The preparation of audit documentation is an integral part of an auditors examination of financial statements.

3.56 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, (f) 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. 3.57 Audit Documentation. The preparation of audit documentation is an integral part of an auditors 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: a. (1) What are the purposes or functions of audit documentation? (2) What records may be included in audit documentation? b. What factors affect the auditors judgment of the type and content of the audit documentation for a particular engagement? c. What should be included in audit documentation to support auditors compliance with generally accepted auditing standards? d. How can auditors make the most effective use of the prior-year audit plans in a recurring audit? (AICPA adapted) 3.58 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, Olds, and Watershed, CPAs (AOW) to audit its annual financial statements. Lancaster is generally pleased with the services provided by Smith & Smith, but 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, but 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.