审计学：一种整合方法 阿伦斯 英文版 第12版 课后答案 Chapter

Chapter 13

Overall Audit Plan and Audit Program

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Review Questions

13-1 The five types of tests auditors use to determine whether financial statements are fairly stated include the following:

? Risk assessment procedures ? Tests of controls ? Substantive tests of transactions ? Analytical procedures ? Tests of details of balances While risk assessment procedures (procedures to gain an understanding of the entity and its environment, including internal control) help the financial statement auditor obtain information to make an initial assessment of control risk, tests of controls must be performed as support of an assessment of control risk that is below maximum. The purpose of tests of controls is to obtain evidence regarding the effectiveness of controls, which may allow the auditor to assess control risk below maximum. If controls are found to be effective and functioning, the substantive evidence may be reduced. Substantive evidence is obtained to reduce detection risk. Substantive evidence includes evidence from substantive tests of transactions, analytical procedures, and tests of details of balances. For audits of internal control over financial reporting, the auditor only performs the first two types of audit tests: procedures to obtain an understanding of internal control and tests of controls. Because a public company auditor must issue a report on internal control over financial reporting, the extent of the auditor’s tests of controls must be sufficient to issue an opinion about the operating effectiveness of those controls. That generally requires a significant amount of testing of controls over financial reporting.

13-2 Risk assessment procedures are performed to assess the risk of material misstatement in the financial statements. Risk assessment procedures include procedures performed to obtain an understanding of the entity and its environment, including internal controls. Auditors use the results of the risk assessment procedures to design and perform further audit procedures. Further audit procedures (not risk assessment procedures) provide the auditor sufficient appropriate evidence, required by the third GAAS fieldwork standard.

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13-3 Tests of controls are audit procedures to test the operating effectiveness of control policies and procedures in support of a reduced assessed control risk. Tests of controls provide the primary basis for a public company auditor’s report on internal controls over financial reporting. Specific accounts affected by performing tests of controls for the acquisition and payment cycle include the following: cash, accounts payable, purchases, purchase returns and allowances, purchase discounts, manufacturing expenses, selling expenses, prepaid insurance, leasehold improvements, and various administrative expenses.

13-4 Tests of controls are audit procedures to test the operating effectiveness of control policies and procedures in support of a reduced assessed control risk. Examples include: 1. The examination of vendor invoices for indication that they have

been clerically tested, compared to a receiving report and purchase order, and approved for payment.

2. Examination of employee time cards for approval of overtime hours

worked.

3. Examination of journal entries for proper approval. 4. Examination of approvals for the write-off of bad debts. Substantive tests of transactions are audit procedures testing for monetary misstatements to determine whether the six transaction-related audit objectives have been satisfied for each class of transactions. Examples are: 1. Recalculation of amounts (quantity times unit selling price) on

selected sales invoices and tracing of amounts to the sales journal.

2. Examination of vendor invoices in support of amounts recorded in

the acquisitions journal for purchases of inventories.

3. Recalculation of gross pay for selected entries in the payroll journal. 4. Tracing of selected customer cash receipts to the accounts

receivable master file, agreeing customer names and amounts.

13-5 A test of control audit procedure to test that approved wage rates are used to calculate employees' earnings would be to examine rate authorization forms to determine the existence of authorized signatures. A substantive test of transactions audit procedure would be to compare a sample of rates actually paid, as indicated in the earnings record, to authorized pay rates on rate authorization forms.

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13-6 The auditor resolves the problem by making assumptions about the results of the tests of controls and performing both the tests of controls and substantive tests of transactions on the basis of these assumptions. Ordinarily the auditor assumes an effective system of internal control with few or no exceptions planned. If the results of the tests of controls are as good as or better than the assumptions that were originally made, the auditor can be satisfied with the substantive tests of transactions, unless the substantive tests of transactions themselves indicate the existence of misstatements. If the tests of controls results were not as good as the auditor assumed in designing the original tests, expanded substantive tests must be performed.

13-7 The primary purpose of testing sales and cash receipts transactions is to evaluate the internal controls so that the scope of the substantive tests of the account balances may be set. If the auditor performs the tests of details of balances prior to testing internal controls, no benefit will be derived from the tests of controls. The auditor should attempt to understand the entity and its environment, including internal controls, as early as practical through the analysis of the accounting system, tests of controls, and substantive tests of transactions.

13-8 When the results of analytical procedures are different from the auditor's expectations and thereby indicate that there may be a misstatement in the balance in accounts receivable or sales, the auditor should extend the tests to determine why the ratios are different from expectations. Confirmation of accounts receivable and cutoff tests for sales are two procedures that can be used to do this. On the other hand, if the ratios are approximately what the auditor expects, the other tests can be reduced. This means that the auditor can satisfy the evidence requirements in different ways and that analytical procedures and confirmation are complementary when the results of the tests are both good.

13-9 Substantive tests of transactions are performed to verify the accuracy of a client's accounting system. This is accomplished by determining whether individual transactions are correctly recorded and summarized in the journals, master files, and general ledger. Substantive tests of transactions are also concerned with classes of transactions, such as payroll, acquisitions, or cash receipts. Tracing amounts from a file of vouchers to the acquisitions journal is an example of a substantive test of transactions for the acquisition and payment cycle. Tests of details of balances verify the ending balance in an individual account (such as inventory, accounts receivable, or depreciation expense) on the financial statements. An example of a test of details of balances for the acquisition and payment cycle is to physically examine a sample of the client's fixed assets.

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13-10 1. Control #1 -- Computer verification of the customer’s credit limit.

The presence of strong general controls over software programs and master file changes can significantly reduce the auditor’s testing of automated controls such as control #1. Once it is determined that control #1 is functioning properly, the auditor can focus subsequent tests on assessing whether any changes have occurred that would limit the effectiveness of the control. Such tests might include determining whether any changes have occurred to the program and whether these changes were properly authorized and tested prior to implementation. These are all tests of general controls over software programs and master file changes.

2. Control #2 – The accounts receivable clerk matches bills of lading, sales invoices, and customer orders before recording in the sales journal. This control is not an automated control, but is rather a manual control performed by an employee. General controls over software programs and master file changes would have little effect on the auditor’s testing of control #2. If the auditor identifies control #2 as a key control in the sales and collection cycle, he or she would most likely examine a sample of the underlying documents for the accounts receivable clerk’s initials and reperform the comparisons.

13-11 The audit of fixed asset additions normally involves the examination of

invoices in support of the additions and possibly the physical examination of the additions. These procedures are normally performed on a test basis with a concentration on the more significant additions. If the individual responsible for recording new acquisitions is known to have inadequate training and limited experience in accounting, the sample size for the audit procedures should be expanded to include a larger sample of the additions for the year. In addition, inquiry as to what additions were made during the year may be made by the auditor of plant managers, the controller, or other operating personnel. The auditor should then search the financial records to determine that these additions were recorded as fixed assets. Care should also be taken when the repairs and maintenance expense account is analyzed since lack of training may cause some depreciable assets to be expensed at the time of acquisition.

13-12 The following shows which types of evidence are applicable for the five types of tests.

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TYPE OF EVIDENCE Physical examination Confirmation Documentation Observation Inquiries of the client Reperformance Analytical procedures Recalculation TYPES OF TESTS Tests of details of balances Tests of details of balances All except analytical procedures Risk assessment procedures and tests of controls All five types Tests of controls, substantive tests of transactions, and tests of details of balances Analytical procedures Substantive tests of transactions and tests of details of balances 13-13 Going from most to least costly, the types of tests are:

? Tests of details of balances ? Substantive tests of transactions ? Tests of controls ? Risk assessment procedures ? Analytical procedures

13-14 C represents the auditor's assessment of the effectiveness of internal

control. C3 represents the idea that internal controls are ineffective and no assurance can be obtained from controls and all assurance must come from substantive testing. This would not represent the audit of a public company’s financial statements. Tests of controls at the C1 level would provide minimum control risk. This would require more testing of the controls than would be required at either C2 or C3. Testing controls at the C1 level allows the auditor to obtain assurance from the controls, thereby allowing for a reduction in the 13-14 (continued)

amount of substantive testing which must be performed to meet the level of acceptable audit assurance. C1 reflects the level of testing of controls necessary for the audit of internal controls over financial reporting required by PCAOB Standard 2. It would be a good decision to obtain assurance from tests of controls at point C1 especially if the cost of substantive testing is considerably greater than tests of controls. At point C2, the auditor performs some tests of controls and is able to reduce control risk below maximum. Point C2 would be appropriate if it is cost beneficial for the auditor to obtain assurance at a level between the two extremes mentioned above (C1 and C3).

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c.

The most serious concern in this audit is the evaluation of the allowance for uncollectible accounts. Given the adverse economic conditions and significant increase of loans receivable, the auditor must be greatly concerned about the adequacy of the allowance for uncollectible accounts and the possibility of uncollectible accounts being included in loans receivable. Given the internal controls, the auditor is not likely to be greatly concerned about the gross accounts receivable balance, except for accounts that need to be written off. Therefore, for the audit of gross accounts receivable there will be a greatly reduced assessed control risk and relatively minor confirmation of accounts receivable. In evaluating the allowance for uncollectible accounts, the auditor should test the controls over granting loans and following up on collections. However, given the changes in the economy, it will be necessary to do significant additional testing of the allowance for uncollectible accounts. Therefore an \is included for tests of details of balances for gross accounts receivable and an \net realizable value.

13-34 a. Factors which could explain the difference in the amount of evidence accumulated in different parts as well as the total time spent on the engagement are:

1. Internal control 2. Materiality of the account balance 3. Size of the populations 4. Makeup of populations 5. Initial vs. repeat engagement 6. Results of the current and previous audits 7. Existence of unusual transactions 8. Motivation of the client to misstate the financial statements 9. Degree of client integrity

10. Reliance by third parties on the audited financial statements

For an example, in the first audit, the partner has apparently

made the decision to emphasize tests of controls and substantive tests of transactions and minimize tests of details of balances. That implies effective internal controls and a low expectation of misstatement (low inherent and control risk.) In the third audit, the partner apparently has a high expectation of misstatements, and therefore believes it is necessary to do extensive tests of controls and substantive tests of transactions, as well as extensive tests of details of balances. Audit two is somewhere between audit one and three.

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b.

The audit partners could have spent time discussing the audit approach

and scope with Bryan prior to the beginning of the field work.

c. The nature of these three engagements and the different

circumstances appear to be excellent examples of the tailoring of audit procedures to appropriate levels considering the circumstances. Bryan's judgment could have been improved on each engagement if the audit partner discussed the audit approach with her during the engagement. d.

In the first audit, the partner has apparently made the decision to

13-35 a.

emphasize tests of controls and substantive tests of transactions and minimize tests of details of balances. While this approach would be consistent with the integrated audit of a public company’s financial statements and internal control over financial reporting, the extent of testing of controls for the cash disbursements transactions would be extensive like that described in the third audit so that the auditor obtains a sufficient basis to report on internal controls.

The following is a time line for the audit procedures, showing the

sequence of the parts of a typical audit.

July Audit Report 31 Date 5, 9, 7, 2 8 1 3 4 6 Parts 5, 9, and 7 are all a part of planning and are therefore done early. These are in the sequence shown in Chapter 8. As part of planning the audit, the auditor obtains an understanding of internal control and initially assesses control risk. The auditor then performs tests of controls and substantive tests of transactions and reassesses control risk. Ideally, most analytical procedures are performed after the client has prepared financial statements, but before tests of details of balances are performed. Therefore, they should be done before confirmation of accounts payable to provide information about the expectation of misstatement. Confirmation of accounts payable should be done as early as possible after the balance sheet date to facilitate getting responses back, performing alternative procedures for nonresponses, and reconciling differences before the audit is completed.

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b.

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Tests for review of subsequent events are normally the last

procedures done on the engagement before the audit report date. The audit report is issued after the audit report date.

The time line shows that 5, 9, 7 and 2 are frequently done before the balance sheet date.

The major deficiencies in the audit and the reasons for their occurrence are: 1.

The change in the accounting system to computerize the inventory, a change in accounting personnel, and the existence of a few more errors in the tests of controls should have alerted the auditors to expand the scope of the work. It was questionable to conclude that the internal controls were effective.

Reduction in the scope of the inventory work based on the lack of errors last year was improper since new internal controls were in use with new personnel this year and the inventory balance was higher.

The new division should have been audited more thoroughly. It came to Merkle through merger and was likely to have different operating characteristics and internal controls.

The determination that the errors in the sample were immaterial was improper. The errors should have been projected from the sample to the population, and the projected error should have been compared to tolerable misstatement, after considering risk. The obsolescence problem uncovered in the audit should have been evaluated carefully to consider the implications on potential obsolescence of inventory.

Given the new personnel on the engagement, Brewer apparently failed to adequately supervise and review the work of assistants.

There was an apparent lack of the use of analytical procedures. A decline in sales should have warned the auditor to a potential decline in profits and obsolete inventory.

Cases

13-36 a.

2.

3. 4.

5. 6.

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b.

c.

Brewer should have been aware that the inventory internal controls and the personnel in that department were new, that the interim tests revealed more errors than normal, and that the inventory tests revealed more errors than normal despite the reduction in scope. In this situation, the scope of the inventory work should have been increased to reveal the magnitude of the problems encountered. In addition, because of the staff turnover on this engagement, Brewer should have devoted more of his time to supervising the work of the staff on this engagement.

The likelihood of Brewer losing the suit is high. The auditors appear not to have followed general standards 1 and 3 and standards of field work 1, 2, and 3 in the performance of the engagement. Although the misstatements result from fraud, the auditors may be held responsible because apparently the audit was not conducted in accordance with GAAS.

13-37 Part I

a. (1)

(2)

(3)

Assess acceptable audit risk. This would be done under both audit approaches.

Assess inherent risk. This would be done under both approaches.

Obtain an understanding of internal control. This would be done under both approaches, however, it may be more extensive where control risk is reduced below the maximum due to the knowledge gained through testing.

Assess control risk at less than 100%. This would be done only under the \control risk\approach, given that the client is a non-public entity.

Perform analytical procedures. This would be done under both approaches, although such procedures may be more extensive where control risk is reduced below the maximum. Assess planned detection risk. This would be done under both approaches.

(4)

(5) (6)

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b.

The \1.

It should result in lower overall audit cost. This will occur where the client's business activity is complex and its volume of transactions is large. In this type of situation, internal controls can provide a great deal of assurance that many of the financial statement assertions are correct, and the audit effort to test those controls can be significantly less than full-scale substantive tests of balances would require.

For very large audits, it would be impossible to complete the audit on time and at an acceptable cost without relying on controls. Large clients are usually publicly held and must file their Form 10-K with the SEC within 60 days of their fiscal year end. These large companies generally have many locations, including worldwide operations. Controls must be relied upon to do these audits.

The more detailed investigation of controls that is required to reduce control risk, including testing, provides a better understanding of the system. This not only may provide a more concrete basis for conducting substantive tests, it creates more opportunities to make useful recommendations to the client.

Performance of detailed tests of transactions creates the opportunity to reveal employee defalcations that would otherwise not be discovered. In addition, employee knowledge that transactions will be examined serves as a deterrent to defalcation in the first place.

2.

3.

4.

c.

The primary advantage of the \approach is one of efficiency. Where clients are smaller, there is less opportunity to adequately segregate core duties, which makes it more difficult to rely on controls. Thus, the auditor focuses the audit work on the balance sheet as of the end of the client's fiscal year. Furthermore, by going into the client's office at one point in time and doing the entire audit, auditor scheduling problems are reduced and there is less disruption to the client.

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