Audit Methodology and Procedures Flashcards

A contractor submits a claim for extended general conditions costs due to an owner-caused delay. Which document is most critical for the auditor to review first?

Answer: The project schedule showing the critical path and delay impact

The critical path analysis in the project schedule is essential to confirm that the owner-caused delay actually extended project duration and generated additional general conditions costs.

Which of the following best describes 'substantive testing' in construction audit methodology?

Answer: Directly testing transactions and balances to obtain audit evidence about financial statement assertions

Substantive testing involves directly examining transactions, invoices, and account balances to verify that amounts are accurate and properly supported.

When auditing a construction project's stored materials billing, the auditor should verify that:

Answer: Materials are properly insured, titled to the owner or project, and protected from damage or theft

For stored materials to be properly billed, they must be adequately insured, the owner must have a clear title interest, and the materials must be securely stored.

An auditor reviewing a guaranteed maximum price (GMP) contract discovers the contractor's actual costs came in significantly below the GMP. The auditor should verify:

Answer: How savings are shared between the owner and contractor per the contract's savings-sharing provision

GMP contracts typically include a savings-sharing clause defining how cost savings below the GMP are split between owner and contractor, which the auditor must verify was applied correctly.

The primary purpose of an entrance conference at the start of a construction audit is to:

Answer: Establish audit scope, objectives, timeline, and document request procedures with the auditee

The entrance conference sets expectations, communicates audit scope and objectives, and establishes how the audit will be conducted and documents will be requested.

Which internal control is most effective at preventing a contractor from submitting inflated subcontractor invoices on a cost-plus project?

Answer: Owner review and direct approval of all subcontractor pay applications above a defined threshold

Direct owner review of subcontractor invoices above a threshold reduces the GC's ability to inflate or mark up subcontractor costs before passing them to the owner.

A construction auditor is asked to evaluate whether a contractor's proposed settlement for a disputed change order is reasonable. The auditor should primarily:

Answer: Compare the proposed settlement to independent cost estimates and documented actual costs incurred

The auditor should benchmark the proposed settlement against independent cost estimates and actual documented costs to assess reasonableness and value to the owner.