Category: Accounting Auditing

Overview
This milestone will give you practice using generally accepted auditing standards (GAAS) to plan an audit by filling in various sections of a working paper. You will revise this milestone in response to instructor feedback and resubmit it as part of Project One.
Scenario
The CPA firm of Penmen Associates is planning to take over the audit of financial statements of Keystone Enterprises. As a senior auditor for the firm, you have been tasked with evaluating Keystone, using GAAS, best practices and risk assessment techniques to identify the objectives and scope of the audit for this client. After completion, Penmen Associates has asked you to prepare for the audit. You will gain an understanding of Keystone’s internal control structure, financial accounts, business environment, materiality, and any inherent risks that may impact the company. You will also review external and other factors.
Directions
For this milestone, you will create a working paper. A working paper is an informational report prepared by accountants and auditors as supporting documents for formal reports and financial statements. Note that rubric criterion #1 below references the risk assessment completed in Milestone One. If you did not complete Milestone One, you will need to complete the risk assessment portion in order to satisfy this criterion.
Specifically, you must address the following rubric criteria:
Using the Keystone financial data and the AS 2110 standard provided in the Supporting Materials section, perform an analysis of the company data.
Describe the next steps in the audit based on the risk assessment. Consider the following:
How do the internal and external risk factors inform the audit to be performed?
Determine the audit tests needed through financial data analysis. Include the following:
What tests are needed?
What issues were found warranting the need for selected tests?
Analyze audit evidence for errors from financial data. Include the following:
Found errors
Impact of errors on the external audit
Explanation of possible errors from financial data
Describe how these audit strategies support the client profile and risk areas.
Determine evidence needed for substantive testing and risk assessment based on audit findings. Consider the following:
What other sample reports or materials need to be requested to fulfil this audit?

Scenario
You are an audit manager with a CPA firm that has been approached by a prospective client who wants to engage your firm to perform an audit for the current year. The prospective client is a small financial institution that another CPA previously audited, and your firm has not had any previous experience auditing this industry. You have been assigned to research this prospective client and develop a memo for your CPA firm’s director, Sally Stone, about the specific procedures your firm should perform to determine whether to accept the client for audit, as well as what types of knowledge about the client and its environment should be obtained to plan the engagement, and how it should be obtained.
Directions
Write a memo to your CPA firm’s director, Sally Stone, detailing the procedures the firm should perform to determine whether to accept the prospective client for audit, other types of knowledge about the client and its environment that should be obtained, and how to obtain it.
Specifically, you must address the following rubric criteria:
Specify the sources of information that should be used to obtain knowledge about prospective clients.
Outline the types of knowledge about the prospective client that are needed to decide whether to perform the audit.
Explain how an auditor can obtain an understanding of the client related to the internal company environment.
Describe how an auditor can assess the audit implications of the external industry factors as part of due diligence.
What to Submit
Submit a 2- to 3-page memo as a Microsoft Word document with single spacing, 12-point Times New Roman font, and one-inch margins. Sources should be cited according to APA style.