How long does audit documentation have to retained?
By SAS rules (non-issuers) 5 years; by PCAOB rules (issuers) 7 years
When does the final audit documentation have to be assembled by?
SAS(non-issuers)=60 days; PCAOB (issuers)=45 days
What are the specific contents of audit workpapers/documentation?
(1) permanent file (carried forward from year to year); (2) Current File (all documentation for year under audit including summary of significant audit findings)
What do substantive procedures consist of?
(1) Tests of details applied to transactions, balances, and disclosures (usually done on details of transactions, ending balances, or the combination of the two); (2) Substantive analytical procedures (generally involve comparisons or actual to budget)
What are analytical procedures?
Often involve a comparison of current and prior year's financial statements and current year's budget; auditor also develops independent expectations for comparison based on recorded amounts
Can an analytical procedure be used as the principal substantive test of a significant financial statement assertion?
Yes, but must document justification
What are the 14 audit procedures that are used in every audit?
(FIVE CARROT CARS) Footing(adding down), crossfooting(adding across) and recalculation; Inquiry (internal and external); Vouching (going from financial statements back to supporting documents); Examination/inspection (generally existence assertion); Confirmation (obtaining representations from third parties); Analytical procedures (studying meaningful relationships among data); Reperformance (auditor independently performs procedures or controls originally performed by entity); Reconciliation (substantiates existence and valuation of accounts); Observation (occurs when an auditor looks at a process or procedure performed by others); Tracing(looking for coverage in opposite direction as vouching); Cut-off review (of year end transactions); Auditing related accounts simultaneously (allowable for long-term liabilities and interest expense; capital additions to plant and equipment and repairs and maintenance; and investments, dividends, and interest income); Representation letter (from management at conclusion of fieldwork); Subsequent events review
What are the matching auditing procedures for Completeness?
(1) Tracing; (2) Analytical Review; (3) Observation
What are the matching auditing procedures for cut-Off?
What are the matching auditing procedures for Valuation, Allocation, and Accuracy?
(1) Inspection; (2) Footing; (3) Independent Recalculation; (4) Reconciliation
What are the matching auditing procedures for Existence and occurrence?
(1) Confirmation; (2) Observation, inspection, and examination; (3) Vouching
What is the matching auditing procedure for Rights and obligations?
What are the matching auditing procedures for Understandability and classification?
(1) Inspection; (2) Review; (3) Inquiry of management
What are the transaction cycles?
(1) Revenue (sales revenue, receivables, and cash receipts); (2) Expenditure (includes purchases, payables, and cash disbursements); (3) Inventory (perpetual inventory, physical counts, manufacturing costs); (4) Investments (in debt and equity and income received from investments); (5) Property, Plant, and Equipment (acquisitions and disposals and related depreciation expense); (6) Payroll and Personnel (includes payroll (salaried and hourly) and personnel functions); (7) Financing (debt and equity, repayments to borrowers, interest expense, and dividends)
Are A/R confirmations required?
Yes, unless: (1) receivables aren't material; (2) confirmation would be ineffective; (3) inherent and control risk very low; if not sent, auditor must document how omission was acceptable
What is lapping?
Today's cash receipts cover yesterday's theft (use a lockbox to guard against)
What is kiting?
Cash in two places at once (on Dec. 31st) because of writing a check from one place to the other