19. According to AU-C 300, paragraph 08 (d), auditors should consider the results of preliminary audit procedures

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Question:

19. According to AU-C 300, paragraph 08 (d), auditors should consider the results of preliminary audit procedures in establishing the overall audit strategy. One of the preliminary audit procedures that auditors typically conduct is a comparison of the current period under audit to the prior period results. This highlights unexpected changes that may have occurred during the year and we are able to design audit tests and procedures that can address those unexpected changes.

AU-C 500A (starting on paragraph .A14) lists a number of audit procedures which can be used to collect evidence (inspection, observation, confirmation, etc.). For the following scenario, I want you to tell me at least 2 different audit procedures that you would conduct to investigate the identified discrepancy. Then, tell me what you would be looking for, specifically, in your audit procedure to corroborate the information that you received.

SCENARIO: In your comparison, you notice that rent expense doubled for the period (last period it was $24,000 and this period it is $48,000). You ask the controller about this and the controller informs you that the increase in rent expense is due to expanding production capacity, the organization is renting out an additional factory to produce more inventory.

YOUR TASK: Tell me at least 2 different audit procedures (from AU-C 500A, paragraphs .A14 through .A26) that you could use to corroborate the information learned from the controller. Make sure to include in your answer, what you would be looking for in the audit procedure. Finally, address the quality of the audit evidence obtained by the procedure that you are proposing (quality of audit evidence is addressed in AU-C 500A, paragraphs .A05 through .A09).

Question 20

SCENARIO: You are an auditor auditing the books of Alpha Company. You have been assigned the accounts receivable asset account to audit. Based off of your risk assessment and assessment of control risk, you have determined the risk of the account to be moderate. Nothing stands out to you as excessively high risk within the account.

YOUR TASK: Using the clarified statements on auditing standards published by the AICPA (AU-C 315, paragraph .A133) identify the assertions associated with the accounts receivable account. Then, identify at least 3 different audit procedures (from AU-C 500A, paragraphs .A14 through .A26) that you could use to test the assertions relevant to accounts receivable. Make sure to tell me which assertions are being tested by the procedures, what you would be looking for in your audit test and what your population would be for the procedure (i.e. would you pull transactions that are already included in the receivables account, or transactions that were not included in the receivables account?). Use the PSSC approach to documenting your workpaper. For the source component, simply "make up" names, titles and dates to the extent necessary to complete the exercise.