Audit Documentation

Question 1

Audit Documentation should be retained

Answer 1

AU-C 230 requires that they be maintained a minimum of five years.

Question 2

Tracing

Answer 2

• Tests Completeness
• Starts with source document and traces forward to journal entry

Question 3

Vouching

Answer 3

Tests Existence

Starts with Journal Entry and searches for a voucher or source document to support the entry

Question 4

Tracing vs. Vouching

Answer 4

T before V

C before E

Tracing = Completness

Vouching = Existence

Question 5

Segregation of Duties

Answer 5

• Non Compatible Duties
• Authorization of asset disbursement
• Recording of Assets
• Custody of Assets
  *

Question 6

Observation and Inquiry

Answer 6

Use Observation and Inquiry if supporting evidence doesnt exist

Question 7

Segregation of Duties

Answer 7

• Accounting should be segregated from Production
• Employees who prepare vouchers/invoices should not have authority to Sign Checks
• Authority to make a payment should not lie in hands of those creating invoices /vouchers
• This control assists company in fraud prevention (ie set up fake companies and pay themselves)

Question 8

Segregation of Duties

Answer 8

• Employees who have custody of assets should not also RECORD those assets
• ie Someone in charge of petty cash s/not have record keeping duties

Question 9

Treasury Department

Answer 9

• Treasury Department (custodians) should NOT have record keeping duties
• They control assets and should not be able to adjust any recording of those assets

Question 10

Work of Third Parties

Answer 10

• Are they Competent
• Are they Objective

Question 11

Internal Auditors

Answer 11

Auditor needs to understand the role of Internal Auditors within the organization because their work affects the audit plan

On the CPA Exam, watch who they report to

• Audit Committee?
  
  • More objective
  • More reliance
• Manager
  
  • Less Objective
  • Less reliance

Question 12

Internal Auditors

Answer 12

• Responsibility for judgments about materiality or appropriateness of entries or estimates cannot be shared with third parties like Internal Auditors
• Internal Auditors should be asked to do some of the legwork like preparing schedules or running reports

They should not be asked to make any decisions or judgments

Question 13

Subsequent Events

Answer 13

Auditors should make inquiries of officers and other executives having responsibility for financial and accounting matters, including inquiries on

• matters including contingent liabilities existing at the date of the balance sheet,
• whether there was any significant change in capital stock, long-term debt, or working capital
• current status of items in the financial statements
• any unusual adjustments.

Question 14

Subsequent Events

Answer 14

Auditor should make inquiries of officers and other executives having responsibility for financial and accounting matters, including inquiries on

• (1) matters including contingent liabilities existing at the date of the balance sheet
• (2) whether there was any significant change in capital stock, long-term debt, or working capital
• (3) current status of items in the financial statements
• (4) any unusual adjustments.

Question 15

Flowchart

Answer 15

• Symbolic representation of a system or series of sequential processes.
• The flowchart prepared during the consideration of internal control is a symbolic representation of a system of sequential processes.
• It can be used in lieu of the internal control questionnaire which has the same purpose (i.e., to prepare a record of prescribed internal control).

Question 16

Mgmt F/S Assertions

Answer 16

When management prepares financial statements in conformity with GAAP assertions are made about

• Account Balances
• Classes of Transactions
• Disclosures