Daiyu Cheng, a recently qualified PA, has been assigned by her firm, Liu & Liu LLP, to serve as the senior auditor in charge of the fieldwork on a new audit engagement. The client is Demonte Credit Union (Demonte), a medium- sized credit union that is heavily involved as a mortgage lender in the local real estate market. This is the first credit union that Liu & Liu will be auditing. Cheng has not previously been involved in audits of financial institutions. The credit union's predecessor auditors resigned unexpectedly during the current fiscal year, and they have not responded to Liu & Liu's request for information for over one month. Liu & Liu has agreed to perform the engagement since the financial statement audit needs to be completed and submitted to the credit union's provincial regulator within ten days of the annual meeting. The regulator uses the financial statements to assess whether Demonte meets the conditions of its deposit insurance and to determine the annual deposit insurance premium for Demonte. The client has provided Liu & Liu with the predecessor audit firm's unqualified audit report on last year's financial statements. The engagement partner tells Cheng to concentrate her efforts on understanding Demonte's business and internal control environment, including Demonte's internal control systems, but not to rely upon internal controls. The partner instructs Cheng to perform extensive tests on the key balance sheet asset and liability accounts, such as mortgage loans receivable.
Cheng performs the audit as instructed and finds no material misstatements, but is not always certain if she has collected sufficient evidence regarding mortgage loans receivable.
She is glad that Demonte's CFO was able to spend time with her and explain what all his schedules meant, especially since so many of the mortgage holders did not confirm the details of their mortgages. The engagement partner has several client deadlines and is unable to spend much time at Demonte, but spends a few hours reviewing Cheng's work. Since Cheng is the firm's best senior auditor and she did not find any material misstatements, the partner issues an unqualified opinion on the financial statements.
When Demonte's CFO meets with the partner, he expresses pleasure that Liu & Liu was able to meet the deadline for the annual meeting and that the audit had gone much better than past audits had. The previous audit firm always spent more time and had more staff assigned to the engagement. This year's audit had been much less disruptive for Demonte's accounting staff.
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