CHAPTER 3

4. The audit plan, the audit program, and the time budget are three important working
papers prepared early in audit. What functions do these working papers serve in the
auditors compliance with GAAS? Discuss.

Audit plan includes the nature, timing, and extent of audit procedures to be
performed by the audit team members in order to obtain sufficient audit evidence
to reduce audit risk to an acceptably low level.
The Audit Program is a detailed list of the audit procedures to be performed in the
course of the audit.
A Time Budget is an estimate of the total hours an audit is expected to take. It is
prepared to assist the auditor in estimating the audit fee. It also communicates to
the audit staff those areas that are considered high risk and require more time. It
is used to measure efficiency of the staff and to determine the progress of the
audit.

8B. Once the auditor develops an assessment of materiality, can change during the
course of the audit? Explain. If it does change, what is the implication of a change for
audit wok that has been completed? Explain

I agree that even though the auditor already developed its assessment of
materiality it can still change during the course of audit, because the materiality
level established by the auditor before even starting the audit is all just based on
his professional judgement. This was supported by the information he had on his
hand about the client. So as the audit is starting he can accumulate additional
information that might have a high level of materiality to his audit engagement
that results to the change of his materiality assessment.

11C .Besides encouraging auditors to creatively assess client risks , what other purpose
does brainstorming serve?

Obviously to brainstorm some ideas and a possible audit approach we have this
saying that two heads are better than one. Someone might have some knowledge
of the things you didn’t know with this you can collaborate your plans into a more
harmonious one. A possible audit approach. Brainstorming sessions prompt the
more experienced auditors to share their insights with less experienced team
members and, in turn, encourage those who are less experienced but have recent
first-hand knowledge of client processes to provide their insights to the senior
members.
MC questions
3. A
8. C

Exercise 1 B.
Identify any of the above data that should cause the auditor to increase the level of
professional skepticism

The auditor should raise its professional skepticism to the following:

The potential rise in the usage of inventory and to the sales outcome has risen
only 10%. This indicates the company's usage of excess inventory while the sales
volumes have increased negligibly. Also to the increase in the cost of the goods
sold if we are going to compare it to the last year indicating the sloppy increase
in the sale of goods. The sudden increase of employee turnover is another factor
the auditor should be concerned about as it may indicate the company's financial
health or some other malicious reason — A potential fraud in progress. The
increase in debt and equity ratio is another factor to worry about as it has risen
about 60%. This threatens the solvency of the company and also reduces its
chances of availing funds via borrowings. This also can be an indicator of the
'going concern' assumption not holding good.