Audit Methodology and Procedures Flashcards
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Read the first 7 Audit Methodology and Procedures flashcards as text
A construction auditor is reviewing a contractor's equipment depreciation charges to a cost-plus project. The most appropriate audit test is to verify:
Answer: That depreciation is charged only for equipment actually used on the project and calculated per agreed methodology
The auditor must confirm that depreciation is charged only for project-use periods and calculated using the method agreed upon in the contract.
The primary purpose of retainage in a construction contract is to:
Answer: Protect the owner by withholding a portion of payments until project completion
Retainage is withheld from progress payments as security to ensure the contractor completes all work and corrects deficiencies before receiving full payment.
When auditing a construction joint venture, the auditor should pay particular attention to:
Answer: Inter-company transactions and cost allocations between partners
Inter-company transactions between joint venture partners create opportunities for inflated costs or improper cost shifting that require careful scrutiny.
An audit finding is considered 'supported' when it includes:
Answer: Criteria, condition, cause, effect, and recommendation
A fully developed audit finding contains five elements: the criteria (what should be), condition (what is), cause (why), effect (impact), and recommendation (corrective action).
Which contract delivery method presents the greatest audit complexity because the design and construction responsibilities are combined under one entity?
Answer: Design-Build
Design-Build contracts combine design and construction under one contractor, making it harder to audit scope changes and separate design costs from construction costs.
During an audit, the contractor claims a cost overrun is due to differing site conditions. The auditor's first step should be to:
Answer: Review the original geotechnical reports and compare conditions encountered to those represented at bid
Verifying whether actual site conditions materially differ from those represented in the contract documents is the essential first step in evaluating a differing site conditions claim.
The concept of 'materiality' in construction auditing means that:
Answer: Auditors focus resources on items significant enough to affect the audit conclusion or financial result
Materiality guides auditors to allocate effort toward items whose significance could influence decisions or change the overall audit conclusion.