Potential Audit Procedure Failures. For each of the general audit procedures of (1) recalculation. (b) observation. (c) confirmation (accounts receivable, securities, or other assets), (d) inquiry, (e) inspection of internal documents, (0 recalculation, (g) reperformance. and (h) analytical procedures, discuss one way the procedure could be misapplied or the auditors could be misled in such a way as to render the work (audit evidence) misleading or irrelevant. Give examples that are different from the examples in this chapter. Audit Documentation. The preparation of audit documentation is an integral pan of an auditor's examination of financial statements. On a recurring engagement, auditors review the audit plans and audit documentation from the prior audit while planning the current audit to determine their usefulness for the current-year work. Required: What are the purposes functions of audit documentation? What records may be included in audit documentation? What factors affect the auditors' judgment of the type and content of the audit documentation for a particular engagement? What should be included in audit documentation to support auditors' compliance with generally accepted auditing standards? How can auditors make the most effective use of the prior-year audit plans in a recurring audit? Communications between Predecessor and Successor Auditors. Assume that Smith & Smith. CPAs, audited Apollo Shoes Inc., last year. Now CEO Larry Lancaster wishes to engage Anderson, Old's, and Watershed. CPAs (AOW) to audit its annual financial statements. Lancaster is generally pleased with the services provided by Smith & Smith, hut he thinks the audit work was too detailed and interfered excessively with normal office routines. AOW has asked Lancaster to inform Smith & Smith of the decision to change auditors, hut he does not wish to do so. Required: List and discuss the steps AOW should follow with regard to dealing with a predecessor auditor and a new client before accepting the engagement. Predecessor und Prospective Auditors. The president of All-purpose Loan Company had a genuine dislike for external auditors. Almost any conflict generated a lowering rage. Consequently, the company changed auditors often. The firm of Wells & Radley (W & R). CPAs, was recently hired to audit the 2014 financial statements. W & R succeeded the firm of Canby & Company (C & C). which had obtained the audit after Albrecht & Hogherd (A & H) had been fired. A & H audited the 2013 financial statements and rendered a report that contained an additional paragraph explaining an uncertainly about All-purpose Loan Company's loan loss reserve. Goodbye A & H! The president then hired C & C to audit the 2014 financial statements, and Chris Canby started the work, but before the audit could be completed. Canby was fired and W & R was hired to complete the audit. C & C did not issue an audit report because the audit was not finished
