Learning Objectives
Download 2.36 Mb.
|
11-сhapter (COMPLETING THE AUDIT)
- Bu sahifa navigatsiya:
- QUESTIONS
- PROBLEMS AND EXERCISES
Current File Working papers for the current file include all documentation applicable to the year under audit. They ordinarily include client summary information such as a description of the client, client industry, client internal controls and the auditor’s materials. Auditor’s materials in the working papers include: 22 evidence of the planning process including the audit planning memorandum (hereafter referred to as the audit plan) and the audit program; and any changes thereto; evidence of the auditor’s understanding of the accounting and internal control systems, for instance internal control questionnaires, internal control flow charts, organization charts, and a listing of controls and control weakness; evidence of inherent and control risk assessments and any revisions; evidence of the auditor’s consideration of the work of internal auditing or another auditor and conclusions reached; analyses of significant ratios and trends; a record of the nature, timing and extent of audit procedures performed and the results of such procedures; important current legal documents such as contracts and other agreements, leases, and minutes of high-level meetings; evidence that the work performed by assistants was supervised and reviewed; an indication as to who performed the audit procedures and when they were performed; details of procedures applied regarding components whose financial statements are audited by another auditor; copies of communications with other auditors, experts and other third parties such as confirmation letters; copies of letters or notes concerning audit matters communicated to or discussed with the entity, including the terms of the engagement and material weaknesses in internal control; letters of representation received from the entity such as the engagement letter, and management representation letter; conclusions reached by the auditor concerning significant aspects of the audit, including how exceptions and unusual matters, if any, disclosed by the auditor’s procedures were resolved or treated; copies of the financial statements and auditor’s report; analyses of accounting transactions and balances such as transaction tracing, trial balances, lead schedules, and if necessary, recommend journal entries to correct the accounts (i.e. adjusting and reclassification entries) which are made when an auditor discovers material misstatements in the accounting records; various supporting schedules (discussed below). Illustration 11A.3 is an example of a list of the contents of a current file. Lead Schedules As early as possible after the balance sheet date, the auditor obtains a trial balance, a listing of the general ledger accounts and their year-end balances. Each line item in the trial balance is supported by a lead schedule, containing the detailed accounts from the general ledger making up the line item. Each detailed account on the lead schedule is, in turn, supported by audit ILLUSTRATION 11.A.3 Sample Work Papers – Current File
work performed and the conclusions drawn. The largest portion of working papers includes the detailed schedules prepared by the client or the auditors in support of specific amounts on the financial statements. The major types of supporting schedules are account analysis, list schedules, reconciliation of amounts, tests of reasonableness, procedures description, informational and outside documentation. An account analysis schedule, normally used for fixed assets, liabilities and equity accounts, shows the activity in a general ledger account during the entire period under audit, tying together the beginning and ending balances. The list schedule shows the detail of those items that make up an end-of-period balance in a general ledger account. A recon- ciliation relates a specific amount in the accounting records to another source of information, for example a reconciliation of accounts payable balances with vendor’s statements. The test of reasonableness schedule contains information that enables the auditor to evaluate whether the client’s balance appears to include a misstatement considering the circumstances. A summary of procedures description schedule summarizes the result of audit procedures performed. Information schedules contain non-audit information such as tax information, regulatory information and time budgets. Outside documentation includes confirmation PREPARATION OF WORKING PAPERS replies, copies of client agreements, etc. Illustration 11.A.4 shows an account analysis schedule that might be used in the audit. Preparation of Working Papers The key concept in proper preparation of working papers is to structure the information so that it is easy to interpret and gives the extent of the work in a concise form. Although the design of working papers depends on the objectives involved, they would normally be properly identified, include the conclusions that were reached, would be indexed, and clearly indicate the audit work performed. Every individual working paper should be properly identified with the client’s name, the period covered, a description of contents of the working paper, the date of preparation and index code, and, most importantly, the initials of the person who prepared it. The conclusions reached about that segment of the audit should be stated plainly. Tick Marks and Indexing The preparation of working papers has strong traditional elements that indicate the audit work performed, cross-references, and suggested adjustments. These elements are tick marks, indexing, and adjusting journal entries. Tick Marks Tick marks are symbols used by the auditor to indicate the nature and extent of procedures applied in specific circumstances. Tick marks are notations directly on the working paper schedules. Tick marks are generally done by hand with a pen or pencil alongside a specific item. With the increased use of computers for auditing, tick marks may be input in a spread- sheet program. Tick marks must be clearly explained at the bottom of the working paper in a legend. For example, the auditor indicates that he has examined supporting vouchers for items listed on a working paper by placing a tick mark or check mark (a symbol such as ✓) beside each item on which the procedures have been carried out. The legend at the bottom of the page will say something like “✓ # voucher and supporting documents examined.” (See interest and long- term debt working papers in Illustration 11A.5.) The illustration is from a computer spread- sheet, with check marks (✓) added by hand later when the monthly balances were checked later against the trial balance. Indexing
ILLUSTRATION 11.A.5 Sample Work Papers – Interest and Long-term Debt Work Paper
ADJUSTING ENTRY Adjusting Entry An adjusting journal entry is the correcting entry required at the end of the reporting period due to a mistake made in the accounting records; also called correcting entry. The auditor does not make entries in the client’s records. The auditor makes the entries on the work papers and reviews their recording by the client. The following adjusting journal entry is an example. Repair is incorrectly debited to buildings by the following journal entry: 1/23/X1 Debit Buildings $2,000 Credit Cash $2,000 To record expenditures for painting supervisor’s office. The adjusting journal entry necessary to correct this error is: 12/31/XI Debit Buildings maintenance expense $2,000 Credit Buildings $2,000 To correct expenditures for painting supervisor’s office incorrectly debited to fixed assets. Appendix Summary The auditor should document matters that are important in providing both evidence to support the audit opinion and evidence that the audit was carried out in accordance with ISAs. Audit documentation is the principal record of the basis for the auditor’s conclusions and provides the principal support for the representations in the auditor’s report. Audit docu- mentation also facilitates the planning, performance, and supervision of the engagement, and provides the basis for the review of the quality of the work by providing the reviewer with written documentation of the evidence supporting the auditor’s significant conclusions. Audit documentation includes records on the planning and performance of the work, the procedures performed, evidence obtained, and conclusions reached by the auditor. Audit documentation also may be referred to as working papers or work papers. Working papers are a record of the auditor’s planning; the nature, timing and extent of the auditing procedures performed; results of those procedures; and the conclusions drawn from the evidence obtained. Working papers may be in the form of data stored on paper, film, elec- tronic media or other media. The terms working papers, work papers and documentation are often used inter-changeably in auditing. The auditor should document matters that are important in providing evidence to support the audit opinion and evidence that the audit was carried out in accordance with International Standards on Auditing. Working papers: are a direct aid in the planning, performance, and supervision of the audit; record the audit evidence resulting from the audit work performed to provide support for the auditor’s opinion including the representation that the audit was conducted in accordance with ISAs; assist in review of the audit work; provide proof of the adequacy of the audit. The auditor must document significant findings or issues, actions taken to address them (including additional evidence obtained), and the basis for the conclusions reached in an engagement completion memorandum. The content of the working papers should be sufficiently complete and detailed to provide an overall understanding of the audit. The working papers should contain information on planning the audit work; the nature, timing, and extent of the audit procedures performed; the results of the audit procedures; and the conclusions drawn leading to an opinion. ISA 230 states: “The auditor should adopt appropriate procedures for maintaining the confidentiality and safe custody of the working papers and for retaining them for a period sufficient to meet the needs of the practice and in accordance with legal and professional requirements of record retention.” The US SEC regulation on document retention as NOTES TO APPENDIX mandated by the Sarbanes-Oxley Act (SOX) specifies detailed requirements regarding the types of document, requires working papers be kept for not less than seven years, and describes criminal penalties for altering documents. ISA 230 states that working papers are generally considered to be the property of the auditor. There are two main divisions of audit work papers: the permanent (or continuing) audit file; the current audit file. The permanent file is audit working papers containing all the data that are of continuing interest from year to year. The current working paper file contains all papers accumulated during the current year’s audit. The permanent file is intended to contain data of historical or continuing nature pertinent to the current audit. This file provides a convenient source of information about the audit that is of continuing interest. The permanent file working papers ordinarily include: information concerning the legal and organizational structure of the entity; extracts or copies of important legal documents, agreements and minutes; prior year analysis of fixed assets, long-term debt, terms of stock and bond issues, intangibles, allowances, and results of analytical procedures; information concerning the industry, economic environment and legislative environment within which the entity operates. Working papers for the current file include all documentation applicable to the year under audit. They ordinarily include client summary information such as a description of the client, client industry, client internal controls and the auditor’s materials. The key concept in proper preparation of working papers is to structure the information so that it is easy to interpret and gives the extent of the work in a concise form. Working papers include the conclusions that were reached; they should be indexed and clearly indicate the audit work performed. The preparation of working papers has strong traditional elements that indicate the audit work performed, cross-references, and suggested adjustments. These elements are tick marks, indexing, and adjusting journal entries. QUESTIONS, EXERCISES AND CASES Questions, Exercises and Cases QUESTIONS11A.1 Describe the difference between documentation, work papers, and working papers. 11A.2 Outside of documenting the audit, how else may working papers be used? 11A.3 What should working papers contain? How do working papers relate to auditor judgment? 11A.4 Define permanent file and current file and list the contents of each. PROBLEMS AND EXERCISES11A.5 Legal Aspects of Working Papers. Cisse and Kamotho, Kenya Certified Public Accountants (CPA(K)), were employed for several years by the Masama Balira Company of Kenya to make annual audits. As a result of a change in management, the corporation discontinued the engagement of Cisse and Kamotho and retained another firm of accountants. The Masama Balira Company thereupon demanded Cisse and Kamotho surrender all working papers prepared by the accounting firm in making audits for the corporation. Cisse and Kamotho refused on the grounds that the working papers were their property. Masama Balira Company brought legal action to recover the working papers. Should the legal action succeed? State briefly the standards, in general, as to ownership of accountants’ working papers. [Adapted and reprinted with permission from AICPA. Copyright © 2000 & 1985 by American Institute of Ceritified Accountants.] 11A.6 Preparation of Work Papers. You are instructing an inexperienced staff accountant on her first auditing assignment. She is to examine an account. An analysis of the account has been prepared by the client for inclusion in the audit working papers. Prepare a list of the comments and notations that the staff accountant should make on the account analysis to provide an adequate working paper as evidence of her examination. (Do not include a description of auditing procedures applicable to the account.) [Adapted and reprinted with permission from AICPA. Copyright © 2000 & 1985 by American Institute of Ceritified Accountants.] Download 2.36 Mb. Do'stlaringiz bilan baham: 
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||