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auditing international approach
Questions and Answers of
Auditing International Approach
The primary source of information to be reported about litigation, claims, and assessments is thea. Client's lawyer.b. Court records.c. Client's management.d. Independent auditor.
During your audit of Fraudulent Fabrics, you note that the company's gross profit ratio increased to 25 percent this year from 20 percent last year. List the possible causes of this increase and the
In your audit of June Company, you are investigating an increase in sales during the current year and have made inquiry of the sales manager, who tells you the increase is due to a sales price
As auditor of Royal Radio Broadcasting Company, you have learned from past audit experience, familiarity with broadcasting industry practice, and a review of Royal's contracts and agreements the
When examining documentation supporting costs and expenses, an auditor must consider its availability and its reliability. Discuss the reliability and adequacy of documentation you would expect for
Young, CPA, is considering the procedures to be applied concerning a client's loss contingencies relating to litigation, claims, and assessments.Required:What substantive audit procedures should
Commitments and contingencies can take many forms, including the following.a. Guarantee of the debt of an affiliated company.b. Contract with a builder to construct a plant.c. Maintenance of an
In general, a lease will be considered a capital lease if it meets any one of the following criteria.a. The lease transfers ownership of the property to the lessee by the end of the lease term.b. The
Green, CPA, is auditing the financial statements of Taylor Corporation for the year ended December 31, 19X9. Green plans to complete the fieldwork and sign the auditor's report about May 10, 19X0.
During the audit of the financial statements of Amis Manufacturing, Inc., the company's president, R. Alderman, and Luddy, the auditor, reviewed matters that were supposed to be included in a written
The fieldwork for the December 31, 19X8 audit of Bypass Manufacturing Company was completed on February 20, 19X9, and the audit report was delivered to the client on March 1, 19X9. The following
In connection with her audit of Flowmeter, Inc., for the year ended December 31, 19X8, Hirsch, CPA, is aware that certain events and transactions that took place after December 31, 19X8, but before
Barge Construction Company constructs large oil barges, each requiring from six to nine months to build. The company follows the percentage-of-completion method of recording construction revenue for
Caldwell and Douglas, CPA, are completing the audit of Carmel Corporation for the year ended December 31, 19X4. While performing a review of subsequent events, they note the following situations.1.
During his review of subsequent events in connection with the audit of Jordan Match Company, Ron Gray, CPA, was informed by the corporate secretary that, although there had been two meetings of the
During an audit of Miller Carpet Company, Kelley, CPA, learned that the company had been charged with discriminatory hiring policies and that lawsuits totaling \(\$ 10\) million had been brought
Windek, CPA, is nearing the completion of an audit of the financial statements of Jubilee, Inc. Windek is currently concerned with ascertaining the occurrence of subsequent events that may require
Cole \& Cole, CPAs, are auditing the financial statements of Consolidated Industries Co. for the year ended December 31, 19X2. On April 2, 19X3, an inquiry letter to J.J.Young, Consolidated's
The following misstatements could affect revenue and expense, commitments and contingencies, and subsequent events. Devise one audit procedure that will provide reasonable assurance of detecting each
Lambert Skull recently graduated from an accounting program at a local university and accepted a position on the audit staff of Look and Look, CPAs. He was assigned to the audit of Grand Toys, a
List the important concepts of the four standards of reporting.
State what each paragraph in the standard audit report is called and the information each conveys.
To whom should the audit report normally be addressed?
Because much of an auditor's work involves an audit of various client financial records, why does the auditor's report state that he or she has audited the financial statements rather than the
How does the auditor explain in the audit report his or her responsibility for the detection of errors and fraud?
What is the significance of the phrase "in our opinion" in the audit report?
Define the word "fairly" as used within the context of the auditor's report.
Can financial statements not be fair and yet be in conformity with generally accepted accounting principles? Explain.
List the conditions specified in SAS No. 69 for financial statements to "present fairly."
What are the rule-making bodies whose pronouncements have been designated as generally accepted accounting principles by the AICPA?
Describe the GAAP hierarchy for nongovernment entities.
List the individual financial statements normally included in a complete set and indicate which phrase of the opinion paragraph applies to each statement.
How does the auditor determine the date of the audit report?
What is meant by the phrase "dual dating of a report," and when would an auditor use this practice?
What reporting responsibility does an auditor have for prior-year financial statements presented with current-year audited statements if (1) he or she audited the prior year, (2) the prior year was
Distinguish between a reissued and an updated audit report.
What types of reports may a U.S. auditor issue on financial statements prepared in conformity with accounting principles generally accepted in another country that are for use only outside the United
What is the auditor's responsibility for information that is supplementary to the financial statements but required by the FASB or GASB? How does the auditor report on such information?
What is the auditor's responsibility for other information in the text portion of annual reports and other documents containing audited financial statements?
What actions should an auditor take if a material error is found in the financial statements after delivery of his or her audit report?
The standard audit report includes all of the following except a (an)a. Opinion paragraph.b. Scope paragraph.c. Explanatory paragraph.d. Opening paragraph.
The auditor's report may be addressed to any of the following except the client'sa. Stockholders.b. Board of directors.c. Chief executive officer.d. Partners.
In the opening paragraph of the standard audit report, auditors acknowledge their responsibility toa. Conduct their audit in accordance with generally accepted auditing standards.b. Evaluate the
The existence of audit risk is recognized by the statement in the auditor's standard report that thea. Auditor is responsible for expressing an opinion on the financial statements, which are the
Several sources of GAAP consulted by an auditor are in conflict as to the application of an accounting principle. Which of the following should the auditor consider the most authoritative?a. FASB
The auditor's standard report should be titled, and the title should include the worda. Standard.c. Independent.b. Opinion.d. Audit.
The standard audit report explains that an audit includes all of the following excepta. Examining support for the amounts and disclosures in the financial statements.b. Evaluating internal control.c.
An auditor issued an audit report that was dual dated for a subsequent event occurring after the completion of fieldwork but before issuance of the auditor's report. The auditor's responsibility for
An auditor has been asked to report on the balance sheet of Jane Company but not on the other basic financial statements. The auditor will have access to all information underlying the basic
When unaudited financial statements of a nonpublic entity are presented in comparative form with audited financial statements in the subsequent year, the unaudited financial statements should be
Comparative financial statements include the financial statements of the prior year that were audited by a predecessor auditor whose report is not presented. If the predecessor's report was
Before reporting on the financial statements of a U.S. entity that have been prepared in conformity with another country's accounting principles, an auditor practicing in the U.S. shoulda. Understand
What is an auditor's responsibility for supplementary information that is outside the basic financial statements, but required by the FASBa. The auditor has no responsibility for required
Which of the following representations does an auditor make explicitly and which implicitly when issuing a standard report? Conformity with GAAP a. Explicitly Adequacy of disclosure Explicitly b.
Which paragraphs of an auditor's standard report on financial statements should refer to generally accepted auditing standards (GAAS) and generally accepted accounting principles (GAAP) ? GAAS GAAP
When audited financial statements are presented in a client's document containing other information, the auditor shoulda. Perform inquiry and analytical procedures to ascertain whether the other
Which of the following events occurring after the issuance of an auditor's report most likely would cause the auditor to make further inquiries about the previously issued financial statements?a. A
When a predecessor auditor reissues the report on the prior period's financial statements at the request of the former client, the predecessor auditor shoulda. Indicate the introductory paragraph of
The auditor's standard report states that the financial statements are presented fairlya. With reasonable assurance.b. Without significant error.c. In all material respects.d. On a consistent basis.
Perry \& Price audited Bond's consolidated financial statements for the years ended December 31, 19X4 and 19X3. These financial statements are being presented on a comparative basis and an
You were recently appointed to a committee formed by the state CPA society to investigate possible substandard reporting practices. The following report was submitted to the committee, and, as the
A number of years ago a large public accounting firm used a form of the opinion paragraph shown below.In our opinion, the financial statements referred to above present fairly (in all material
On completion of fieldwork on September 23, 19X5, the following standard report was rendered by Timothy Ross to the directors of The Rancho Corporation.{Report of Independent Auditors}To the
Richard Adkerson, CPA, was reviewing with the president of Central Pond Shipping Com pany the standard audit report he intended to issue to this new client. The president had the following comments
Your client, Echo Software Systems, recently changed the wording of its sales contracts to permit its customers to receive software upgrades at no charge if its competitors upgrade their products.
You have been engaged to audit the financial statements of Gridley Corporation for the year ended December 31, 19X7. You completed the work in the client's office on February 22, 19X8 and returned
The following audit report contains departures from the standard wording. Identify the word, phrase, or omission that departs from the standard wording and state why the word, phrase, or omission
The management of Onbeach Supply Company desires to include four years' financial statements in this year's annual report. R. Vaughn, CPA, has audited the financial statements of the current and
The following auditor's report was drafted by a staff accountant of Jones \& Jones, CPAs, at the completion of the audit engagement on the financial statements of Adams Mining, Inc., for the year
In the current year the operating revenue of State Mountain Gas Company declined to \(\$ 1.7\) million from \(\$ 2.2\) million in the prior year. Owing to an extraordinary item, however, net income
For the year ended December 31, 19X8, Friday \& Company, CPAs (Friday), audited the financial statements of Johnson Company and expressed an unqualified opinion on the balance sheet only. Friday did
The fieldwork on Triple Steel Corporation has been completed. You were responsible for preparing the preliminary draft of the financial statements and auditors' report. You had the draft statements
Before the present form of the standard audit report was adopted, the following form was used:We have examined the balance sheet of \(\mathrm{X}\) Company as of December 31, 19X7, and the related
List the modifications of the standard audit report that normally do not result in a qualification, a disclaimer, or an adverse opinion.
When more than one auditor is involved in an audit of a company's financial statements, what two decisions about reporting must the principal auditor make?
What disclosure is made in the principal auditors' report if they decide to assume responsibility for other auditors' work? If they decide not to assume responsibility for other auditors' work?
Give three examples of matters that might be emphasized in an explanatory paragraph of the audit report.
Under what conditions should the phrase "with the foregoing explanation" be used in the opinion paragraph to refer to a matter emphasized in an explanatory paragraph?
Under what condition may an auditor issue an unqualified opinion on financial statements containing a departure from an accounting principle published by a body designated by the AICPA Council to
What modification is made to an auditor's report if accounting principles are not applied consistently?
List the factors that affect comparability of financial statements between years and result in a modification of the standard auditor's report.
List the factors that affect comparability of financial statements between years but would normally not result in a modification of the standard auditor's report.
List two circumstances that may result in a qualification, a disclaimer, or an adverse opinion.
Explain the meaning and use of the "except for" qualification.
Where should a qualifying phrase be placed if the auditor intends to qualify all of the basic financial statements?
What is the purpose of a disclaimer of opinion and when is it used?
Under what condition would an auditor issue a disclaimer of opinion rather than an "except for" qualification?
What is a piecemeal opinion, and under what conditions is it appropriate for the auditor to use it?
What does an adverse opinion state and when is it used?
How does an auditor decide whether to use an "except for" qualification or an adverse opinion?
List three reasons for limitations on the scope of an auditor's work.
Discuss the forms an auditor's report may take as the result of a scope limitation.
How is the scope paragraph of an auditor's report modified if the auditor's scope has been limited so that a qualification is required? A disclaimer is required?
Why should a scope limitation not be discussed in a footnote?
What forms of audit report are required to describe departures from generally accepted accounting principles and when is each used?
Why are qualifications and adverse opinions because of inadequate disclosure rare in practice?
A principal auditor decides not to refer to the audit of another CPA who audited a subsidiary of the principal auditor's client. After making inquiries about the other CPA's professional reputation
In which of the following situations would an auditor ordinarily issue an unqualified audit opinion without an explanatory paragraph?a. The auditor wishes to emphasize that the entity had significant
An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this
Eagle Company's financial statements contain a departure from generally accepted accounting principles because, due to unusual circumstances, the statements would otherwise be misleading. The auditor
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