A2 M3 - Documentation (notes)

Question 1

Audit documentation should:

A.Option A.
Be considered the primary support for the financial statements being audited.

B.Option B.
Show that the accounting records agree or reconcile with the financial statements.

C.Option C.
Not contain critical comments concerning management.

D.Option D.
Not be permitted to serve as a reference source for the client.

Answer 1

Choice “B” is correct. Audit documentation should show that the accounting records agree or reconcile with the financial statements.

Choice “A” is incorrect. Audit documentation is not the support for the financial statement. The client’s books and records are the support for the financial statement. Audit documentation should be the principal support for the work the auditor has done to support the opinion provided on the auditor’s report.

Choice “C” is incorrect. Audit documentation may contain critical comments concerning management (e.g., documentation of disagreement with the opinions of management, such as accounts receivable valuation).

Choice “D” is incorrect. Audit documentation may be permitted to serve as a reference source for the client.

Question 2

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

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

B.Option B.
A flowchart or an internal control questionnaire that evaluates the effectiveness of the entity’s internal control.

C.Option C.
A management representation letter that summarizes the timing and details of the auditor’s planned fieldwork.

D.Option D.
A list of the procedures performed and the findings obtained.

Answer 2

Choice “A” is correct. The quantity, type, and content of audit documentation vary with the circumstances, but it should be sufficient to show that the accounting records agree or reconcile with the financial statements.

Choice “B” is incorrect. The auditor’s understanding of internal control can be documented in a variety of different ways. Flowcharts and internal control questionnaires are two methods that might be used to assist the auditor in obtaining an understanding of internal control, but they generally do not provide information about the effectiveness of the entity’s internal controls.

Choice “C” is incorrect. An engagement letter (and not a representation letter) summarizes the timing and details of the auditor’s planned field work.

Choice “D” is incorrect. A list of procedures and findings is required for an agreed-upon procedures engagement, not for an audit.

Question 3

Audit documentation should be prepared in enough detail so that:

A.Option A.
An experienced auditor who has no previous connection with the audit can understand the procedures performed and the evidence obtained.

B.Option B.
A reader of the financial statements who has a background in financial analysis can understand the procedures performed and the evidence obtained.

C.Option C.
A reader of the financial statements who has no previous connection with the audit can understand the procedures performed and the evidence obtained.

D.Option D.
An experienced auditor who has worked with the client in the past can understand the procedures performed and the evidence obtained.

Answer 3

Choice “A” is correct. Audit documentation should be prepared in enough detail so that an experienced auditor who has no previous connection with the audit can understand the procedures performed and the evidence obtained.

Choices “C” and “B” are incorrect. Readers of the financial statements typically would not have access to the audit documentation.

Choice “D” is incorrect. The requirement is that audit documentation be detailed enough that an experienced auditor who has no previous connection with the audit can understand the procedures performed and the evidence obtained. This is a higher standard than simply requiring the audit documentation to be appropriate for an auditor who is already familiar with the client.

Question 4

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

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

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

C.Option C.
Accounting estimates are considered sufficient and appropriate audit evidence.

D.Option D.
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.

Answer 4

Choice “A” is correct. Sufficient and appropriate documentation should include evidence that the audit working papers have been reviewed.

Choice “B” is incorrect. Audit documentation is the property of the auditor. For audits of nonissuers, audit documentation should be retained for at least five years. For audits of issuers, audit documentation should be retained for at least seven years.

Choice “C” is incorrect. Accounting estimates on their own are not considered sufficient and appropriate evidence. The auditor would want to obtain sufficient and appropriate evidence to evaluate the reasonableness of such estimates.

Choice “D” is incorrect. Additional evidence supplements the original evidence. The original evidence should not be deleted from the working papers.

Question 5

Which of the following documents the procedures that are applied and the conclusions reached in an audit engagement?

A.Option A.
Audit guide.

B.Option B.
Working papers.

C.Option C.
Auditor’s report.

D.Option D.
Management representation letter.

Answer 5

Choice “B” is correct. Working papers should include the procedures that are applied and the conclusions reached in an audit engagement.

Choice “A” is incorrect. The accounting firm may have an overall audit guide on how to perform an audit, but it would not have the conclusions related to a specific audit.

Choice “C” is incorrect. An auditor’s report does not list the specific procedures used in an audit engagement.

Choice “D” is incorrect. The management representation letter is where the client asserts that all material matters have been adequately disclosed to the auditor.

Question 6

Which of the following is a primary purpose of audit documentation?

A.Option A.
To assure that fraudulent financial reporting did not occur.

B.Option B.
To prevent legal liability related to the audit performed.

C.Option C.
To support that the audit was performed in accordance with GAAS.

D.Option D.
To maintain professional judgment.

Answer 6

Choice “C” is correct. The primary purpose of audit documentation is to support the basis for the auditor’s report and to provide evidence that the audit was conducted in accordance with generally accepted auditing standards (GAAS).

Choice “A” is incorrect. Audit documentation does not provide assurance that fraudulent financial reporting did not occur. The reasonable assurance provided by the audit related to fraud would come from the actual procedures performed and not the documentation.

Choice “B” is incorrect. The existence of audit documentation would not prevent or change the legal liability of the auditor related to the audit.

Choice “D” is incorrect. The purpose of audit documentation is not to maintain professional judgement; however, it would contain support and explanation for how the auditor applied professional judgement throughout the audit.

Question 7

Which of the following statements is correct regarding an auditor’s documentation of the risk assessment during an audit of a nonissuer?

A.Option A.
The auditor’s risk assessment should be documented separately from the auditor’s documentation of the overall strategy and audit plan.

B.Option B.
The form and extent of the documentation should be influenced by the nature, size, and complexity of the entity and its internal control.

C.Option C.
The auditor must document a complete understanding of the nonissuer’s industry.

D.Option D.
The extent of documentation must be consistent among all audits.

Answer 7

Choice “B” is correct. The auditor’s documentation of risk assessment should consider the nature, size, and complexity of the entity being audited. The auditor may tailor the form and extent of the documentation to the specific circumstances of the engagement to provide support for the auditor’s risk assessment.

Choice “A” is incorrect. An auditor may document the risk assessment with the documentation of the overall strategy and audit plan. The auditor may choose to document these items together because the overall strategy and audit plan documents the auditor’s response to the assessed risks.

Choice “C” is incorrect. While it is important for an auditor to understand the industry in which the entity operates, risk assessment does not require a complete understanding of the industry, because the auditor’s risk assessment will focus on identifying and assessing the risks of material misstatement in the financial statements of the entity being audited.

Choice “D” is incorrect. The auditor’s documentation of risk assessment may vary depending on the entity being audited. The auditor must document an understanding of the entity and its environment, and entities vary in nature, size and complexity

Question 8

In the audit of a nonissuer, each of the following actions or events is required to be completed on or before the date of the auditor’s report, except:

A.Option A.
Management has asserted that they have taken responsibility for the financial statements.

B.Option B.
The audit documentation has been reviewed and found to support the conclusions reached.

C.Option C.
All statements comprising the financial statements, including the related notes, have been prepared.

D.Option D.
The entity’s audit committee or others charged with governance have agreed with the audit findings and conclusions in the auditor’s report.

Answer 8

Choice “D” is correct. Agreement from the audit committee or those charged with governance with the audit findings is not required to be obtained before the auditor’s report date. For example, communications regarding control deficiencies may extend 60 days beyond the report release date.

Choice “A” is incorrect. Management must assert that they have taken responsibility for the financial statements before the auditor’s report date.

Choice “B” is incorrect. Audit documentation must be reviewed and found to support the conclusions reached before the auditor’s report date.

Choice “C” is incorrect. All financial statements, including the related notes, must be prepared before the auditor’s report date.

Question 9

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

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

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

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

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

Answer 9

Choice “A” is correct. An auditor is not allowed to make any deletions to audit documentation before the end of the specified retention period.

Choice “B” is incorrect. An auditor is allowed to add documentation before the end of the specified retention period but must document such additions as such.

Choice “C” is incorrect. An auditor may make some changes (i.e., add or modify) documentation before the end of the specified retention period but must document such additions or modifications as such.

Choice “D” is incorrect. An auditor is allowed to amend documentation before the end of the specified retention period but must document such amendments as such.

Question 10

Under the provisions of the Sarbanes-Oxley Act of 2002, registered public accounting firms are required to prepare and maintain audit work papers and other information related to any audit report for a period of:

A.Option A.
One year.

B.Option B.
Five years.

C.Option C.
Seven years.

D.Option D.
Three years.

Answer 10

Choice “C” is correct. Registered public accounting firms are required to maintain audit work papers and supporting documentation for a period of seven years.

Choice “A” is incorrect. Auditors of issuers are required to maintain audit documentation for a period of seven years, not one year.

Choice “B” is incorrect. Auditors of issuers are required to maintain audit documentation for a period of seven years, not five years. Auditors of nonissuers are required to maintain audit documentation for a period of five years.

Choice “D” is incorrect. Auditors of issuers are required to maintain audit documentation for a period of seven years, not three years.

Question 11

Which best describes the documentation completion date?

A.Option A.
Seven years from the report release date, based on auditing standards.

B.Option B.
Five years from the report release date, based on auditing standards.

C.Option C.
Sixty days from the report release date, based on PCAOB standards.

D.Option D.
Fourteen days from the report release date, based on PCAOB standards.

Answer 11

Choice “D” is correct. According to PCAOB standards, the documentation completion date is fourteen days following the report release date.

Choice “A” is incorrect. Seven years refers to the required retention period under PCAOB standards.

Choice “B” is incorrect. Five years refers to the required retention period under SAS rules for the auditors of nonissuers.

Choice “C” is incorrect. According to auditing standards, the documentation completion date is sixty days following the report release date.

Question 12

What is the maximum number of days in which a nonissuer’s auditor should complete the assembly of the final audit file following the report release date?

A.Option A.
14 days

B.Option B.
60 days

C.Option C.
30 days

D.Option D.
75 days

Answer 12

Choice “B” is correct. A nonissuer auditor should complete the assembly of the audit file within 60 days following the report release date.

Choice “A” is incorrect. An auditor should complete the assembly of the audit file within 14 days for an issuer, not a nonissuer.

Choice “C” and “D” are incorrect, per the above explanation.

Question 13

On which of the following dates would it be appropriate for an auditor of a nonissuer to discard audit documentation if the engagement letter was signed on June 30, Year 1, the audit was substantially complete on September 1, Year 1, and the audit report was released on March 15, Year 2?

A.Option A.
June 30, Year 3

B.Option B.
June 30, Year 6

C.Option C.
March 30, Year 7

D.Option D.
September 1, Year 6

Answer 13

Choice “C” is correct. Auditing standards for nonissuers require that audit documentation be retained for at least five years from the report release date. With an audit report release date of March 15, Year 2, the earliest that the audit documentation may be discarded is March 15, Year 7. March 30, Year 7, is more than five years from the report release date.

Choice “A” is incorrect. Auditing standards for nonissuers require that audit documentation be retained for at least five years from the report release date. June 30, Year 3, is less than five years after the report release date.

Choice “B” is incorrect. Auditing standards for nonissuers require that audit documentation be retained for at least five years from the report release date. June 30, Year 6, is less than five years after the report release date.

Choice “D” is incorrect. Auditing standards for nonissuers require that audit documentation be retained for at least five years from the report release date. September 1, Year 6, is less than five years after the report release date.

Question 14

The permanent (continuing) file of audit documentation most likely would include copies of the:

A.Option A.
Debt agreements.

B.Option B.
Attorney’s letters.

C.Option C.
Bank statements.

D.Option D.
Lead schedules.

Answer 14

Choice “A” is correct. The permanent file includes items with continuing audit significance, such as debt agreements.

Choice “B” is incorrect. Attorney’s letters would be included in the current audit documentation since they are applicable to the current year’s audit only.

Choice “C” is incorrect. Bank statements would be included in the current audit documentation since they are applicable to the current year’s audit only.

Choice “D” is incorrect. Lead schedules would be included in the current audit documentation since they are applicable to the current year’s audit only.

Question 15

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

A.Option A.
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.

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

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

D.Option D.
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

Choice “C” is correct. The auditor should document findings that could result in a modification of the auditor’s report.

Choice “A” is incorrect. If alternative audit procedures were performed due to a lack of responsiveness by the client, the lack of responsiveness should be documented in the working papers.

Choice “B” is incorrect. On their own, oral explanations do not represent adequate support for the work the auditor performed or conclusions the auditor reached, but may be used to explain or clarify information contained in the audit documentation.

Choice “D” is incorrect. If the results of audit procedures indicate a need to revise the previous assessment of risk, the new assessment and original assessment should be documented. The auditor should also address responses to the new risk.