Question

Jennifer Jones is reading documents prepared by the members of the team working on the audit of receivables for a private company audit client. Jennifer is the senior manager assisting the engagement partner, Ruby Rogers. Jennifer and Ruby have worked together on many audits, and Jennifer knows the types of questions Ruby will ask about the working papers if they are not up to the standard required by AU-C 230. Jennifer is trying to make sure that all documents are up to the required standard before Ruby sees them tomorrow.

Jennifer is particularly concerned about the documents relating to the receivable confirmations. This is because the audit assistant who wrote the confirmation results recommended that no further work was required. On review of the results, Jennifer discovered the audit assistant had incorrectly treated "no reply" results as acceptable for a positive confirmation, when they are acceptable only for a negative confirmation. Jennifer had ordered further work to be done to follow up these "no reply" results.

a. What is the minimum standard that audit documentation must meet?

b. Propose how you would treat the corrections made to the audit assistant's recommendations and the additional work on receivable confirmations in the working papers. Refer to both AU-C 505 External Confirmations and AU-C 230 Audit Documentation in your answer.

Answer 1

a.) The minimum requirements in audit documentation as per AU-C 230are :

• Evidence on the basis of which auditor can form opinion about the true & fairness of financial statements
• Evidence which shows that the audit was conducted in compliance with GAAP and other regulatory & legal requirements.

b.) When an information is requested which requires the external party to directly respond to the auditoronly in the event of disagreement with the information is Negative confirmation request and if it requires the external party to respond whether he or she agrees or disgrees with information is positive confirmation request.As in given case jennifer follows positive confirmation request no replies cannot be acceptablean further working over those papers is required, The decision taken by audit assistant was not correct as per AU- C505.