 Hello, and welcome to this session in which we would look at CPA exam questions that deal with audit documentation, which is a subpart of audit evidence. And this topic is very important, whether you are an accounting student or a CPA candidate, especially if you're a CPA candidate, knowing about audit documentation will help you tremendously on simulations. Now you need to know the difference between audit documentation, but how this audit documentation will be presented to you, especially in terms of documentation, in terms of paperwork, it could be as various exhibits in the simulation. So knowing this information upfront will reduce your stress and it will help you answer audit simulations or CPA simulations or document review service, whatever it is, you'll be fine with that. Now I don't replace your CPA review course, if you are taken back or Roger Glyme Wiley or any other course, I can be, I can be a useful addition, you can add me. 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Because this is going to tell you how well your accounting program is or how rigorous your accounting program. I do have other resources for other accounting courses. Please check them out as well as finance and tax. If you have not connected with me on LinkedIn, please do so and check out my LinkedIn recommendation. Like this recording, subscribe to my YouTube, follow me on Instagram and Facebook. Let's take a look at the first question. So these questions deal with audit documentation. An auditor maintains a current file. You have to understand the difference between a current file and a permanent file. This is what audit documentation is all about within the audit documentation. So this file should, what should the current file include? So what should the current file include? That's it. Should it, should it include all the evidential material gathered to support the opinion rendered by the auditor? So should, should this file include the supporting document that helped you arrive to your opinion? And my answer is yes. The current file is what's going to show you the evidence for that specific year. Now remember current, current file, remember the word current, current means now, current year, current period. So you are looking at the evidence that you collected for this period. So yes, it will include all evidential material. Now we're going to look a little bit more about what does that, what does this evidential material include? But yes, it does include this. So once I know one is right, I can take out B, I think I can take out D. I'm down to 50-50. Would it include a working trial balance? What do you think? Do you think you will need a working trial balance for your evidence? Of course, that's your starting point. When you start an audit, usually that's the first, not usually that's the first one of the first thing that's provided to you, some sort of a trial balance by the client and this trial balance you're going to be working with to complete your audit. So would it include a working trial balance? Of course it will, of course it will. It's for that year because it's the working trial balance belong to that particular year, therefore the answer is C. Remember we are dealing with the current file. Let's take a look at this question. Which of the following would be maintained in the permanent file? Now this is different. It's still documentation, but it's a different type of documentation. Now we are dealing with a permanent file. What is the difference between current and permanent? Remember the current file mainly include, not mainly, basically what it includes is this part here. All evidential matter gather to support the opinion rendered by the auditor for that particular year. Now the permanent file, what would it include? Think of the word permanent. It means it's there from year to year. Remember permanent account versus temporary account, but this is not, we're not talking about accounts. We're talking about the concept of permanent. It means something that's going to be with you from year to year and current it supports only that particular year. So which, which, what do we have? What do we have under this permanent file? Copies of documents such as reporting company's organization chart and long-term contract? Well, let me ask you, do you think the company's organizational chart changes from year to year? Could it change? Yes, it could change. The company would reorganize and change positions and they will change their chart of account, but is that something normal? Not really, because that's not what companies do. They don't keep on changing their company's organization from period to period. So I would say the company's organizational chart will be part of the permanent file. What about long-term contract? Well, let's think about it, just from the nature of the term. It's not only a contract, it's a long-term contract, which is implying more than a year. Would that be part of the permanent file? I would say yes, that will be part of the permanent file. What also could be part of the permanent file? The chart of accounts. Okay, basically your chart of accounts don't change that much from year to year. You might add one, delete one, but generally speaking it will say constant. Well, something similar to long-term contract is, for example, if you have long-term bond, you might have the bond contract, the bond indenture. That would also be kept in the permanent file. Therefore, one is there. I'll take out B. I will take out D. I'm down to A and C. Now, I want to know whether two is also part of the permanent file. The audit plan in management representation letter. Would that be part of the permanent file or would that be part of the current? So basically, you want to know, is it part of the permanent or is it part of the current? Because here, if it's part of the permanent file, the answer is C. If it's not, the answer is A. Audit plan. Would the audit plan be the same from year to year? Hopefully, you know this, that the audit plan for the auditor will not be the same from year to year. Therefore, it should not be part of the permanent file. It should be part of the current file. Notice we're heading toward eliminating this answer. Now, even if you are confident about the audit plan, that's it. Don't even look at the management representation letter. Just choose A as the answer because the audit plan is not part of the permanent file. But you want to make sure you know that management representation letter is not part of the permanent file because they give us this letter every year and that letter changes from year to year. Now, if you don't know what management representation letter, please go to my website, farhatlectures.com. It's part of the evidence collected. It's basically what the management told us, but it's letter. It's in written. You want to make sure you know what that is. Therefore, the answer is A as an apple. Let's take a look at this question. The permanent file most likely would include copies of what? So, we have four choices. We're going to only select one of the four. Now, this is very important. You want to be 100% comfortable with what goes in the permanent file, what goes in the current file because if you're given a simulation, you might be given many exhibits and if they're asking for something specific, you know where to go. So, the permanent file would not likely, most likely would include. What would it include? Permanent file. Would it include the auditor's lead schedule? Well, hopefully, you know what the auditor lead schedule is. The auditor lead schedule is the work paper, not the, yes, basically the numbers or the work paper behind the various accounts. For example, if you have an account receivable, general ledger account, you might have a list of all your receivable and that will be the lead schedule where you have the names and the balances. So, the auditor lead schedule will be part of the current file. Therefore, it will not be part of the permanent file. Remember what they're asking, asking about the permanent file. Client attorney letters. Would client attorneys letters stay the same from year to year? Well, hopefully, you know, that's not the case. They change because they might stay the same. I'm not saying they may not stay the same if we don't have any new cases or the existing cases are still pending, but it will change. It will have to change. Therefore, it will be part of the current file. Client bank statement. Do you think you'll have the same bank statements from year to year or would that bank statement changes as part of the evidence collection? Of course, the bank statement changes from month to month. Therefore, it's not part of the permanent file. Let's look at the by process of elimination. D is the answer the client debt agreement. Usually, when you have a debt agreement, it's for multiple years and it should not change. Is it possible? Could it change? Yes, it could have. You could have refinance. The bank might call the loan. There are many other factors that could affect this, but generally speaking, if you have that agreement, a loan, a long term loan, you'll put it in that permanent file and it should not change from period to period. Therefore, D will be part of the permanent file. Let's take a look at this question. The permanent file of an auditor's working paper would not include which of the following. Well, we already know it would include the bond indenture. Therefore, as one is out, A is out. Would it would not include lease agreement? Well, if you are convinced that bond indenture is a long term agreement, lease agreement is usually our long term agreement. Therefore, we could also eliminate two. By eliminating two, we can take out B as well because B has two. Well, lead schedule, would it include lead schedule? I already told you a minute ago that lead schedule go on the permanent file. Therefore, C and four working paper trial balance. Again, working paper trial balance are part of your current audit evidence. Therefore, they are not part of the permanent file. And as a result, both of these three and four will be part, will not be part of the permanent file. And that's the answer because the answer, look what they're asking us, be careful, would not include. So on the exam, if you missed the word would include, you will answer one and two and the answer will be A. If we say not include, then the answer is D. So you have to be very careful on how the question is framed. Although you know the answer, but if you did not answer the questions that you are being asked, you would lose silly points for no reason. Now again, at the end of this recording, I'm going to ask you to like this recording, share it. And once again, my challenge to you, my offer to you is this, are you willing to risk $30 to try out my system? And by trying out my system, you can have a better chance getting 75 or better on your CPA exam. I don't replace your CPA prep course. I told you that from the beginning. So don't be intimidated where I don't need, you know, you know, I'm not, you know, some students say, I have backer, I don't need you. Well, that's fine. You have backer, but I can help you with backer. I have Roger, I can help you with Roger. I am not competing with your CPA prep course. I'm like a supplement, a vitamin to your studies. Study hard. Good luck. Remember, the CPA exam is a 30 to 40 year investment. 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