Question

Assume that you are planning to test a client's account reconciliation. you could test either by inspecting documentation of the reconciliation or by rerperforming the reconciliation. What factors would cause you to choose re-performance instead of inspection of documentation?

Answer 1

Choosing between re-performing a client's account reconciliation and inspecting documentation depends on the assurance needed, risk of misstatement, quality of client documentation, and historical errors. Re-performance is more direct and reliable but also more time-consuming compared to documentation inspection.

Step-by-step explanation:

When planning to test a client's account reconciliation, the choice between re-performing the reconciliation and inspecting documentation depends on several factors. Re-performance might be chosen over documentation inspection if there's a need for higher assurance, when the risk of material misstatement is deemed to be high, or when the documentation provided by the client is not sufficiently detailed or objective. Moreover, if there's a history of errors in the client's accounting processes or discrepancies noted in previous audits, an auditor might opt for re-performance to verify the accuracy of the current reconciliation process.

Re-performance provides the auditor with first-hand evidence regarding the effectiveness of the client's internal controls and the accuracy of their account reconciliation. It is a more direct and often a more reliable method of testing than examining documentation, which could be incomplete or misleading. However, it is also more time-consuming and costly. In contrast, inspecting documentation can be efficient and effective when the internal controls environment is strong, and no significant issues have arisen in the past.

Answer 2

Answer: Please see the factors to be considered below.

Explanation: Account reconciliation is usually used to check two sets of accounting records. There may be differences between those records. Some differences may be acceptable based on their nature while some may not be acceptable.

The technique of re-performance is usually adopted by auditors. The following factors may cause for re-performance instead of inspection of documentation:

1. If there is no strong internal control in place within an organization there may be a need to carry out a re-performance of account reconciliation.

2. History of errors in the account reconciliation. This approach may be necessary since you may not be able to place reliance on the reconciliation performed by the organization.

3. Aging items in the reconciliation may raise concern and cause for re-performance.

4. Variances noted between supporting evidence and the reconciliation is another reason for re-performance.

5. Erroneous postings in general ledgers and inability to agree the balances to the general ledger may be another reasonable justification.