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business
auditing

Questions and Answers of Auditing

What is the role of monitoring to support internal controls?
Explain the difference between a substantive approach and a combined approach.
Explain why the auditor tests controls.
Describe which of the four categories of broad objectives for internal controls are considered by the auditor in an audit of both the financial statements and internal control over financial
CIBC's Amicus unit, administering 3061 customers of President's Choice Financial, sent incorrect tax information to Canada Revenue Agency (CRA), while sending different (correct) information to the
Hans & Co. LLP is auditing CCC Inc.'s 2014 financial statements. The firm previously audited the company's 2012 and 2013 financial statements. The 2012 audit resulted in a qualified opinion because
Jebrah Manufacturing Limited (JML) is a small company with about 50 employees. It has a local area network, production systems software, timekeeping software, and accounting systems. These are all
Frequently, management is more concerned about internal controls that promote operational efficiency than about those that result in reliable financial data. How can the independent auditor persuade
In Parts I and II of this case, you performed preliminary analytical procedures and assessed acceptable audit risk and inherent risk for Pinnacle Manufacturing. Your team has been assigned the
What are the five components of internal control in the COSO internal control framework? Provide an example of a control for each component.
The 2014 survey of the International Forum of Independent Audit Regulators found that internal control testing is consistently an area where audit work is deficient. Canada is no exception. Access
List the five evidence decisions that the auditor makes. Explain their relevance to the audit process.
Provide an example of a form of security that should be maintained over each of physical and electronic working papers.
Explain why the level of professional skepticism can vary among audit procedures.
Provide one example of each of the seven methods of evidence collection.
What is the difference between internal and external documentation?
How does the quality of internal controls affect evidence?
Describe two audit techniques that the auditor should use to reduce the risk of financial statement misstatement during the financial statement closing process.
Why are analytical procedures an important part of the planning process?
What is the difference between preliminary analytical procedures and substantive analytical procedures?
What are the decisions involved in developing substantive analytical procedures? Develop an independent expectation.
List the five major evidence decisions that must be made on every audit.
The following are eight situations, each containing two means of accumulating evidence: 1. Confirm accounts receivable with business organizations versus confirming receivables with consumers. 2.
In the audit of Worldwide Wholesale Inc., you performed extensive ratio and trend analyses. No material exceptions were discovered except for the following: 1. Commission expense as a percentage of
As part of the analytical procedures of Mahogany Products Inc., you perform calculations of the following ratios:REQUIRED For each of the preceding ratios: a. State whether there is a need to
Seven different types of evidence were discussed. The following questions concern the reliability of that evidence. REQUIRED a. Explain why confirmations are normally more reliable evidence than
Mythbusters is a popular science program on the Discovery Channel. The show's hosts-experts in special effects, art, robotics and electrical, and building-use the scientific method to test the
Lesley Stopps, a public accountant, is the auditor for Great Western Lumber Company Ltd., a wholesale wood milling company. Lesley calculated the gross margin in discussing the results, the
Refer to the opening vignette regarding Peregrine Financial Group. In 2013, the U.S. Commodity Futures Trading Commission (CFTC) charged Jeannie Veraja - Snelling, a U.S. certified public accountant
List the seven types of audit evidence included in this chapter, and give two examples of each.
Refer to Auditing in Action 9-3.The CPAB report highlights the common deficiencies in applying substantive analytical procedures (SAP) to the analysis of revenue.Auditing Action 9-3As highlighted
Use a search engine to locate the CPA Journal article, "The hidden risk in analytical procedures: What WorldCom revealed," by Neal Hitzig. After reading the article, provide a discussion of the
Here is how KPMG described developing its audit strategy. Identification of Significant RisksWe design an overall audit strategy and an audit approach to address the significant financial reporting
How is the audit strategy linked to the audit risk assessment processes?
When conducting a systems conversion audit, why does the auditor need to test the data details between the old and the new master files in both direction, that is, from old to new and from new to old?
Explain the purpose of the five types of audit tests. Note: Multiple examples are possible, two are provided for each type.
List the type of information that would be included in an audit program.
Why does the auditor need to know how to audit an IFRS conversion?
Explain why the auditor might not be able to use a combined audit approach of an IFRS conversion.
Why does the auditor need to know how to audit an IT system conversion?
Auditors develop overall audit plans to ensure that they obtain sufficient appropriate audit evidence. The timing and extent of audit procedures auditors use is a matter of professional judgment,
For each of the seven types of evidence-inspection; observation; external confirmation; recalculation; reperformance; analytical procedures; and inquiries of client (discussed in Chapter 9 )
The following are audit procedures from different transaction cycles: 1. Examine sales invoices for evidence of internal verification of prices, quantities, and extensions. 2. Select items from the
Kim Bryan, a new staff auditor, is confused by the inconsistency of the three audit partners to whom she has been assigned on her first three audit engagements. On the first engagement, she spent a
Beds and Spreads Inc. specializes in bed and bath furnishings. Its inventory system is linked through the company's website to key suppliers. The auditor identified the following internal controls in
Sidhu, a PA, is planning his first audit of Microservices Ltd., a local retailer of computers and related products. Microservices is a new company, and this is the client's first fiscal year of
Gabby Manufacturing Company (Gabby) is a privately owned leading manufacturer and distributor of lockers, locks, and keys for numerous industries. It is best known for its widely used locker system
In Parts I and II of this case, you performed preliminary analytical procedures and assessed acceptable audit risk and inherent risk for Pinnacle Manufacturing. In Part III of the case, you obtained
Provide two examples of directed sample selection that could be used for the audit of inventory.
List the three features of probabilistic sample selection.
The auditor has decided to circularize accounts payable confirmations. What is the likely population?
Identify the factors that an auditor uses to determine the appropriate TER. Compare the sample size for a TER of 6 percent with that of 3 percent, all other factors being equal.
Identify the factors an auditor uses to determine the appropriate ARO. Compare the sample size for an ARO of 10 percent with that of 5 percent, all other factors being equal.
State the relationship between the following: a. ARO and sample size. b. Population size and sample size. c. TER and sample size. d. EPER and sample size.
For the audit of Carbald Supply Company, Farda is conducting a test of sales for the first nine months of the fiscal year ended December 31, 2016. Incorrect revenue recognition has been assessed as a
Lam, a PA, is auditing the financial statements of his client, Harvesters Ltd., a company that sells and distributes agricultural equipment across Canada. Lam has performed a preliminary evaluation
An audit partner is developing an office training program to familiarize her professional staff with statistical decision models applicable to the audit of dollar-value balances. She wants to
Nandini has just completed the accounts receivable confirmation process in the audit of Danforth Paper Company Ltd., a paper supplier to retail shops and commercial users.Following are the data
The following is a partial audit program for the audit of cash receipts: 1. Review the cash receipts journal for large and unusual transactions. 2. Trace entries from the prelisting of cash receipts
The following are auditor judgments and audit sampling results for six populations. Assume large population sizes.REQUIREDa. For each population, did the auditor select a smaller sample size than is
It is hard to believe that standards could differ on something that is as seemingly objective as sampling. However, like many things in auditing, there is often considerable leeway around what is
Auditors often have to test the effectiveness of infrequently operating controls, such as monthly closing and reconciliation processes. Determining the appropriate extent of testing of such controls
List the six categories of transactions. For each category, describe how the completeness audit objective would apply to the transaction.
ABC Co. has about 300 accounts receivable balances from a variety of businesses, ranging in size from about $500 to $250 000. What types of confirmations would be sent? Justify your response.
Explain the impact of client business risk on revenue recognition.
Why is valuation a high-risk assertion for accounts receivable?
How do general controls over access rights affect the sales cycle?
What are the three types of misstatements that are associated with the occurrence objective for sales?
Which balance-related audit objectives are not affected by control risk for classes of transactions? Why?
Which of the five accounts receivable balance related audit objectives can be partially satisfied by confirmations with customers?
YourTeam.com is an online retailer of university, college, and professional sports team memorabilia, such as hats, shirts, pennants, and other sports logo products. Consumers select the university,
The following are audit procedures in the revenue cycle: 1. Examine a sample of shipping documents to determine whether each has a sales invoice number included on it. 2. Examine a sample of noncash
The following misstatements are sometimes found in the revenue account balances: 1. Cash amounts received from collections of accounts receivable in the subsequent period are recorded as current
You were asked in February 2015 by the board of management of your church to review its accounting procedures. As part of this review, you have prepared the following comments relating to the
Each of the following situations concerns if and how to recognize revenue. 1. A cell phone provider sells phone hardware and associated voice and data services. The typical contract includes a $200
Kitchen-Tech is a private large manufacturing firm that is headquartered in Toronto, Ontario. Kitchen-Tech manufactures, distributes, and installs high-tech kitchen equipment and custom made
You are auditing the financial statements of the Reis Company, a small manufacturing firm that has been your client for several years. Because you were busy working on another engagement, you sent a
You are the audit senior for the 2015 yearend audit of Vision Quest (VQ), a publicly traded Canadian company that is one of the largest and fastest online vision care providers in the world. Because
You are the audit senior on the audit of Great Eastern Hotel (GEH). This two-star hotel is located in a major coastal city and as such is prone to seasonal fluctuations. The 200 room hotel is open
Biomed Products Incorporated (BPI) is a public company, listed on the Toronto Stock Exchange (TSX),that manufactures and markets various types of medical equipment that monitors patients' vital signs
Meyer's Pharmaceutical Company, a drug manufacturer, has the following internal controls for billing and recording accounts receivable:1. An incoming customer's purchase order is received in the
Refer to Auditing in Action 12-5 , which provides a brief overview of the restatement of Tesco's commercial income from its suppliers related to payments for the use of promotional space as well as
The Ontario Securities Commission (OSC) found that Zungui Haixi Corporation, a manufacturer of athletic footwear, apparel, accessories, and casual footwear based in China, had fraudulently overstated
An Apple Computer manager, Paul Shin Devine, was sentenced to one year in prison and required to pay restitution of $4.2 million for receiving $2.4 million in kickbacks from Asian suppliers of iPhone
Why is it important for an organization to use purchase orders?
What is the purpose of matching receiving report and invoice details to purchase orders?
How do high-quality perpetual records affect the auditor's tests of controls of inventory acquisitions?
When conducting a systems conversion audit, why does the auditor need to test the data details between the old and the new master files in both directions, that is, from old to new and from new to
Why is an organization more likely to have poor internal controls over accounts payable than over accounts receivable?
What possible misstatements could occur with manufacturing equipment?
Why does the auditor need to ask if any equipment purchases are from a related party?
Explain the relationship between tests of controls for the acquisition and payment cycle and tests of details of balances for the verification of capital assets. Which aspects of capital assets are
You are the manager in the audit of Vernal Manufacturing Company and are turning your attention to the income statement accounts. The in-charge auditor assessed control risk for all cycles as low,
You are doing the audit of the UTE Corporation for the year ended December 31, 2016. The following schedule for the property, plant, and equipment and related allowance for depreciation accounts has
Organizations frequently use procurement cards (often referred to as P-cards) to purchase goods or services using processes outside normal acquisition and cash disbursement procedures. P-cards are a
The Securities and Exchange Commission (SEC) found that Centerpulse Ltd., a publicly traded company based in Switzerland, fraudulently misstated its 2002 third and fourth quarter financial statements
List and describe the three parts that are audited in the inventory cycle.
Provide three examples of cost accounting controls. State the purpose of each control. Three reasons are provided. Others are possible.
Why does observing inventory only provide limited evidence on the valuation objective?
The inventory balance is highly material. Does the auditor have a choice with respect to observation of inventory? Why or why not?

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