Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

The auditor should prepare working papers which are sufficiently complete and detailed to provide an overall understanding of the audit.

Required:
(a) State four benefits that an auditor would obtain from working papers that satisfy the
above requirement. (4 marks)
(b) List five items of information you would expect to be contained in a permanent
audit file and explain why each of these items of information should be readily available. (10 marks)
(c) In the audit or purchases, list four examples of the type of information that would be contained in the detailed audit working papers. (4 marks)
(d) Give any two reasons why a director should examine the directors‘ minute book.
(2 marks)
(Total: 20 marks)
ANSWER

(a)

• They are used as a basis for planning current year‘s audit.
• Through review of the working papers, the auditor can be able to control the current year‘s audit through a review.
• Working papers collected in investigating one part of the company‘s audit can be used for verification of another part.
• The audit working papers can be used as evidence of work done, in particular if the auditor has been sued for negligence.
• They can also be used as an accountability tool when each audit clerk has to give evidence of work done when questioned.
• Audit working papers are also used to assist in investigating the company‘s financial affairs.

(b)

• Statutory material governing the conduct, accounts and audit of theenterprise. These documents should be availed so that the nature of the business can be ascertained e.g. for a company, the Companies Act should be in the permanent file, for a partnership, a partnership deed would be necessary.
• Rules and regulations of the enterprise. This means Memorandum ofAssociation for a company or a partnership agreement for a partnership. These documents are necessary at any one time to settle any disputes should they arise.
• An organizational Chart. This shows the various departments and their heads.This information is important to ensure accountability in decision making.
• Lists of books and other records and where they are kept, names, positions,specimen signatures and initials of persons responsible for books and documents. This ensures certain people will be responsible in the event of their loss or destruction.
• List of accounting matters of importance e.g. accounting policies used formaterial areas such as stock, work-in-progress, depreciation e.t.c. This ensures consistency.
• An outline history of the organization. Special mention should be made ofthe history of the reserves, provisions, share capital and acquisition of subsidiaries. This verifies that the firm‘s finances are well managed within the proper legal framework.

(c)

• For cash purchases the auditor will need to include information such as copies of cash memos, bills etc. as supporting evidence of transaction carried out.
• For credit purchases the auditor will need copies of the day book, credit notes, and invoices for comparison with information collected from other sources.
• A copy of the purchases register for comparison with the above mentioned.
• Statements of confirmation from suppliers who will actually verify that they are being owed money for sales made to the company.
To get an accurate figure for purchases the auditor would need a copy of the purchases returns day book, to verify the deductions from gross purchases.

(d)

• To ensure that shares and debentures were issued at the quoted prices and uniformly to all qualified allotees.
• Should there be forfeiture of shares at any one time, it should be clearly stated that defaulters were given adequate warning concerning monies owed.
• For contracts signed for capital projects, the auditor needs to ensure that ALL signatories actually appended their signatures to the contract.
• Verify that title deeds for land owned actually exists and clearly indicates the company as the legal owners of the assets as stated in the Balance sheet.



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