audit program cpa exam oofs

8/10/2019 Audit Program CPA Exam OOFs

1/11


2/11

276

Problem5

MODULE

3

EVIDENCE

,/,,o*^u

(15

o

25 minutes)

Analytical

proceduresonsist

f evaluations

f finan-

cial

nformation

madeby

a studyof

plausible

elationships

among

oth inancial

and

nonfinancial ata.

They

ange

from simple omparisons

o

theuseof complex

models n-

volving many

elationships

ndelements

f data.

They n-

volve

comparisons

f recorded

mounts,

r ratiosdeveloped

from recorded

mounts,o

expectations

eveloped

y the

auditors.

Required:

a.

Describe

hebroad

purposes

fanalytical

procedures.

b.

Identify he sources

f

information

rom

whichan audi-

tor develops

xpectations.

c.

Describehe

actors hat

nfluence n

auditor's onsid-

eration f the

eliability

of data

or

purposes

f

achieving

auditobiectives.

Problem

9

(15

o

25 minutes)

Cole

& Cole,

CPAs,are

auditing he

inancial

tate-

ments f Consolidated

ndustries

o.

or

the

year

ended

December

1,

2001. On

April 2,2002,

an

nquiry etter o

J.

J. Young,

Consolidated's

utside

ttorney,

as

drafted o

corroborate

he

nformation

urnished

o Cole

by manage-

mentconcerning

ending

nd

hreatened

itigation, laims,

and

assessments,

ndunasserted

laims

and

assessments'

On

May 6,2002,C. R. Brown,Consolidated's hiefFinan-

cial Officer,

gave

Colea draft

ofthe

inquiry

etterbelow

or

Cole's

eview

before

mailing t to

Young.

Required:

Describe

he omissions,

mbiguities,

nd

nappropriate

statements

nd

erminology

n

Brown's

etterbelow.

J. J.

Young.

Attorney t

La w

123Main

Street

Anytown,

US A

Dear .J.

Young:

In connection

ith

an

auditof our

flnancial

tatements

at

December

,

200

,

and

or the

year

henended,

man-

agement

f the

Company

as

prepared,

nd

umished o

our

auditors,

ole

& Cole,CPAs,456

Broadway,

nytown,

USA,

a description

ndevaluation

f

certain ontingencies,

including

hose

et orth below

nvolving

matters

ith

re-

spect

o

which

you

havebeenengaged

nd

o

which

you

havedevoted

ubstantive

ttention

n

behalf

of the Com-

pany

n the

orm of legalconsultation

r representation.

Your

response

hould nclude

mattershat

existed t

De-

cember

,

200 . Because

f theconfidentiality

f all these

matters,

our

response

ay be

imited.

In November

001,an action

wasbrought

against

he

Company

y

an outside

alesman lleging

breach

f con-

tract

or sales

ommissions

nd

pleading second ause

f

action

or an

accounting

ith respecto claims or feesand

commissions.

hecauses

f action laim

damages

f

$300,000,

ut

the Company

elieves

t has

meritorious

e-

fenseso the

claims.

The

possible

xposure

f the Company

to

a successfut

udgment

on behalf

of the

plaintiff

s slight.

In July

199'7, n action

wasbroughtagainst

he Cont-

pany

by Industrial

Manufacturing

o.

(Industrial)

lleging

patent nfringement

ndseeking

amages

f

$20,000,000.

The

action

n US

DistrictCourt

esulted

n

a

decision n

October

16,2001,

holding

hat he Company

nfringed

seven

ndustrial

atents

nd

awarded

amages

f

$14,000,000.

he Company

igorously enies

hese

lle-

gations

nd

has

iled an appeal

with the US

Courtof

Ap-

peals or theFederalCircuit. The appeal rocesss ex-

pected

o take

approximately

wo

years,

but

there

s

some

chance

hat

ndustrial

may ultimately

revail.

Please

urnish o our

auditors

uchexplanation,

f

any,

that

you

consider

ecessary

o supplement

he

oregoing

information,

ncluding

an explanation

f those

matters

as o

which

your

views

may differ

from those

statedand an

den-

tification

of

the omission

of any

pending

or

threatened

iti-

gation,

laims,

and

assessments

r a statement

hat he

ist of

such

matters

s complete.

Your

response

aybe

quoted

r

referred

o in the

financial statements

ithout

further corre-

spondence

ith

you.

(15

o

25minutes)

Bell, CPA,

wasengagedo audit he inancial tate-

mentsof Kent

Company,

continuing

uditclient.

Bell

is

about o audit

Kent's

payroll

ransactions.

ent uses

n n-

house

ayroll

department

o compute

ayroll

dataand

pre-

pare

anddistribute

ayroll

checks.

During he

planning

rocess, ell determinedhat

he

inherent isk

of overstatement

f

payroll

expense

s high.

In

addition,

Bell obtained

n understanding

f

internal ontrol

and

assessedontrol

isk

at

he

maximum evel

or

payroll-

related ssertions.

Required:

Describeheaudit

procedures

ell

should onsider

er-

forming n the auditof Kent'spayroll ransactionso ad-

dress he

risk of overstatement.

o not discuss

ent's n-

ternal

ontrol.

Problem

7

appears

n the

ollowing

page.

Problem E

(15

o

25 minutes)

Green,

CPA,

s auditing he

inancial tatements

f

TaylorCorporation

or the

year

ended

December 1,

2001.

Green

lans

o complete

he ieldwork

andsign he

auditor's

report aboutMay 10, 2002. Greens concerned bout

events nd ransactions

ccurring

fter

December 1,

2001,

that

may affect he

2002 inancial

statements.

Required:

a.

What

are

he

general

ypesof

subsequent vents

hat

requireGreen' consideration

ndevaluation?

b. What are

he auditing

proceduresGreenshould

con-

sider

performing

o

gather

evidence

oncerning ubsequent

events?


3/11

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4/11

.

OTHEROBJECTIVEOUESTIONS

[/( T

'

Problem

I

262

F

nancal s atement

s e tion

A.

Completeness

B.

Existence

r Occurrence

C. Presentation

nd

Disclosure

D.

Rights

andObligations

E.

Valuation

r Allocation

MODULE

3 EVIDENCE

(15

o 25 minures)

Audit

procedure

F.

Examine

urrent endors'

price

ists.

G. Review

drafts

of the inancial tatements.

H.

Select

sample f items

during he

physical

nventory

ountanddetermine

that heyhave

been

ncluded

n count

sheets.

L

Select sample

f recordedtems

andexamine upporting

endors'

nvoices

andcontracts.

J.

Select sample

frecorded tems

on countsheets

uring he

physical

nven-

tory count

anddetermine

hat

tems

are

on

hand.

K.

Test easonableness

f

direct

abor

ates.

In

obtaining videntialmatter

n support

ffinancial

statement

ssertions,he auditor

develops

pecific udit

objectivesn

light

ofthoseassertions.

udit

procedures

re hen

selectedo

accomplish udit

objectives.

Required:

Your

client s Hillmart,

a retaildepartment

tore

hatdoesno

production.

For

each pecific nventory

uditobjectiveisted

below

select he most

closely elated

inancial

tatement

ssertion nd he most

appropriate

udit

procedure.

inancial

tate-

ment

assertions

ndaudit

procedures

ay

be selected

nce,more

hanonce,or not at

all.

Specificaudit obiective

1.

The entityhas

egal

itle o

inventories.

2. Recorded

nventory

uantities

nclude

all

products

n hand.

3. Inventories

re educed,

henappropriate,

o replacement

cost

or net ealizable

alue.

4.

Costof inventories

s

properly

alculated.

5. The major

categories

f inventories

nd heirbasis

of

valua-

tion

areadequatelyeported

n the inancial

tatements.

Problem

2

(15

o 25 minutes)

To

support inancial

tatement

ssertions,

n auditordevelops

pecific udit

objectives. he

auditor hen

designs ubstan-

tive tests

o

satisfy

or accomplish

achobjective.

Required:

Items

I through

10 represent

uditobjectives

or

the

nvestments,

ccountseceivable,

nd

property

ndequipment

c-

counts.

To the ight

of each et

of audit

objectivess

a

listing

of

possible

udit

procedures

or that

account.For

eachauditob-

jective,

select he

audit

procedure

hat would

primarily

espond

o the objective.

Select nly

one

procedure

or

each

auditob-

jective.

A

procedure

maybe selected

nly

once,or not

at all.

Items

to be answered

l .

Audit

obiectives

br

investments

Investments

re

properly

described

nd

classifiedn

the inancial tatements.

Recorded

nvestments

epresentnvestments

ctually

owned

at hebalance heet

ate.

Trading nvestments reproperlyvaluedat fair market

valueat

thebalance heet

ate.

Audit

n

oc

edure

fo

investment

Traceopening

alancesn

the subsidiaryedger

o

prior

year's

auditworking

papers.

Determine

hatemployees

ho are

authorizedo sell

investments

o not

haveaccess

o cash.

Examine

upporting

ocumentsor

a sample

f

invest-

ment ransactionso verifv thatorenumbered ocu-

ments

areused.

Determine

hat

any

mpairments

n

the

price

of

invest-

ments

havebeen

properly

ecorded.

Verify that transfers

rom the

current o the noncurrent

investment

ortfolio

have

been

properly

recorded.

Obtain

positive

onfirmations

sof

thebalance heet

dateof investments

eld

by independent

ustodians.

Trace nvestment

ransactions

o

minutes

f theBoard

of Directorsmeetings

o determine

hat ransactions

were

properly

authorized.

)

3.


5/11

MODALE

3

EVIDENCE

263

4.

Audit objectives

or

accounts

eceivable

Accounts

eceivable

epresent ll

amounts

owed o the

entityat

he balance

heet ate.

The entity

has egal

right to all accounts

eceivable t

the balance

heet ate.

Accounts

eceivable restated

t

net ealizable

alue.

Accounts eceivable reproperlydescribed ndpre-

sented

n the inanci al

tatements.

Audit obiectives.for

ropertv

& equipment

The entity

has egal

ight o

property

ndequipment

acquired

uring

he

year.

Recorded

roperty

nd

equipment

epresent ssets

hat

actually

xist

at hebalance

heet ate.

Net

property

nd

equipment re

properly

aluedat he

balance heet

ate.

Audit

Drocedures

or

accounts

eceivable

A.

Analyze he

relationship

of accounts

eceivable

nd

sales nd

compare

t

with relationships

or

preceding

periods.

B. Perform

sales utoff

tests

o obtain assurance

hat

sales

transactions

ndcorresponding

ntries

or inventories

andcostofgoods

sold

are

ecordedn the

same nd

properperiod.

C. Review he aged rial balanceor significant astdue

accounts.

D. Obtainan

understanding

fthe

business

urpose

f

transactions

hat

esulted

n accounts

eceivable al-

ances.

E. Review

oanagreements

or indications

f

whether

accounts

eceivable

avebeen actored

r

pledged.

F.

Review he

accounts

eceivable

rial balance

br

amounts ue

rom officers

and

employees.

G.

Analyze

unusual

elationships

etween

monthly

ac-

counts

eceivable

alances

nd

monthlyaccounts

ay-

ablebalances.

C .

D.

E.

F.

G.

Audit

procedures

for

propert!

&

eauipment

Traceopening

alances

n the summary

chedules

o

the

prior year's

audit

working

papers.

Review he

provision

or depreciation

xpense

nd

determine

hat

depreciable

ives

and

methods

sed

n

thecurrent

ear

areconsistent

ith those sed

n the

prior

year.

Determine

hat he

esponsibility

or

maintaininghe

property

and

equipment

ecords

s segregated

rom

the

responsibility

br custody

f

property

ndequipment.

Examine

eeds

nd itle

nsurance ertificates.

Perform

cutofftests

to

verify that

property

and equip-

mentadditions

re

ecorded

n the

proper

period.

Determine

hat

property

nd

equipment

s adequately

insured.

Physically

xamine

ll

major

property

nd

equipment

additions.

6.

8.

9.

10.

(15

o

25 minutes)

Analytical

procedures

rean

mportant

art

ofthe audit

process. hey

consist

fevaluations

ffinancial

nformation

made

studyof

plausible

elationships

mong

oth

inancialand

nonfinancial ata.

Analytical

procedures

aybe

performed

planning,

sa substantive

est,

or asa

part

ofthe overall

eviewofan audit'

For

tems through

10, select

he stage

f the audit

or which he

statement

s mostaccurate

sing

he

ollowing

eplies:

he audit.

eview.

s not correct oncerning

nalytical

rocedures.

may be selected

nce,

more han

once,or not at

all.

be answered oncerning

analytical

procedures

required o

be

performed

during

this stage.

ocuson enhancing

he

auditor's nderstanding

fthe client's

business

nd he

ransactions

ndevents

hat

have

occurred

ince he as taudit

date.

ocus on

identifying areas

hat

may represent pecific

isks relevant o

the audit.


6/11

MODULE 3

EVIDENCE

Statements,

uestions,

xcerpts, nd

comments

We have

no

plans

or

intentions hat

may materiallyaffect

he canying

value or

classification

f assets nd

iabilities.

As

discussed

n Note

14 o the

inancial tatements,

he Company

ashad

numerous ealings

with businesses

ontrolled y,

and

people

who are

elated

to, the

officersof the

Company.

There

were unreasonable elays

by

management

n

permitting

he commence-

mentof the auditand n providingneedednformation.

If this statement

s not correct,

lease

write

promptly,

using

heenclosed

nve-

lope,and

give

details f

anydifferences

irectly

o our auditors.

The Company

as

suff'eredecurring

osses

rom

operations

nd

hasa net

capitaldeficiency

hat

aises ubstantial

oubtabout

ts ability o continue

sa

going

concern.

(15

o 25 minutes)

Items

I through 15

represent

series f unrelated

rocedures

hatan accountant

ay consider

erformingn

separate

n-

o

review he

lnancial tatements

f a

nonpublic ntity

a

review)and o

compile

he

inancial tatements

f a non-

entity acompilation).Select, s hebestansweror each tem,whether heprocedures required&l or not required

,

for

both

eviewand

compilation

ngagements.

ake wo

selections

or

each

tem.

Procedures

accountant

hould

stablishn

understanding

ith

9.

theentity

egardinghe

nature nd

imitations f the

ser-

vices o be

perfbrmed.

10.

The accountant

hould

make

nquiries oncerning

ctions

takenat he board

of directors'

meetings.

The accountant,

s he

entity's

successorccountant,

ll .

should

ommunicate

ith the

predecessor

ccountant

o

obtain

accesso the

predecessor'sorking

papers.

The accountanthouldobtaina evelof knowledge f the 12.

accounting

rinciples

nd

practices

f

theentity's

ndus-

try.

The accountant

hould

obtainan understanding

fthe

13.

entity's

nternal ontrol.

The accountant

hould

perform

analytical

rocedures

designed

o

identify elationships

hatappear

o be un-

14.

usual.

The accountant

houldmakean

assessment

fcontrol

risk.

The accountant

hould end

a letterofinquiry

to theen-

15'

tity's attomey o corroboratehe nformationurnished y

managementoncerning

itigation.

269

.

.

The accountant

hould

obtaina

management

epresenta-

tion

etter

rom the entity

The accountant

hould

study he

elationshipsf

the i-

nancial tatement

lements

hatwould be expected

o

conform

o a

predictable

attern.

The accountant

hould

ommunicate

o the

entity'ssen-

ior management

llegalemployee

ctsdiscovered

y

the

accountant

hatare

clearly

nconsequential.

The accountanthouldmake nquiries boutevents ub-

sequento the

dateof

the

inancial tatements

hat

would

have

a

material ffect

on the

inancial tatements.

The accountant

hould

modify he

accountant's

eport

f

there s a change

n

accounting

rinciples

hat

s ade-

quately

isclosed.

The

accountant

hould

ubmita hardcopy

of the

inan-

cial statements

nd

accountant's

eport

when he

inan-

cial

statements

ndaccountant's

eportaresubmitted

n

a computer

isk.

The accountant

hould

perfbrm

specific

procedures

o

evaluate

hether here

s substantial

oubtabout

heen-

tity'sabil ity

o continue

sa going oncern.

/

(15

o 25 minutes)

Items

I through

L2 represent

ossible

errorsand

rregularities

hat an auditor

suspects

re

present.

The accompanying

lsl

Procedures

epresents

rocedures

hat

the auditor

would consider

performing o

gather

evidence

oncerning

ossi-

and

rregularities.

For each tem,

selectone or two

procedures,

s

ndicated,

hat the

auditor most

ikely

would

per-

gather

evidence

n support

ofthat

item. The

procedures

n the

ist may be selected

nce,

more han

once,or

not at all.


7/11

270

MODULE 3 EVIDENCE

Possible

misstatementsue o errors and

fraud

1. The

auditor

uspects

hat

a kiting scheme

xists ecause n accounting epartmentmployee

ho

can

ssue

and

ecord

checks eemso be eading n unusuallyuxurious ifestyle.

(Select

nly L

procedure)

2. The

auditor

suspects

hat

he controllerwrote

several hecksand recorded he cashdisbursementsjust efore

year-end

ut

did not mail the checksuntil after he first week of

the

subsequent

ear.

(Select

only L

procedure)

3. The entity borrowed unds rom a financial nstitution. Although the transactionwas

properly

ecorded, he auditor sus-

pects

hat

he oan

created

lien

on theentity's

eal

estatehat s not disclosed

n its financial

tatements.

Select

nly

1

procedure)

4. The auditor iscovered n unusuallyarge eceivablerom

oneofthe entity's

new customers. he

auditor

uspects

hat he

receivable

ay be

ictitious

becausehe auditorhasneverheard

f

the customer ndbecausehe auditor's nitial attempt o

confirm he eceivable asbeen gnored

y thecustomer.

Select

nly 2

procedures)

5. The

auditor

uspectshat ictitious

employees

ave

been

placed

n the

payroll

by theentity's

payroll

supervisor,

ho has

accesso

payroll

ecords

nd o the

paychecks.

Select

nly I

procedure)

6. The auditor uspectshatselected mployees

f theentity

eceived

nauthorized

aisesrom

the entity's

payroll

supervisor,

who hasaccesso

payroll

ecords.

Select

nly I

procedure)

7. Theent i ty 'scashreceiptsof thef i rst fewdaysof thesubsequent yearwereproper lydeposi tedin i tsgeneral

perat ingac-

countafter he

year-end.

However,

he auditor uspectshat he

entity

ecordedhecash eceiptsn its booksduring he

lastweekofthe

year

underaudit.

Select

nly

I

procedure)

8. The auditor uspectshatvouchers ereprepared ndprocessedy an accounting epart ment mployeeor merchandise

that

wasneither

rdered

or received

y the entity.

(Select

nly 1

procedure)

9. The

details f

invoices br

equipmentepairswerenot clearly dentified r explainedo the accounting epart ment mploy-

ees.

The

auditor uspectshat hebookkeepernconectly ecordedhe epairs s ixed assets.

Select

nly I

procedure)

10. The

auditor

uspectshata lapping

cheme xistsbecause n accounting epar tmentmployeewho hasaccesso cash e-

ceiptsalsomaintainshe accountseceivableedger

nd

efuses

o take

any vacation r sick

days.

Select

nly

2

proce-

dures)

I l. The

auditor uspectshat heentity s inappropriatelyncreasing

hecash

eported n its balance

heet

y drawing

a check

on

oneaccount nd

not recordingt

asan outstandingheckon thataccount ndsimultaneouslyecordingt asa deposit n

a second ccount.

Select

nly I

procedure)

12. The

auditor

uspects

hat heentity'scontroller asoverstatedales ndaccountseceivable y recordingictitioussales o

regular

ustomers

n

theentity's

books.

Select

nly 2

procedures)

B .

C .

List

of audi

Compare he detailsof the cash eceipts

ournal

entrieswith

the detailsofthe correspon ding aily depositslips.

Scan he debits o the

ixed

asset ccounts nd vouch se-

lected

amounts o

vendors'

nvoicesand manasement's u-

thorization.

Perform analytical

procedures

hat compare

documented

authorized

ay

rates

o the entity's budgetand

orecast.

Obtain the cutoff bank statementand compare

he cleared

checks o the

year-end

ank

reconciliation.

Prepare

bank ransfer chedule.

Inspect

he entity's deeds o

its real

estate.

Make inquiries

of the entity's attorneyconcerning he

de-

tails of

real

estate ransactions.

Confirm the terms

of borrowing arrangementswith the

lender.

Examine selected

equipment

repair

orders and supporting

documentationo determine he

propriety

of the charges.

Send equests o confirm the entity's accounts eceivable

n

a surprise basis at an interim

date.

Send a second equest or confirmation

of the

receivable

o

the customerand make nquiriesof a reputable

redit

concernins he customer's reditworthiness.

res

L. Examine

he

entity's shipping

documents o

verify

that he

merchandise

hat

produced

he

receivablewas

actuallysent o

the customer.

M. Inspect

he

entity's

correspondence

iles for indications

of

customerdisputes

or

evidence hat certainshipmentswere

on consignment.

N. Performedit checksof dataon the

payroll

transaction apes.

O. Inspect

payroll

checkendorsementsor similar handwriting.

P. Observe

payroll

checkdistributionon a surprise asis.

Q.

Vouch data

n the

payroll

register

o documented uthorized

pay

rates n the human esources

epartment's

iles.

R. Reconcile

he

payroll

checkingaccountand determine

f

there

were

unusual ime

lags

between he

ssuance

nd

pay-

ment ofpayroll checks.

S. Inspect the

file

ofprenumbered

vouchers or

consecutive

numbering and

proper

approval by an appropriate employee.

T. Determine that the details

of

selected

prenumbered

vouchers

match he

relatedvendors'

nvoices.

U. Examine he supporting

purchase

rdersand receiving e-

ports

fbr selected

paid

vouchers.

D.

E.

F.

G.

H.

I.

J .

K.


8/11

MODALE 3

EVIDENCE

12

(15

o 25 minutes)

This

consists f

19 tems. Select hebestanswer

or

each

tem. Usea No. 2

pencil

o blacken he appropriate

valson the

Answer

Sheet

o indicate

your

answers.

Answer all items. Your

grade

will be basedon the

total numberof correct

Items

I through 19 represent series funrelated

tatements,

uestions,

xcerpts,

ndcommentsaken

rom various

arts

workingpaper ile. On thenextpage heres a listof the ikely sources f thestatements,uestions,xcerpts,

comments.Select, s he

bestanswer or each

tem,

he

most ikely source.Select nly

one source

or

each

tem. A source

be selected

nce,more hanonce,or

not at all.

our auditwe discovered vidence

f thecompany'sailure o safeguard

nventory

rom oss,damage, nd

misap-

propriation.

The company ons idershedecline

n

value

of equity

securities lassified savailable-for-sale

o be emporary.

Was

hedifference

f opinionon the accrued

ension

iabilities hatexisted etween

he engagement

ersonnel

nd he

actuarial

pecialistesolved

n

accordance

ith

firm

policy

andappropriately

ocumented?

Our audit

s designedo

provide

easonablessurancef detecting

misstatementshat,

n our

udgment,

ould

havea mate-

rial effbcton the

inancial tatementsakenasa

whole. Consequently,ur audit

will not necessarilyetect

ll misstate-

ments hatexistdue o efTor,

raudulentinancial eporting, r

misappropriationf assets.

havebeenno communicationsiom regulatory genciesoncerning oncompliance ith or deficienciesn financial

reporting

ractices.

Nothingcame o our attentionhat

caused s o believe hatat October

,

2000, here

wasanychange

n

thecapital

stock,

increasen long-term ebt,

or decrease

n

consolidated

etcurrent ssets r stockholders'

quity

as

compared

ith

the

amounts

hown n the September

0. 2000unaudited ondensed

onsolidatedalance

heet.

our

opinion hat he

possible

iabil ity o thecompany

n

this

proceeding

s

nominaln amount.

As discussed

n Note4 to the

inancial tatements,hecompany xperienced

net

oss or the

year

ended uly 3

,

2000,

andiscurrent ly indefaul tundersubstant ia l lya l l

f i tsdebtagreements.

naddi t ion,onSeptember25,2000, thecompany

filed a

prenegotiated

oluntary

etition

br relief underChapter

I of the US Bankruptcy

Code.

Thesematters aise ub-

stantial oubt bout

hecompany's bil ity

o continue sa

going

oncern.

year

underaudit,

we wereadvised hatmanagementonsulted

ith Better

& Best,CPAs.

The

purpose

f this

consultation as o obtainanotherCPA firm's opinionconcerninghecompany's ecognition f certainevenuehatwe

believe

hould

be deferred

o future

periods.

Better& Best'sopinion

was

consistent

ith our opinion,so management

id

not

recognize

he

revenuen thecurrent

ear.

any elieveshatall

material xpenditureshat

havebeendeferredo

future

periods

will

be

recoverable.

of

professional

udgment

and he assessment

f audit isk andmateriality

or the

purpose

f our auditmean hat

mattersmay haveexisted hat

would havebeenassessedifferently y

you.

We

makeno representations o the

suffi-

ciency

or appropriatenessf the

nformationn our working

papers

br

your purposes.

n

the space

rovided

elow

whether

his

nformation grees

ith

your

ecords.

f

thereare

exceptions,

lease

provide

any nformation hat

will

assist

he auditor n reconciling hedifference.

checks re

maintainedn an unlocked abinet

longwith the check-signing

achine.

Blank

checks

nd he check-

signing

machine houldbe ocked

n

separate

ocationso

prevent

heembezzlement

f

funds.

cannot e

reliedupon o disclose

ignificant eficiencies

n

thedesign

r operation

finternalcontrol.

Neverthe-

less,

we will

communicate

o

you

all

reportable onditions nd

potential

reas

or improvement

hatwe become ware f

during

hecourse f our audit.

imetable etby

managemento complete ur audit

was

unreasonable

onsidering

he ailureof the company's

erson-

nel o complete chedules

n a timely basisand

delays n

providing

necessary

nformation.

mployees avedisabled

he antivirus etection oftware

n theirPCsbecause

he software lows he

processing

of dataand

occasionallyings

alse

alarms.

The company houldobtain

antivirus oftware

hat unscontinuously

t all

system ntry

points

and hatcannot e disable

y unauthorized

ersonnel.

connection

ith an auditof our

inancial tatements, anagement

as

prepared,

nd

urnishedo our auditors,

descrip-

tion andevaluation

f certain ontinsencies.

271


9/11

272

MODALE 3

EVIDENCE

18. The company

asno

plans

or

intentions

hat

may materially ffect

hecarrying

alueor classification

f assets nd

iabili-

t ies.

19. In

planning

he sampling

pplication,

as

appropriate

onsideration

iven

o the

elationship f the sample

o the audit

objective

nd o

preliminary

udgments

bout

materialityevels?

A.

B .

C.

D.

E.

F.

List

of

Sources

Practitioner'seporton

management'sssertion

I.

aboutan entity's

compliance

ith

specified

e-

J.

quirements.

K.

Auditor'scommunicationsn

reoortable onditions.

L.

Audit

inquiry etter o legalcounsel.

Lawyer's

esponseo audit

nquiry etter.

Audit

committee's

ommunication

o the auditor.

Auditor'scommunication

o the audit

committee

(other

han

with respecto

reportable onditions).

Reporton the application

faccounting

rinciples.

Auditor'sengagement

etter.

Letter

br underwriters.

Accountseceivable onfirmationequest.

Request

or bankcutoff statement.

Explanatory

aragraph

fan auditor's

eporton fi-

nancial

tatements.

Partner's

ngagement

eview oles.

Management

epresentationetter.

Successor

uditor's ommunication

ith

predecessor

auditor.

Predecessor

uditor's ommunication

ith

successor

auditor.

M .

N.

o.

P.

.

H.

Problem13

(15

o

25 minutes)

Required:

a.

Items I through

10 representick

marks

symbols)

hat ndicate

rocedures

ertbrmed

r comments

ocumented

n

audil

ing the Long-term debt

account f

AmericanManufacturers,

nc.

Select,

rom

the

ist of

procedures/comments

elow, he

procedure/comment

hat heauditor

most ikely

performed/documentedt each

point

of the audit

wherea tick mark

wasmade

on

the

working

papers.

Select

nly one

procedure/comment

or each

tem. A

procedure/comment

ay be selected

nceor

not

at all.

Assume hat he

working

papers

bot andcrossfoot.

b. Items 1 through 18

representick marks

symbols)

hat ndicate

rocedures

ertbrmed

r comments ocumented

n

au-

diting he

Property,

plant,

and equipment

andAccumulated

depreciation

accounts f

AmericanManufacturers,

nc. During

the

year

under

audit,American

Manuf'acturers

urchased

ewcomputers irectly

rom

wholesalersndconstructed

n addition

tooneof i tsbui ld ings.hecompany'semployeesalsorefurbishedthef ixturesofseveralo lderbui ld ings.e lect , f iomthel ist

of

procedures/comments

elow, he

procedure/comment

hat he auditor

most ikely

performed/documentedt each

point

of the

audit

wherea tick mark

wasmadeon the working

papers.

Select

nly one

procedure/commentor each

tem. A

proce-

dure/comment

aybe

selected nceor not at all.

Assume

hat

he working

papers

oot

andcrossfbot.


10/11

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