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principles of auditing
Questions and Answers of
Principles of Auditing
Auditors try to identify predictable relationships when using analytical procedures.Transactions from which of the following accounts would likely yield the most persuasive evidence in relation to
The auditor’s analytical procedures are facilitated if the clienta. Uses a standard cost system that produces variance reportsb. Segregates obsolete inventory before the physical inventory countc.
Which of the following is not one of the independent auditor’s objectives regarding the examination of inventories?a. Verifying that inventory counted is owned by the clientb. Verifying that the
Which of the following procedures in the cash disbursements cycle should not be performed by the accounts payable department?a. Comparing the vendor’s invoice with the receiving reportb. Canceling
Tracing debits from an expense account to receiving reports and purchase orders provides evidence thata. All receipts of merchandise were properly recorded.b. Recorded expenses were for goods
The client has taken a complete physical inventory at year-end, and you have observed the inventory, taken test counts, accounted for tag sequencing, and so on. You are confident that the client took
Inshalla Retail Company keeps its inventory on a perpetual FIFO basis for internal reporting, but adjusts the year-end FIFO balance to a LIFO basis using a dollar-value LIFO index. The auditor is
One of the firm’s largest clients, Ropper Company, makes gas grills, gas stoves, and gas dryers. Its financial position has deteriorated, but its management is confident that the worst has passed.
You are auditing Inventory of HUSKY Corp. as of December 31, 2002. The inventory general ledger balance is $8,124,998.66. HUSKY manufactures lawn and garden tractors, snowmobiles, and supplies. If
Could the fraud at CMH have been detected if standard audit procedures had been used to observe the client’s physical inventory? Explain why it is important that auditors assigned to the
What types of operational audits should an internal audit department perform in the cash and cash management area?
Which of the following would not represent an advantage to using a lockbox arrangement with a bank?a. It expedites the receipt of cash and provides earlier access to it.b. It is less costly than
Which of the following checks might indicate kiting?a. 101 and 303b. 202 and 404c. 101 and 404d. 202 and 303 The following information was taken from the bank transfer schedule prepared during the
Which of the following checks illustrate deposits/transfers in transit at December 31, 2003?a. 101 and 202b. 101 and 303c. 202 and 404d. 303 and 404 The following information was taken from the bank
The auditor must be aware of loan and debt covenants that may affect the client. A regular part of each audit should include the examination of these covenants.Required:a. What information should the
Assume that you have just gone to work for Wipfli, Barber, & Zeitlow, a regional CPA firm with seven offices in your state. The company is interested in automating much of its documentation. The
A staff auditor is assigned the audit of equipment. The audit senior remarks, “This is the easiest account to audit. All you have to do is vouch the major additions and disposals. The client has
What particular problems are encountered in the audit of property, plant, and equipment, and goodwill when another entity is purchased? Explain the specific audit implications when the acquisition is
What audit procedures are used to determine that all fully depreciated equipment is properly valued?
During the audit of a new client, you uncover an accounting policy stating that all purchases of equipment or other items under $500 will be expensed, regardless of their nature. When you ask the
An audit client has acquired another company and accounted for the acquisition as a purchase. An independent real estate appraiser has been hired to value the assets of the acquired company. What are
The auditor’s program for the examination of long-term debt should include steps that requirea. Verification of the existence of the bondholdersb. Examination of the bond trust indenturec.
The audit senior has asked you to perform analytical procedures to estimate the reasonableness of recorded depreciation expense of a manufacturing client. The client has seven different classes of
You are doing the audit of Halvorson Fine Foods, Inc., for the year ended December 31, 2001. The client has prepared the following schedule for the PPE and related allowance for depreciation
Reid Co. has a significant investment in Red Oak Ltd., carried on the books at cost. The investment is \($45\) million, but Red Oak Ltd. has fallen on hard times. The current trading price of the
CPA firm is engaged in the examination of the financial statements of Zeitlow Corporation for the year ended December 31, 2004.Zeitlow Corporation’s financial statements and records have never been
The long-term debt documentation (indexed K-1) was prepared by client personnel and audited by AA, an audit assistant, during the calendar year 2004 audit of American Widgets, Inc., a continuing
Describe operational auditing.
Why may the unit of measure be difficult to establish in an operational audit?
Into what three broad categories may operational audits be classified?
List four potential benefits of an operational audit.
Discuss the activities of The Institute of Internal Auditors.
What are the principal parts of the CIA examination?
What general functions are usually applicable in an operational audit?
Why does the operational auditor assess risk?
What is the purpose of a preliminary survey and how is it performed?
Why does the auditor gather evidence of performance?
What are some attributes of a good interview?
What forms may the auditor's evidence take?
What investigation does an auditor make of deviations?
What questions must an auditor consider in determining what corrective action to propose?
List three forms of formal reporting of an operational audit's results.
Discuss the sections or paragraphs that might be found in a formal written report.
What publication provides guidance to auditors who perform audits of government entities?
What two federal agencies publish auditing standards for audits of programs for federal financial assistance?
For what reasons may an auditor question an expenditure in a compliance audit?
An auditor performs an audit in accordance with GAAS and GAGAS of the financial statements of a governmental entity that receives less than \(\$ 25,000\) of federal financial assistance. List the
An operational auditor is most likely to be concerned with whether a transaction wasa. Properly approved.b. Properly supported with documentation.c. Necessary.d. Reasonable.
When planning an operational audit, the auditor should consider the risk ofa. Inefficient operations.b. Misleading financial statements.c. Inadequate internal controls.d. Lawsuits for inadequate
When performing an operational audit, the auditor would normally be concerned with all of the following excepta. Calculation of earnings per share.b. Investigation of budget variances.c. Follow-up on
Which of the following operational auditing objectives is most auditable?a. To improve supervisory morale and leadership.b. To reduce substantially the production scrap rate.c. To improve community
The first step in an operational audit is for the auditor toa. Define problem areas.b. Identify objectives of the company and the function being audited.c. Evaluate financial statements.d. Determine
During an audit of the personnel function, an auditor notes that there were several employee benefit programs and that participation in some of the programs is optional. Which of the following would
Which one of the following is the best objective performance criterion for an electrical engineer?a. Exhibition of creative talents on company projects.b. Project completion within budget
If the objective of the audit is to determine that adequate environmental protection and alarm devices are installed and operating, the auditor shoulda. Review the architect's alarm specification
Which of the following deviations from company policy would an operational auditor consider to be the most critical?a. Several late payments to vendors resulted in loss of discounts.b. An employee
The benefits of an operational audit generally include all of the following excepta. Increased revenue.b. Increased reliability of the financial statements.c. Increased productivity.d. Decreased
An operational audit report is not likely to be addressed to thea. Top management.b. Stockholders.c. Department supervisors.d. Audit committee.
When the operational auditor and the auditee reviewed the draft audit report, they found they had different interpretations of the facts. The auditor shoulda. Eliminate the item from the audit
In an operational audit of the tax department you found that certain officers were abusing some of their executive perquisites and that this abuse may have a tax effect for the company. The tax
In a compliance audit, an auditor is concerned with whether an entity's transactions are in conformance witha. Management objectives.b. Laws and regulations.c. Board of director directives.d.
Organizations that issue standards affecting governmental audits include all of the following except thea. SEC.b. AICPA.c. OMB.d. GAO.
The four general standards under generally accepted government auditing standards include all of the following excepta. Qualifications.b. Independence.c. Internal controls.d. Quality control.
In auditing expenditures for compliance under a federal grant program, an auditor would be least likely to question an expenditure for supplies that is nota. Supported by a receiving report.b. Paid
All of the following are general requirements for compliance with laws and regulations excepta. Freedom of information.b. Political activity.c. Civil rights.d. Cash management.
An auditor performing a single audit would issue all of the following reports excepta. Opinion on the financial statements.b. Report on internal controls over federal financial assistance.c. Report
The audit committee of Jones, Inc., has asked the director of internal auditing about the concept of "systems development auditing." They are specifically interested in 1. An operational audit of the
The director of internal auditing of a city has been requested to audit the operations of the highway department for possible waste and inefficiency. The department is responsible for maintenance of
List five opportunities provided by the preliminary internal audit conference for establishing good auditor/auditee relationships.
You are asked to plan and prepare for an operational audit of customer service and inventory levels of a wholesaling division that handles various types of small electric motors and parts.Required:a.
The internal auditor recently conducted a preliminary survey of the purchasing activities of a manufacturing plant. Three general management objectives for the purchasing activity related to
As a senior internal auditor for a large industrial organization, you have been assigned to perform an audit of the personnel function. Your preliminary survey disclosed the following information:1.
Risk assessment can be useful to an internal audit director in setting audit priorities.Required:Explain how the audit director should employ risk assessment in developing audit work priorities. Be
The following sentences appear in an internal auditor's notes concerning an accounts payable activity. The sentences, which are in no logical order or grouping, are to be used in the audit report.1.
You have just received the "following draft audit report that was prepared by one of your staff auditors.1 Audit of the Purchasing Department 2 Introduction 3 The purchasing department is responsible
You have been assigned to perform an operational audit of the vehicle mainte¬ nance department of a large university. What factors will you consider in deter¬ mining if the department is operating
Your audit of a United Fund agency that received a grant of federal funds included tests of transactions for compliance with applicable laws and regulations. Indicate whether or not and why you would
You have completed your audit of State College. As required by GAGAS, you tested compliance with laws and regulations that could have a material effect on the financial statements. You found no
Describe the general model for making ethical decisions.
What were the positive and negative aspects of the changes that occurred in the auditor’s ethical environment during the 1970s and 1980s?
Describe the three common aspects of all professions’ codes of conduct.
What was the purpose of the Anderson Report?
What is the basic structure of the Code of Professional Conduct?
Name and briefly describe the purpose of each of the eight sections of the Principles of Professional Conduct.
Name two relationships between auditors and clients that are prohibited by the AICPA because independence will be impaired.
What is a direct financial interest?
What four conditions must be met before CPAs can audit representations created by their own bookkeeping?
Under what conditions will there be no impairment of independence when CPAs offer management consulting services to audit clients?
Why may litigation with a client impair independence?
What four areas are covered by the rule on general standards?
Under what conditions may members express unqualified opinions on financial statements that utilize accounting principles other than those issued by authoritative bodies?
What dual responsibility does a CPA have in relation to the concept of confidentiality?
State the rule on confidentiality.
State the rule on contingent fees.
State the rule on advertising and other forms of solicitation.
State the rule on commissions.
What is the AICPA trying to discourage with the rule on commissions?
What is the purpose of the rule on the form of practice?
During the 1970s and 1980s, all of the rules of conduct listed below were either substantially modified or eliminated excepta. Advertising and solicitation.b. Independence.c. Competitive bidding.d.
In which of the following instances would the independence of the CPA not be considered to be impaired? The CPA has been retained as the auditor of a broker age firma. Which owes the CPA audit fees
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