the principal support for the auditor’s report.

Satisfy the auditor’s responsibilities concerning the Code of

Professional Conduct.

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

Document the level of independence maintained by the auditor.

Answer 22

Provide the principal support for the auditor’s report.

Audit documentation serves mainly to provide the principal support for the opinion rendered in the auditor’s report. It also aids the auditor in the conduct and supervision of the audit.