Chapter 5 AUDIT
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Administrative working papers
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Working papers specifically designed to help the auditors in the planning and administration of the engagement, such as audit plans, internal control questionnaires and flowcharts, time budgets, and engagement memorandum.
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Audit evidence
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Any information that corroborates or refutes the auditors' premise that the financial statements present fairly the client's financial position and operating results.
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Audit risk
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The risk that the auditors may unknowingly fail to appropriately modify their opinion on financial statements that are materially misstated.
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Inherent risk
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The risk of material misstatement of a financial statement assertion, assuming there were no related controls.
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Permanent File
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A file of working papers containing relatively unchanging data, such as copies of articles of incorporation and bylaws; copies of minutes of directors', stockholders', and committee meetings; and analyses of such ledger accounts as land and retained earnings.
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Substantive procedures
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Procedures performed by the auditor to detect material misstatements in account balances, classes of transactions, and disclosures.
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Working papers
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Papers that document the evidence gathered by auditors to show the work they have done, the methods and procedures they have followed, and the conclusions they have developed in an audit of financial statements or other type of engagement.
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Working trial balance
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A working paper that lists the balances of accounts in the general ledger for the current and the previous year and also provides columns for the auditors' adjustments and reclassification and for the final amounts that will appear in the financial statements.
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Analytical procedures are substantive procedures that may be used to provide evidence about specific accounts and classes of transactions. a. Describe three major types of comparisons the auditor might make in performing analytical procedures. b. At what stages of the audit are analytical procedures performed and what purpose do they serve at each stage?
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a. Comparisons made in performing analytical procedures include: • Comparisons with prior years' data. • Comparisons with budgets and forecasts. • Comparisons with industry statistics. • Comparisons with nonfinancial data. • Comparisons of predictable relationships based on past history. b. Analytical procedures may be performed: 1. During risk assessment to identify items that require more audit attention (required analytical procedures). 2. Throughout the audit as a substantive procedure for accounts or classes of transactions. 3. Near the end of the audit to corroborate audit evidence obtained during the audit to assist the auditor in drawing reasonable conclusions (required analytical procedures).
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Audit working papers are an integral part of an examination in accordance with generally accepted auditing standards. a. Describe three major functions of the audit working papers. b. Distinguish between the permanent working paper file and the current working paper file
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a. The functions of audit working papers include: • Provide a means of assigning and coordinating audit work. • Aid in review of the work. • Provide support for the auditors' report. • Document compliance with generally accepted auditing standards. • Aid in planning and conducting future audits. b. The permanent file is used to organize working papers of continuing audit interest over a number of years. The current file contains the administrative and evidence working papers for the year under examination.
