Question

Angela Walsh is a new staff auditor. On her first three engagements, she was assigned to perform tests of controls for acquisitions and payments and test of details of balances for accounts payable. The approach taken in each audit is briefly described below:
Audit 1 – The client is a medium-sized company. Extensive tests of controls were performed for acquisitions and payments. Fairly extensive analytical procedures were also performed. The test of details of balances of the year-end accounts payable balance were minimal, and no confirmations are sent (confirmations are not required for testing accounts payable).
Audit 2 – This company is also medium-sized. Extensive test of controls were also performed, but after these tests were completed, additional substantive tests of transactions were performed. Extensive tests of the year-end accounts payable balance were performed, although no confirmations were sent.
Audit 3 – Although the auditors gained an understanding of internal control, no tests of controls were performed over acquisitions and payments. However, extensive substantive tests of transactions were performed, and confirmations were sent as part of the extensive testing of year-end accounts payable. Although this company was smaller than the first two companies, the total audit time spent testing accounts payable was greater than for the first two audits.
Angela is confused by the apparent inconsistency in the audit approach on the three audits, and concludes that the audit approach and amount of audit evidence to collect depends on the audit partner in charge of the engagement.

Required
a. Match each engagement with one of the following descriptions:
1. Extensive reliance on controls was planned for this audit engagement, but control risk was increased after tests of controls.
2. This audit is likely for a public company, and is also the most efficient audit.
3. This company has ineffective controls, and may also have fraud risks present.
b. What other factors likely explain the different approaches to the audit of acquisitions and payments and accounts payable for these three engagements?
c. What could Angela’s supervisors have done to improve her understanding of the audit strategy for each engagement?



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  • CreatedDecember 28, 2013
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