Chapter 4 Flashcards
What is the purpose of a working paper and describe the different elements of a working paper?
Purpose:
To show evidence gathered; to show work performed, methods followed and conclusions reached,
To coordinate all phases of audit work
To assist in report preparation
To make a connecting link between work performed and report issued.
To provide historical and permanent evidence of work performed, methods followed and conclusions reached.
To substantiate and explain audit findings.
Describe the different elements of a working paper?
Elements:
Purpose
Source
Scope
Procedures/Methodology
Conclusion
What is the purpose and elements of a permanent file?
- Organizational Chart
- Audit Programs containing flowcharts of accounting system, and internal control review
- Final audit report
- Report distribution list
- Copy of audit planning section
- Correspondence- audit related
- Chart of Accounts
- Bylaws, bond indentures, contracts/agreements, or other important related documents
What does individual working papers include besides elements?
- Headings
- Index number and page number
- Preparer and Reviewer Identification and dating
- Cross-Referencing
- Tickmarks and legends
What is the purpose of a point sheet?
Audit point sheets summarized the audit findings, discussion with the auditee, the conclusions reached, and the auditors recommendation.
Describe the sections of the Audit/Engagement Point Sheet
Heading: Auditee, Audit period, Audit ID #, Work Paper#
Observation
Judgment Criteria: Standard, regulation, accounting principle, law, directive, or logic that’s violated.
Effect: This identified the effects of the deficiency and demonstrates the need of change to management.
Cause
Discussion with Auditee
Conclusion
Recommendation
What are the steps/phases involved in performing an audit?
Preliminary Work:
Audit assigned to auditor
Planning memorandum
Background review
Entrance conference
Develop audit plan (understand and assess control risk)
Field Work:
Test controls and assess control risk
Modify audit plan based on assessed control risk
Prepare bridging documents
Perform substantive tests
Prepare work papers with Source, Purpose, Scope, and Conclusion
Summarize findings
Prepare a point sheet
Hold an exit conference
Prepare audit report
As a specialist on an audit assignment what are some of your responsibilities?
Provide on the job instructions/guidance and training to staff
Review the planning memo
Staying informed of significant problems encountered by auditors during the engagement.
Resolve technical differences of opinion among staff
Review auditors work to determine whether the objectives of the engagement and the results of the procedures performed were consistent with the conclusions presented in the report
An audit package reviewer should have what qualifications?
Sufficient competence
Experience
Responsibilities appropriate for the type of engagement under review.
Define audit sampling and name the types of statistical sampling?
Audit sampling involves reviewing less than 100% of the items within a specific group or population of account balances or classes of transactions in order to evaluate a characteristic.
Attribute Sampling Method: Applied in test of controls to determine the rates of deviation from prescribed internal control procedures. There are 3 different types of Attribute Sampling:
- Attribute Estimate
- Stop and Go
- Discovery
Variable Sampling Method: Applied in test of dollar values of accounts during the substantive tests of details. There are 4 different types.
- Difference Estimate
- Ratio Estimation
- Mean Per Unit estimation
- Probability Proportion to size
What are the advantages of statistical versus judgmental sampling?
Advantages:
Sample results is objective & defensible
Method provides means of advance estimation of sample size on an objective basis.
Method provides estimate of sampling error
Approach may provide a more accurate method of drawing conclusions.
Method may save time and money
Samples may be combined & evaluated though accomplished by different auditors.
Objective evaluation of test results is enhanced
What are the disadvantages of statistical versus judgmental sampling?
Disadvantages:
Cost more money to train auditors
Number of items selected may be higher than under a judgmental selection criteria due to stat requirement.
Strict reliance on statistical sampling may not allow for use of specific knowledge of organization or population being tested.
GAAS require that statistical sampling method be documented in the working papers. What should be identified in the working papers for the sampling methodology?
Documentation of Sampling Procedures
Auditor may want to consider including in the audit documentation:
Description of the control tested
Objectives of the sampling application and its relationship to planned substantive testing.
Definitions of the population and the sampling unit
Definition of a deviation.
Assessments of: risk of assessing control risk too low; tolerable deviation rate; and expected population deviation rate
Method of determining sample size
Method of selecting sample
Description of how sampling procedure was performed and a list of sample deviations.
Evaluation of sample and summary of conclusions, including number of sample deviations; explanation of how sampling risk was considered; determination of whether sample results supported planned assessed level of control risk; qualitative aspects of deviations; and effects of evaluation of results on planned substantive tests.
What is evidential matter, the types of evidential matter and how do you determine if it is sufficient and competent?
Evidential matters are those things that help to form a conclusion or judgment based on the validity and reliability of that evidence.
Evidential matter is obtained through inspections, observation, inquiries, and confirmations. The evidence must be Sufficient and Competent.
Sufficient – the evidence will justify, in judgment of the auditor, issuing an opinion and still be within the limits of time and cost efficiency to justify issuing an opinion.
Competent – meaning the evidence is valid and reliable.
What are the four types of audit evidence?
[T] - Testimonial
[A] – Analytical
[P] – Physical
[D] – Documentary
