Question

DC 3-4 Engagement Timekeeping Records (Pg. 122) A time budget is always prepared for audit engagements. Number of hours are estimated for various segments of the work - for example, internal control evaluation, cash, inventory, and report review. Audit supervisors expect the work segments to be completed within budget, and staff accountants' performance is evaluated in part on ability to perform audit work efficiently within budget. Sarah is an audit manager who has worked hard to get promoted. She hopes to become a partner in two or three years. Finishing audits on time weighs heavily on her performance evaluation. She assigned the cash audit work to Craig, who has worked for the firm for 10 months. Craig hopes to get a promotion and salary raise this year. Twenty hours were budgeted for the cash work. Craig is efficient, but it took 30 hours to finish because the company added seven new bank accounts. Craig was worried about his performance evaluation, so he recorded 20 hours for the cash work and put the other 10 hours under the internal control evaluation budget. REQUIREID What do you think about Craig's resolution to his problem? Was his action a form of lying? What would you think of his action if the internal control evaluation work was presented "under budget" because it was not yet complete, and another assistant was assigned to finish that work segment later?

Answer 1

Solution:-

1. What do you think about Craig’s resolution of his problem:-

He did the wrong thing, he buried the hours somewhere else.

2. Was Craig’s action a form of lying:-

Yes

3. What would you think of Craig’s action if the internal control evaluation work was presented “under budget” because it was not yet complete, and another assistant was assigned to finish that work segment later:-

Affects the person who will work on internal control evaluation

There were 7 new accounts- credible reason, just means there wasn’t enough time allocated for it. Affects next years audit hours estimation as well.

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