Question

You are a manger in Spring & Co. You are reviewing the audit file of Autumn Co which is nearing completion. You have noted several issues during your review:

 Several working papers have not been signed as reviewed. You are aware that a review has been taken but this is not documented on the file.

 One audit working paper states that a sample of 30 purchase invoices should be tested but the results of the test show only 15 invoices were tested. Several other areas document that samples sizes were reduced in order to save time.

 In the subsequent events review section of the file, the audit senior has documented that they have enquired of management whether there have been any subsequent events and were told that there have not been any. No further work was considered necessary as a result.

a. Which of the following statements are true in respect of the reduction in sample sizes? (1 Mark)

i. The audit has not been followed.

ii. Sufficient appropriate evidence may not have been obtained.

iii. Material misstatements may go undetected.

iv. Those sections will need to be reviewed by a manager and the manager will form a conclusion on the balances.

(1) 1, 2 and 3 only.

(2) 2 and 4 only.

(3) 1, 3 and 4 only.

(4) 1, 2, 3 and 4.

b. Select whether the following statements are true or false in respect of the subsequent events review of the Autumn Co.

(1) Enquiry does not provide sufficient appropriate evidence on its own.

(2) The auditor has demonstrated a lack of professional secpticism.

(3) A written representation should have been obtained from management confirming that they have disclosed all subsequent events to the auditor.

(4) The auditor only needs to perform procedures if they are made aware of any subsequent events.

c. Select whether the following statements are true or false in respect of review of audit working paper.

(1) The audit engagement partner will review all working papers on the audit file before issuing an opinion.

(2) If working papers have been reviewed there is no quality control issue arising from the lack of documentation.

(3) All working papers should be signed by the person who prepared them.

(4) All team members’ work should be reviewed by someone more senior than the preparer.

Answer 1

 

Part A) Option 1 - 1, 2 and 3 only

As per the audit plan, 30 invoices should have been tested but only 15 invoice sample tests results are recorded and the review papers were not signed.

This indicates that the audit was not followed up and sufficient and appropriate evidence was not obtained due to which material misstatements may go undetected.

The audit manager's duty is to review the audit work performed. The manager cannot do the pending work and form conclusions. He should issue directions to the team and direct them to gather further evidences and complete the pending work. No conclusions can be formed from the incomplete work performed.

Part B) Option 3 - A written representation should be obtained

The audit team has enquired the management about any occurence of any subsequent events affecting the financial position of the management. Enquiry is an accepted audit procedure, however, the results of the enquiry cannot be accepted as a valid audit evidence unless it is recorded in the document.

The auditor shall obtain a written represtation from the management that they have disclosed all the subsequent events to the auditor. This document will act as a valid document tot support the enquiry made.

Part C) : True/False :

(1) True - It is the duty of the audit engagement partner to review all the working papers before issuing an audit opinion.

(2) True - Working papers are necesary for audit quality control purposes. Working papers act as an evidence for the audit work and review whether quality of audit was as per the standards prescribed.

(3) False - The working papers should be signed by the person who reviews it.

(4) False - The work of the audit team members should be reviewed by the engagement partner who is responsilble for the audit