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auditing
Questions and Answers of
Auditing
The Mobile Home Manufacturing Company is audited by the public accounting firm Rossi and Montgomery. Mobile Home has decided to issue stock to the public and wants Rossi and Montgomery to perform all
Cheng,, a recently qualified PA, has been assigned by his firm, Liu & Liu LLP, to serve as the senior auditor in charge of the fieldwork on a new audit engagement. The client is a medium-sized credit
As a professional in the practice of giving advice, Jim knew when he had to ask questions, too. He called a lawyer friend of the family who owned a cleaning business at the other end of the country
Research the rules in your province with respect to accounting firm structure. Are LLPs permitted? What is the primary difference between a public accounting firm organized as a partnership and an
How can a PA use the internet to assist the PA practice?
Although the CICA Handbook standards provide general guidance, the application of these standards is dependent upon particular circumstances. In practice, a professional accountant may encounter
What benefits do organizations such as the CICA, CGAAC, and SMAC provide to their members?
What role does the CICA Handbook have in the professional activities of public accountants in Canada?
Explain how an objective state of mind and due care contribute to a PA’s qualifications to conduct a financial statement audit.
Using Table 3-1, explain how a professional accountant would embody each of the illustrated ethical principles.In Table 3-1
The auditor’s working papers usually can be provided to someone else only with the permission of the client. What is the rationale for such a rule? What are the exceptions to this rule?
The rules of conduct of professional accountants require them to report a breach of the rules of conduct by a member to their profession’s disciplinary body. What should they do before making such
For what types of engagements are contingent fees acceptable as charged by professional accountants?
Why is it so important that a successor auditor communicate with the incumbent before accepting an appointment as auditor? What should the successor do if the incumbent does not reply?
Diane Harris, a PA, is the auditor of Fine Deal Furniture, Inc. In the course of her audit for the year ended December 31, 2011, she discovered that Fine Deal had serious going-concern problems.
Each of the following scenarios involves a possible violation of the rules of conduct. Indicate whether each is a violation and explain why you think it is or is not.a. John Brown is an PA, but not a
a. Martha Painter, a PA, was appointed as the trustee of the So family trust. The So family trust owned the shares of the So Manufacturing Company, which is audited by another partner in Martha’s
When analyzing an ethical dilemma, why is a structured approach helpful?
Discuss whether the facts in any of the situations indicate violations of the rules of conduct for professional accountants. If so, identify the nature of the violation(s). The following are
Donna, a PA, is approached by the owner of one of her clients, for whom she normally compiles monthly and annual financial statements, to perform an audit of the company’s inventories. The client,
Joseph Smith was the chairman and chief operating officer of Maximum Software Limited, providing software solutions to companies in Manitoba. Joseph owned 40 percent of the company and had several
Barbara Whitley had great expectations about her future as she sat at her graduation ceremony in May 2011. She was about to receive her Master of Accountancy degree, and the following week she would
Jim has been thinking about CondoCleaners.com for the last three months now. He has been a bit distracted at work and has had some difficulty concentrating, as he has started organizing a request for
What organization is responsible for developing ethics standards for accountants at the international level? What are the fundamental principles of the international ethics standards?
What consulting or non audit services are prohibited for auditors of public companies? What other restrictions and requirements apply to auditors when providing non audit services to public companies?
What is an independence threat analysis? When and why should it be completed?
State several factors that have affected the incidence of lawsuits against public accountants.
In what ways can an individual public accountant positively respond and reduce liability in auditing?
Describe two types of legislation that could affect the financial statement audit; explain why there is an impact.
Helmut & Co., a public accounting firm, was the new auditor of Mountain Ltd., a private company in the farm equipment and supply business. In early February 2012, Helmut & Co. began the audit for the
Watts and Williams, a firm of PAs, audited the accounts of Sampson Skins, Inc., a corporation that imports and deals in fine furs. Upon completion of the audit, the auditors supplied Sampson Skins
The public accounting firm of Andre, Mathieu & Paquette (AMP) was expanding very rapidly. Consequently, it hired several junior accountants, including Jim Small. The partners of the firm eventually
Jan Sharpe recently joined the public accounting firm of Spark, Watts, and Wilcox. On her third audit for the firm, Jan examined the underlying documentation of 200 disbursements as a test of
In confirming accounts receivable on December 31, 2009, the auditor found 15 discrepancies between the customer’s records and the recorded amounts in the subsidiary ledger. A copy of all
Marino Rossi, a public accountant, audited the financial statements of Newfoundland Rugs Ltd. Cooke, the president of Newfoundland Rugs, told Marino that the company was planning a private placement
Jackson is a sophisticated investor. As such, he was initially a member of a small group that was going to participate in a private placement of $1 million of common stock at Clarion Corporation.
Distinguish between business risk and audit risk. Why is business risk a concern to auditors?
Aqua Inc. was a privately owned company that operated a marina business from two lakefront properties in northern Ontario. The company was started by two brothers. The company provided boat docking,
Jim is in the process of organizing the business details for his business, getting a website established, and preparing marketing documentation. To save money, he has decided to do the initial
A partner in a public accounting firm may be held liable for errors in the work of others. Identify at least two groups of such others and explain why the partner might be liable.
Differentiate between criminal action and civil action.
A common type of lawsuit against public accountants is for the failure to detect a defalcation. State the auditor’s responsibility for such discovery. Give authoritative support for your answer.
Distinguish among the auditor’s potential liability to the client, liability to third parties under common law, and criminal liability. Describe one situation for each type of liability in which
How are entity-level controls related to cycles?
Distinguish between general audit objectives and management assertions. Why are the general audit objectives more useful to auditors?
An acquisition of equipment repairs by a construction company is recorded in the incorrect accounting period. Which transaction-related audit objective has been violated? Which transaction-related
A banker found a set of financial statements difficult to read, and the disclosures seemed to be incomplete. Which presentation and disclosure-related objectives have been violated? Why?
Distinguish between the existence and completeness balance-related audit objectives. State the effect on the financial statements (overstatement or understatement) of a violation of each in the
Frequently, questions have been raised regarding the responsibility of the independent auditor for the discovery of fraud (including defalcations and other similar irregularities) and concerning the
Distinguish between management’s and the auditor’s responsibilities for the financial statements being audited.
It is well accepted that, throughout the conduct of the ordinary audit, it is essential to obtain large amounts of information from management and to rely heavily on management’s judgments. After
Recently there have been a significant number of highly publicized cases of management fraud involving the misstatement of financial statements. Although most client managements possess unquestioned
Guilin & Partners is a PA firm that has audited ZFL for the past five years. During the past year, ZFL has grown to include exports to Asia. The president and the controller both retired last year.
The following general ledger accounts are included in the trial balance for an audit client, Jones Wholesale Stationery Store.Income tax expense Income tax payable Accounts receivable Advertising
The following are two specific balance-related audit objectives in the audit of accounts payable.1. All accounts payable included on the list represent amounts due to valid vendors.2. There are no
The following (1 through 17) are the balance- related, transaction-related, and presentation- and disclosure- related audit objectives.REQUIREDIdentify the specific audit objective (1-17) that each
Jane was the audit supervisor in charge of the audit of an advertising agency. Unfortunately, two other audit supervisors in the office resigned and moved on to other positions. Rather than hiring or
Rene Ritter opened a small grocery and related products convenience store in 1990 with the money she had saved working as a Loblaws store manager. She named it Ritter Dairy and Fruits. Because of the
Jim is doing preliminary planning to organize transaction flows at CondoCleaners.com. His secure website will use a credit card service to process customer payments, which will be deposited directly
Explain two important characteristics of professional skepticism.
Explain two important characteristics of professional skepticism. Discuss.
Distinguish between management fraud and employee fraud. Discuss the likely difference between these two types of fraud on the fair presentation of financial statements.
Define the term “illegal act.” What is the auditor’s responsibility with respect to illegal acts by clients?
What factors should an auditor consider prior to accepting an engagement?
What is the purpose of an engagement letter? Explain how it is important to both the auditor and management.
Identify the eight phases of the audit. Provide an example of an activity completed in each phase.
What benefits does the auditor derive from planning audits?
Your firm has performed the audit of Danko Inc. for several years, and you have been assigned the responsibility for the current audit. How would your review of the articles of incorporation and
Your firm has performed the audit of Danko Inc. for several years, and you have been assigned the responsibility for the current audit. How would your review of the articles of incorporation and
Charles Ngu is assessing the management and governance structure of Major Appliance Manufacturing Co. Describe four types of evidence that Charles would gather, and state the relevance of the
Explain why it is important for working papers to include each of the following: identification of the name of the client, period covered, description of the contents, initials of the preparer, date
What type of working papers can be prepared by the client and used by the auditor as a part of the working-paper file? When client assistance is obtained in preparing working papers, describe the
Who owns the working papers? Under what circumstances can they be used by other people?
Identify the major steps in developing the client risk profile. Provide an example of audit evidence for each step.
The minutes of the board of directors of Mary- gold Catalogue Company Ltd. for the year ended December 31, 2011, were provided to you.Meeting of February 16, 2011Ruth Ho, chair of the board, called
During the audit of Xtra Technology Inc. (XTI), Andrea found the following journal entry occurring at the end of each month: Inventory ……… DR $20,000.00 Cost Variance ………………. CR
You have been assigned the audit of your city’s largest car dealership. The car dealership has been one of your firm’s audit clients for many years. It is modern and is located in a building
The internet has dramatically increased global e-commerce activities. Both traditional “brick and mortar” businesses and new dot-com businesses use the internet to meet business objectives. For
You are engaged in the annual audit of the financial statements of Maulack Corp., a medium-sized wholesale company that manufactures light fixtures. The company has 25 shareholders. During your
Winston Black was an audit partner at Hen-son, Davis, LLP. He was in the process of reviewing the audit files for the audit of a new client, McMullan Resourcing. McMullan was in the business of heavy
Since the owner, Jim, is a qualified accountant, he would like to reduce professional fees by assisting with the preparation of working papers. Jim has purchased a basic accounting software package,
List the types of information the auditor should obtain or review as a part of understanding the industry and external environment. Provide one specific example of how the information will be useful
When a PA has accepted an engagement from a new client that is a manufacturer, it is customary for the PA to tour the client’s plant facilities. Discuss the ways in which the PA’s observations
An auditor acquires background knowledge of the client’s industry as an aid to his or her audit work. How does the acquisition of this knowledge aid the auditor in distinguishing between obsolete
Jennifer Bailey has many clients in the manufacturing business. She has worked in this sector for many years and believes that she knows the industry well. Explain why it is important for Jennifer to
Identify the three categories of client objectives that the auditor should understand. Indicate how each objective may affect the auditor’s assessment of inherent risk and evidence accumulation.
What is the purpose of the client’s performance measurement system? Give examples of key performance indicators for the following businesses: (1) A chain of retail clothing stores, (2) An
What is meant by “planning materiality”? Identify the most important factors affecting the development of this figure.
Differentiate between identified misstatements, likely or potential misstatements, and further possible misstatements. Explain why all three are important.
How would the conduct of an audit of a medium sized company be affected by the company’s being a small part of a large conglomerate as compared with its being a separate entity?
You are the proprietor of an PA firm with a growing audit practice. You have accepted the audit of T-Division, one of six separate Canadian divisions of a large, private multinational corporation.
You are the auditor in charge of the audit of the municipality of Sackville, New Brunswick. The municipality has a budget of about $65 million and has had a balanced budget for the last three years.
Some accountants have suggested that the auditor’s report should include a statement of materiality level and audit risk that the auditor used in conducting the audit. REQUIRED a. The proponents of
Statements of earnings and financial position for Prairie Stores Corporation are shown on the next page.REQUIREDa. Use professional judgment in determining materiality based on revenue, net income
You are evaluating audit results for current assets in the audit of Quicky Plumbing Co. You set the materiality for current assets at $12,500 for overstatements and at $20,000 for understatements.
Following are six situations that involve the audit risk model as it is used for planning audit evidence requirements in the audit of inventory.REQUIREDa. Explain what low, medium, and high mean for
Joe Whitehead is planning the audit of a newly obtained client, Henderson Energy Corporation, for the year ended December 31, 2011. Henderson Energy is regulated by the provincial utility commission
In the audit of Whirland Chemical Company, a large publicly traded company, you have been assigned the responsibility for obtaining background information for the audit. Your firm is auditing the
CondoCleaners.com has been in business now for three years. The current year’s annual sales is $320,000, with cost of goods sold at $275,000. There is no debt, and the company has fixed assets of
When does the auditor assess client business risk? Why?
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