The benefits of audit documentation software such as

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: of adjusting journal entries are automatically carried through to the trial balance and financial statements, making lastminute adjustments easier to make. Tick marks and review notes can be entered directly into computerized files. Data can be imported and exported to other applications. For example, a client’s general ledger can be downloaded into ACE and tax information can be downloaded into a commercial tax preparation package after the audit is completed. Multiple Choice Questions From CPA Examinations 7-27 a. (2) b. (1) c. (4) d. (4) 7-28 a. (3) b. (3) c. (4) d. (4) 7-12 Discussion Questions And Problems 7-29 a. 1. 2. 3. 4. 5. 6. * ** External Internal External External Internal* Internal 7. 8. 9. 10. 11. 12. Internal Internal External Internal* External External** 13. 14. 15. 16. 17. 18. Internal External Internal External External External Even though these may be signed or initialed by employees, they are still internal documents. Bills of lading are ordinarily signed by the freight company. That signature will be included on the top of the bill of lading, therefore, it is an external document. b. External evidence is considered more reliable than internal evidence because external evidence has been in the hands of both the client and another party, implying agreement about the information and the conditions stated on the document. 7-30 1. (5) inquiry of client 2. (8) observation 3. (1) physical examination 4. (2) confirmation 5. (6) recalculation 6. (2) confirmation 7. (3) documentation 8. (4) analytical procedures 9. (5) inquiry of client 10. (7) reperformance 11. (8) observation 12. (1) physical examination 13. (4) analytical procedures 14. (3) documentation 15. (5) inquiry of client 16. (4) analytical procedures 17. (3) documentation 18. (6) recalculation 19. (1) physical examination 20. (2) confirmation 7-13 7-31 Examples of audit evidence the auditor can use to support each of the functions are: a. Examine invoice from vendor Direct confirmation with vendor b. Physical examination Direct confirmation with custodian c. Direct confirmation with customer Examine cash receipts journal and bank deposits for subsequent cash receipts d. Examine title for ownership of asset Examine invoice from vendor e. Direct confirmation with vendor Examine client's copy of vendor's statement f. Physical examination Examine sales invoice of subsequent sale of goods showing marked down sale price g. Count petty cash Direct confirmation with custodian 7-32 a. b. c. d. e. Confirmations are normally more reliable evidence than inquiries of the client because of the independence of the outside party confirming the information. Confirmation of bank balances is considered highly reliable whereas confirmation of a department store charge account is often not considered reliable. Banks are accustomed to confirmations from auditors and normally maintain excellent accounting records, whereas most customers of department stores have neither characteristic. If an auditor is not qualified to distinguish between valuable inventory (e.g., diamonds) and worthless inventory (e.g., glass), the physical examination of inventory would not be considered to be reliable evidence. Recalculation tests are highly reliable because the auditor is able to gain 100% assurance of the accuracy, but the tests only verify whether the recorded amounts are accurately totaled. These tests do not uncover omissions or fictitious amounts. Relatively reliable documentation examples include: vendor statements, bank statements, and signed lease agreements. Relatively unreliable documentation examples may be: copies of customer invoices, internal memoranda and other communications, and a listing of fixed asset additions. The difference between reliable and unreliable documentation examples above is whether they originate from outside or inside the client's organization. External information is considered more reliable than internal documentation. 7-14 7-32 (continued) f. Confirmation of accounts receivable - Corporation accustomed to confirmations compared to a member of the general public. 2. Examination of the corporate minutes - Experienced partner compared to a new assistant. 3. Physical observation of inventory - Auditor knowledgeable in the client's inventory compared to one who is not. 4. g. 1. Attorney's letter - General counsel compared to an attorney involved only with patents. Analytical procedures are evidence of the likelihood of misstatements in the financial statements, but they are rarely sufficient by themselves to conclude that the statements are misstated. Other supportive evidence is needed to determine whether apparent misstatements are actually material. 7-33 ACCOUNT NAME CASH IN BANK FROM WHOM CONFIRMED INFORMATION TO BE CONFIRMED All banks in which Star had deposits during the year including those which may have had an account that was closed out during the year. 7-15 Name and address of the bank. The amount on deposit for each account as of the balance sheet date plus the name of each account, the a...
View Full Document

Ask a homework question - tutors are online