Develop Audit Documentation Skills And Calculate Materiality

Develop Audit Documentation Skills Calculate Materiality

Develop audit documentation skills, calculate materiality and apply professional judgement. Review the following client source documents: -K.pdf 2020_Apollo_Organization_Chart-3.pdf 2020_Apollo_Shoes_Minutes-2.pdf Access the following workpaper spreadsheet with audit program and workpapers: Apollo_Planning_Part_2_Audit_Mini_Case.xls Check the PBC Trial Balance for accuracy. Trace the prior period Trial Balance to the prior period 10-K. Prepare the Materiality workpaper. Transfer items deemed significant to the audit to A-3 from Planning Part I Signoff on A-0 Audit Planning Program. Review all posted materials related to the case. Review the instructions, audit program, and workpaper. Tie out the 12/31/2019 trial balance amounts to -K. Some balances may need to be aggregated to match the financial reporting format (e.g., cash). Document A-1 with A-3 (10-K). Add up the 12/31/2020 trial balance, aggregate total assets, liabilities, equity, revenue, expenses, and compute unadjusted net income. Document at the bottom of the trial balance workpaper (A-2). Use MS Excel functions to sum accounting elements. Prepare materiality workpaper (A-5). Sign-off on audit procedures performed on A-0 as preparer and reviewer with your initials. REMINDER – one submission per audit team DUE Monday, February 14th by 11:59 p.m. in Canvas

Paper For Above instruction

The process of developing audit documentation skills and calculating materiality is essential in conducting a thorough and effective audit. This paper explores the key steps involved in these tasks, illustrating how auditors utilize financial data, professional judgement, and audit procedures to achieve compliance with auditing standards and ensure accurate financial reporting.

The first step involves reviewing relevant client source documents, which include organizational charts (e.g., Apollo’s 2020 organization chart), minutes from meetings, and other pertinent records. The documents provide foundational information about the client’s operations, internal controls, and financial activities. In this context, auditors need to analyze the documents critically, identifying areas of risk and significant accounts that require detailed testing. Additionally, access to workpapers such as the audit program, spreadsheets, and trial balances allows auditors to perform detailed analytical procedures and verification steps.

A critical component of the audit process is validating the accuracy of the trial balance against the prior period financial statements and regulatory filings such as the 10-K report. This involves tracing the prior period trial balance to the corresponding figures reported in the 10-K to ensure consistency and completeness. Particular attention is given to aggregating accounts, such as cash, to match the financial statement format. Using Excel functions like SUM, VLOOKUP, or other formulas, auditors verify that the balances align accurately and document their findings appropriately in workpapers A-1 and A-3.

Once the trial balances are confirmed, auditors proceed to prepare the materiality workpaper. Materiality is a quantitative and qualitative concept that guides the scope of audit procedures. It involves determining the threshold amounts in financial statements that could influence users’ economic decisions. The process includes calculating unadjusted net income by aggregating revenue and expenses, and analyzing the significance of individual account balances. Auditors use this information to establish a materiality threshold, often based on a percentage of income, total assets, or equity, which helps focus audit testing on more significant accounts.

Significant items identified during planning are transferred to audit workpapers such as A-3. The workpapers should reflect the items that require further verification, test procedures, or adjustments. Once all procedures are documented, the auditor signs off on the initial planning and audit procedures, signifying completion and review by both preparer and reviewer, using initials for accountability.

Throughout this process, adherence to professional standards, accuracy in documentation, and thorough review are critical to producing a comprehensive audit file. The final deliverables include a completed trial balance reconciliation, detailed materiality analysis, and signed-off workpapers that support the audit opinion. This structured approach ensures the audit is conducted efficiently, effectively, and in accordance with regulatory requirements.

References

  • Arens, A. A., Elder, R. J., & Beasley, M. S. (2017). Auditing and Assurance Services: An Integrated Approach. Pearson.
  • Gray, I., & Manson, S. (2018). The Audit Process. Cengage Learning.
  • Messier, W. F., Glover, S. M., & Prawitt, D. F. (2019). Auditing & Assurance Services: A Systematic Approach. McGraw-Hill Education.
  • Public Company Accounting Oversight Board (PCAOB). (2020). Auditing Standards and Related Rules.
  • International Federation of Accountants (IFAC). (2018). International Standards on Auditing (ISAs).
  • American Institute of Certified Public Accountants (AICPA). (2015). Generally Accepted Auditing Standards (GAAS).
  • CFI Education. (2020). Financial Statement Analysis & Valuation.
  • Jickling, M. (2015). Auditing: A Practical Approach. McGraw-Hill Education.
  • Selah, F., et al. (2020). Practical Guide to Auditing: Standards, Procedures, and Documentation. Routledge.
  • U.S. Securities and Exchange Commission (SEC). (2020). Financial Reporting Manual.

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