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auditing

Questions and Answers of Auditing

In your own words, explain the company's reasoning for recording $5.8 million as current revenue while recording the remaining $1.2 million as deferred revenue. Also, document where on the financial
Assess the content of the separate letter issued by Longeta's vice president of sales to Magicon. Document your conclusion about how the content of the letter affects or does not affect revenue
Given that the letter from the vice president of sales was not attached to or documented in the order letter submitted by Magicon to Longeta, document your conclusion as to the impact, if any, the
Research PCAOB Auditing Standards on the PCAOB's website (www.pcaob.org) to summarize the guidance for auditors in regards to their assessment of the risk of material misstatement related to revenue
Auditing standards describe three conditions that are usually found to be present. What are those three conditions and what red flags, if any, might be present at Longeta?
The separate letter from the vice president of sales was emailed and faxed to Magicon representatives. What would be the impact if Longeta's vice president had only provided that information orally
As of September 30, 2015, Magicon had only submitted the order letter. Document your conclusion about the impact on the accounting for the transaction if Longeta and Magicon (a) Sign the reseller
Document your final conclusion about the accounting treatment of this transaction between Longeta and Magicon. Be sure to provide a basis for your conclusion.
List the four factors auditors should consider when evaluating the results of confirmation procedures. Also, what are three of the characteristics of a reliable confirmation? (For this and other
What does it mean to "maintain control" over the confirmation requests and responses? What could go wrong if the auditor doesn't maintain control over the confirmation process?
Complete the audit log provided on the next page for each of the seven remaining confirmations. Consider whether each confirmation provides sufficient, appropriate audit evidence, whether sufficient
What is the difference between a positive and a negative confirmation? What are the advantages and disadvantages of each type?
Search the internet to identify a real-life situation where an auditor apparently did not maintain sufficient control over the confirmation process. Briefly describe the situation you found.
After completing the confirmations review, your senior asks you to assess the reasonableness of the allowance for bad debts. Think about the anchoring tendency discussed in the Professional Judgment
What is the definition of fair value according to ASC 820? Do you believe the discounted cash flow method is capable of computing an estimate that would be considered a reasonably reliable fair value
Should Gabriela and Rob be concerned about the fair value estimate Morris Mining has computed? Why? What incentive does the company likely have in terms of valuing the patent (over or
Research auditing standards and describe the typical procedures that an auditor would perform in auditing a fair value estimate such as the value of Morris Mining's patent. Is the patent a Level 1,
Examine the 10-year cash flow analysis provided by the client in Appendix A and also available electronically at
Now assuming planning or performance materiality at Morris Mining is $600,000, answer the following questions. (a) How sensitive is the fair value estimate to changes in the discount rate? How much
What are the most significant audit risks associated with the fair value estimate of the patent? Assuming performance materiality of $600,000, what additional steps can the auditor take to improve
A great deal of judgment is required when estimating some fair values and sometimes a "reasonable range" for the possible estimate value is very large relative to materiality. What implications do
Evaluate the appropriateness of Darrell's conclusions relating to the first two controls: (a) Is it acceptable to use the same set of transactions and the same sample size to test two different
Independent of your responses to prior questions, assume that you direct tested customer balances greater than tolerable misstatement and randomly selected a sample of 40 additional customer balances
Evaluate each of the following questions independently: (a) Referring to Garrett and Schulzke's sample size table (Appendix A), determine an appropriate sample size for the test of the control
In question 2[b] you gathered evidence on the operation of the control by examining the five credit memos for Brian's initials. While this provides some evidence of control, higher quality evidence
Assuming the controls testing is not expanded to provide additional support regarding the effectiveness of the controls tested, what are the implications of the controls testing in question 3[a] with
In selecting which customer balances to detail test via accounts receivable confirmations, assume that you have decided to direct test only the minimum number of customer accounts required; that is,
Based on the same background information as was used for question 1, but assuming that in selecting which customer balances to detail test you want to expand directed testing by selecting additional
How might the availability tendency contribute to poor choices in the sampling process? How might an auditor mitigate the effects of this tendency?
How might the confirmation tendency contribute to less than optimal auditor judgment in the sampling process? How might an auditor mitigate the effects of this tendency?
Which detail testing approach seems most appropriate in this situation: the minimum level of directed testing together with a larger audit sample, expanded directed testing with no audit sampling, or
Research professional standards and list the requirements related to evaluating client accounting estimates.
Following your analysis of the information in Schedules A-D, assume that you met with RedPack's Credit Manager, Katie Henson, to ask her a number of questions related to specific customer accounts in
Read the interview transcript and review the Professional Judgement Introduction. Based on this review, how would you modify your questions to improve your interview of Katie if you could re-conduct
Based on your review of the transcript, to what extent do you observe any of the tendencies that might create bias in regards to your professional judgment about the reasonableness of the allowance
How would your work differ if SSD was a public company? What other factors would you need to consider?
For each internal control deficiency you listed in audit schedule R 33 (requirement 3), identify at least one control activity that would remediate the deficiency.
Describe the importance of SSD's control activities given its large number of customers and vendors.
What are some of the factors that influence the level of assurance obtained through substantive audit tests?
For a given account, why might an auditor choose to: (a) Not conduct substantive tests? (b) Conduct only substantive tests?
Describe the purposes of audit documentation and explain why each purpose is important.
Review Green and Brown, LLP's audit documentation guidelines and explain why an audit firm would want to include each of the listed items in its audit documentation.
Green and Brown, LLP would not be required to comply with the auditing standards of the Public Company Accounting Oversight Board (PCAOB) for the TRS audit because TRS is a private company. Setting
Which of the following three alternatives best describes the conditions under which you would issue a clean opinion for EyeMax? (select one) _____ a. I would not be willing to issue a clean opinion
If you selected options "a" or "b" in question 1, assume now that the client has decided that they will make an adjustment of up to $250,000 to their financial statements. Please decompose the total
Describe whether you agree that capitalization of the tooling supplies is the preferable method of accounting for Auto Parts, Inc.
In general, how do auditors develop an estimate of financial statement materiality? For Auto Parts, Inc., what is your estimate of financial statement materiality? Are there qualitative factors that
Assuming the policy change is considered material, how should it be reported and disclosed in the 2014 financial statements and what would be the effect, if any, of the accounting change on the
Do you concur with management's assessment that the accounting change is immaterial and, therefore, requires no disclosure? Why or why not?
Briefly list and explain the primary audit risks in the production and inventory area of the K&K audit.
Identify any accounting or auditing issues in the way K&K handles its product costs, including overhead allocation, that need to be addressed in the current audit.
Review the analysis performed by K&K on the two product lines. K&K's management is debating the elimination of the manual line given that it is no longer profitable. Should K&K discontinue the
Based on your analysis, prepare a memo to the audit manager suggesting areas in K&K's inventory and production-costing systems where your firm could provide advice and value-added services to the
What are Scott's options?
How might a going-concern explanatory paragraph become a "self-fulfilling prophecy" for Surfer Dude?
Discuss the importance of full and accurate auditor reporting to the public, and describe possible consequences for both parties if the going-concern explanatory paragraph and footnote are excluded.
What potential implications arise for the accounting firm if they issue an unqualified report without the going-concern explanatory paragraph?
What factors might motivate Scott to be objective in his decision, despite his personal concern for his friend?
Is it appropriate for an audit partner to have a friendly personal relationship with a client? At what point could a personal relationship become an independence issue?
In your opinion, what should Scott do? Briefly justify your position and explain how you would approach George on Monday.
How is professional skepticism related to professional judgment? Describe a few factors that might be clouding Scott's professional skepticism.
Consider judgment trap of solving the wrong problem. What are some problems that Scott is trying to solve? What is the problem he should be trying to solve? Describe how he might reconcile the two
Review the requirements in the Accounting Standards Codification (ASC) that address accounting for contingencies. Describe the three ranges of loss contingencies outlined in accounting standards and
Based on your review of the attorney's confirmation, which of the three ranges of probability of loss do you think the Physicians Software, Inc., claim falls? How does that assessment differ from
Assume that Dunn & King's letter did not include their assessment that the outcome is "...in this case, is more than remote but less than likely" but instead one of the following statements was
Discuss why the attorney's letter is being received so close to the completion of the audit. Was the request for the attorney's response an oversight that should have been taken care of closer to
Assuming that management and the attorney's assessments differ, how would you resolve such differences when assessing the potential for an unfavorable outcome associated with the claim? What are the
In preparation for tomorrow's meeting with the partner and likely subsequent meeting with Murchison management, develop recommended responses to the following possible scenarios. In developing your
Review the ABA policy statement excerpts in Exhibit 1. What limitations exist as it relates to the attorney's response? To what extent should auditors rely solely on attorney responses to identify
The first two steps in the judgment process are "Clarify Issues and Objectives" and "Consider Alternatives." Evaluate the circumstances affecting Murchison and identify the issues at hand and
One of the tendencies that can bias judgments is the "anchoring tendency." Briefly describe the "anchoring tendency" and how it might impact judgment about this liability assessment.
Go to the Global Reporting Initiative's website (try www.globalreporting.org) and obtain and read the G4 Sustainability Reporting Guidelines Part 1 Reporting Principles and Standard Disclosures. (a)
The GRI Sustainability Reporting database reveals that approximately 12 percent of the organizations issuing 2013 sustainability reports issued integrated reports. An integrated report combines in
Go to the Global Reporting Initiative's website (try www.globalreporting.org) and obtain the G4 Sustainability Reporting Guidelines Part 2 Implementation Manual and read the assurance guidance
Read AICPA Attestation Standard Sections 50 and 101 and go to UPS's sustainability report (try www.responsibility.ups.com/sustainability) to see examples of assurance reports on sustainability
Read International Standard on Assurance Engagements (ISAE) 3000. What type of engagements does ISAE 3000 cover?
Based on what you have read related to sustainability reporting, what do you believe are the possible advantages and disadvantages associated with issuing a sustainability report to external
Based on what you have read related to sustainability reporting, what do you believe are the possible advantages and disadvantages associated with having a third party provide assurance on a business
The GRI Sustainability Reporting Statistics database indicates that 30 percent of the organizations issuing 2013 sustainability reports obtained external assurance and that the majority of the
Go to Caterpillar Inc.'s website (try www.caterpillar.com) to locate Caterpillars' latest sustainability report. What aspect of sustainability reporting seems to be a priority for Caterpillar?
Go to the web site www.caterpillar.com/sustainability/sustainability-report and read Caterpillar's sustainability report. Go to the web site www.caterpillar.com/
Identify and describe two common judgment traps.
How can considering multiple judgment frames enhance an auditor's professional skepticism? Explain and give an example.
Identify and briefly describe three potential ways to mitigate the effects of biases.
An audit engagement team is planning for the upcoming audit of a client who recently underwent a significant restructuring of its debt. The restructuring was necessary as economic conditions hampered
A client is determining its accounting treatment for new types of long-term contracts. Consider the differences in outcome for the two scenarios below regarding the approach the client and auditor
For each of the two audit situations below, determine which judgment shortcut or tendency is most prevalent and briefly describe the likely consequences of using the shortcut. (a) A staff auditor is
For each of the two audit situations below, determine which judgment tendency (or tendencies) is (or are) most prevalent and what the auditor could do to reduce bias. (a) A client contacts the audit
As discussed in the chapter opening vignette and on page 9, companies are increasingly issuing reports on corporate social responsibility. Visit the Global Reporting Initiative Web site
Discuss changes in accounting and business operations over the last decade that have increased the need for independent audits.
Explain how the increased use of fair value accounting might increase information risk.
Explain audit services, attestation services, and assurance services, and give examples of each.
What events led to the creation of the Public Company Accounting Oversight Board and what is their role in the oversight of audit firms?
The client changed from FIFO to LIFO inventory valuation in the current year and reflected this change in their financial statements. How should this be reflected in the auditor's report?
How do the eight parts of a standard unmodified opinion audit report for nonpublic companies differ from those found in a qualified opinion report?
Distinguish between a report qualified due to a GAAP departure and one qualified due to a scope limitation.
The PCAOB has proposed changes to the auditor's report for public companies that include requirements for the auditor to communicate "critical audit matters." Critical audit matters include those
The International Auditing and Assurance Standards Board (IAASB) recently revised its standards related to audit reporting. ISA 700 (Revised), Forming an Opinion and Reporting on Financial
Publicly traded companies must electronically file a variety of forms or reports with the U.S. Securities and Exchange Commission (SEC), including the Form 10-K, which includes the audited annual
Compare the wording in the standard unmodified opinion audit report for a nonpublic entity under AICPA auditing standards in Figure 3-1 (p. 48) with the wording for a public company audit under

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