Angela Walsh is a new staff auditor. On her first three engage-ments, she was assigned to perform tests of controls foracquisitions and payments and test of details of balances foraccounts payable.
The approach taken in each audit is briefly described below:
Audit 1â The client is a medium-sized company. Extensive testsof controls were per- formed for acquisitions and payments. Fairlyextensive substantive analytical proce- dures were also performed.The tests of details of balances of the year-end accounts payablebalance were minimal, and no confirmations were sent (confirmationsare not required for testing accounts payable).
Audit 2â This company is also medium-sized. Extensive tests ofcontrols were also performed, but after these tests were completed,additional substantive tests of trans- actions were performed.Extensive tests of the year-end accounts payable balance wereperformed, although no confirmations were sent.
Audit 3â Although the auditors gained an understanding ofinternal control, no tests of controls were performed overacquisitions and payments. However, extensive sub- stantive testsof transactions were performed, and confirmations were sent as partof the extensive testing of year-end accounts payable. Althoughthis company was smaller than the first two companies, the totalaudit time spent testing accounts pay- able was greater than forthe first two audits.
Angela is confused by the apparent inconsistency in the auditapproach on the three audits, and concludes that the audit approachand amount of audit evidence to collect de- pends on the auditpartner in charge of the engagement.
(A.) Match each engagement with one of the followingdescriptions:
(1) Extensive reliance on controls was planned for this auditengagement, but con- trol risk was increased after tests ofcontrols.
(2.) This audit is likely for a public company, and is also themost efficient audit.
(3.) This company has ineffective controls, and may also havefraud risks present.
(B.) What other factors likely explain the different approachesto the audit of acquisitions
and payments and accountspayable for these three engagements?
(C.) What could Angelaâs supervisors have done to improve herunderstanding of the audit strategy for each engagement?
Angela Walsh is a new staff auditor. On her first three engage-ments, she was assigned to perform tests of controls foracquisitions and payments and test of details of balances foraccounts payable.
The approach taken in each audit is briefly described below:
Audit 1â The client is a medium-sized company. Extensive testsof controls were per- formed for acquisitions and payments. Fairlyextensive substantive analytical proce- dures were also performed.The tests of details of balances of the year-end accounts payablebalance were minimal, and no confirmations were sent (confirmationsare not required for testing accounts payable).
Audit 2â This company is also medium-sized. Extensive tests ofcontrols were also performed, but after these tests were completed,additional substantive tests of trans- actions were performed.Extensive tests of the year-end accounts payable balance wereperformed, although no confirmations were sent.
Audit 3â Although the auditors gained an understanding ofinternal control, no tests of controls were performed overacquisitions and payments. However, extensive sub- stantive testsof transactions were performed, and confirmations were sent as partof the extensive testing of year-end accounts payable. Althoughthis company was smaller than the first two companies, the totalaudit time spent testing accounts pay- able was greater than forthe first two audits.
Angela is confused by the apparent inconsistency in the auditapproach on the three audits, and concludes that the audit approachand amount of audit evidence to collect de- pends on the auditpartner in charge of the engagement.
(A.) Match each engagement with one of the followingdescriptions:
(1) Extensive reliance on controls was planned for this auditengagement, but con- trol risk was increased after tests ofcontrols.
(2.) This audit is likely for a public company, and is also themost efficient audit.
(3.) This company has ineffective controls, and may also havefraud risks present.
(B.) What other factors likely explain the different approachesto the audit of acquisitions
and payments and accountspayable for these three engagements?
(C.) What could Angelaâs supervisors have done to improve herunderstanding of the audit strategy for each engagement?
