Questions and Answers of Principles Of Auditing And Other Assurance Services

The CPA firm of Winston & Mall was engaged to audit the financial statements of the Fast Cargo Company, a retailer. The auditors tested a sample of 100 disbursement transactions, all of which were to
Martinson, Brinks & Sutherland, LLP audited the financial statements of Masco Corporation, a medium-size wholesaler that leased warehouse facilities. Masco sought bank financing for the leases,
The Foreign Corrupt Practices Act can seriously impact the business operations of many corporations, especially Securities and Exchange Commission registrants who are subject both to the unlawful
The financial press has been, and continues to be, replete with references to legal liability cases—and to wildly excessive monetary judgments—against public accounting firms under both common
The Private Securities Litigation Reform Act of 1995 and the U.S. Supreme Court's decision in Central Bank of Denver v. First Interstate Bank of Denver represent major victories in the profession's
What are heuristics, and why are they of concern to auditors?
Explain the terms sufficient, competent, and evidential matter as used in the third standard of field work.
An auditor attempts to obtain the most persuasive evidence available. What general criteria can an auditor apply to evaluate the competence of evidence?
Identify and briefly explain management's financial statement assertions, and explain the relationship among assertions, audit objectives, and audit procedures.
Identify and briefly describe the major files that are typically maintained separately from audit working papers.
Describe a typical arrangement of working papers.
Explain the nature and purpose of an audit committee.
Briefly describe an auditor's decision process when deciding to accept or continue an engagement.
Why does an auditor obtain an understanding of a client's business and industry before beginning an audit engagement?
What are the purpose and typical contents of a preliminary audit planning memorandum?
What is the objective of the interim phase of an audit engagement?
Why is coordination with the client prior to beginning year end audit work especially important?
Subsequent events occur after the last day of a client's fiscal year and on or before the report date. Why would an auditor be concerned about transactions and events subsequent to the period
In 1997 and 1998, an auditor found that approximately 4 percent of processed sales invoices were not mathematically accurate. In late 1998, the client implemented a control requiring that all sales
Which of the following statements about the competence of evidence is always true?a. Evidence gathered by an auditor from third parties is reliable.b. Accounting data developed when control risk is
Tests of controls:a. Are intended to detect material misstatements in financial statement accounts.b. Are concerned with how internal control policies or procedures are applied.c. Are evaluations of
Substantive tests of details:a. Are intended to detect material misstatements in financial statement accounts.b. Are concerned with how internal control policies or procedures are applied.c. Are
Analytical procedures:a. Are intended to detect material misstatements in financial statement accounts.b. Are concerned with how internal control policies or procedures are applied.c. Are evaluations
A public company's audit committee should consist of:a. Representatives of management, shareholders, suppliers, and customers.b. The audit partner, chief financial officer, legal counsel, and at
An independent auditor has been approached to perform an audit. Research suggests that the auditor may fail to:a. Distinguish between a regulated and nonregulated industry.b. Coordinate audit dates
To avoid misunderstandings between a practitioner and client, engagement arrangements are written in:a. A legal letter.b. An engagement letter.c. A client representation letter.d. A letter on
Which of the following procedures would an auditor most likely perform when planning an audit?a. Review prior year audit working papers.b. Inquire about potential litigation, claims, and
A purpose of reviewing first quarter financial results during audit planning is to:a. Identify unexpected fluctuations occurring in account balances since the prior year financial statements.b.
When is an assurance service an attestation?
What is the scientific method of inquiry, and how does it relate to auditing?
Identify the major types of audits performed in the U.S. today.
Why is there a need for financial statement audits?
What services are generally provided to clients by public accounting firms?
Why has Congress criticized nonattest services?
What does management assert in the disclosure: "Trade receivables . . . $1,200,000"?
What roles are served by the AICPA's two standard-setting bodies for auditing and for accounting & review services?
How are auditing and accounting related?
Alexion Corp. has engaged a public accounting firm to issue a report on the accuracy of product quality specifications included in trade sales agreements. This is an example of a/an:a. Financial
Unlike consulting services, assurance services:a. Make recommendations to management.b. Report on how to use information.c. Report on the quality of information.d. Are two-party contracts.Choose the
A financial statement audit:a. Confirms that financial statement assertions are accurate.b. Lends credibility to the financial statements.c. Confirms that financial statements are presented fairly.d.
Which of the following best describes why an independent auditor reports on financial statements?a. Independent auditors are likely to detect fraud.b. Competing interests may exist between management
Financial statement audits:a. Reduce the cost of capital.b. Report on compliance with laws and regulations.c. Assess management's efficiency and effectiveness.d. Overlook information risk.Choose
Primary responsibility for the assertions in financial statements rests with the:a. Audit partner assigned to the engagement.b. Senior auditor in charge of field work.c. Staff auditor who drafts the
A public accounting firm's primary role in performing nonattest services is to:a. Hedge against declines in the firm's audit practice.b. Establish the firm as a consultant.c. Provide advice
Which of the following types of audits is designed to determine whether a governmental entity's procurement practices are sound?a. A financial statement audit.b. An operational audit.c. A program
Which of the following authoritative bodies issues pronouncements relevant to attestation service engagements?a. Accounting and Review Services Committee.b. Auditing Standards Board.c. Public
The role of the Auditing Standards Board is to:a. Define accepted auditing procedures applicable in practice.b. Develop auditing standards for new Statements of Financial (or Governmental) Accounting
To compete with manufacturers like Cray Research, the Singer Corporation, a manufacturer of mid-range supercomputers, makes oral claims of product superiority to engineers and scientists, their
The Wall Street Journal reported that the National Association of College Admissions Counselors, a professional organization for admissions officers and high school guidance counselors, had
The Carter Wright Corporation entered into a consulting contract with Andersen Consulting to outsource Carter Wright's information processing to Andersen. The $3.5 million, multi-year contract would
Within the chapter, three different types of audits were identified:• Financial statement audit.• Operational audit.• Compliance audit.Each type of audit is designed for a particular purpose
During the past several decades, auditing has gained a considerable amount of attention both within the financial community and within academic curricula. For example, independent audits are now
One of your classmates, Kristin Lea, a chemistry major, is puzzled about what an auditor does. She says to you, "My only impression about auditors comes from Bob Cratchit, Tiny Tim's father, in
The following two statements are representative of attitudes and opinions sometimes encountered by independent auditors:a. Today's audit consists of test checking, a dangerous policy since test
Feiler, the sole owner of a small hardware business, has been told that the business should have financial statements reported on by an independent certified public accountant.Having some bookkeeping
Marc David is an employee-stockholder of the Lexington Corporation. Because he has extensive accounting experience. Marc proposes to the other stockholders that he, rather than a public accounting
Appointment in 1939 of the AICPA's Committee on Auditing Procedure, the first authoritative audit standard-setting body in the U.S., was a response to public sector demands that the private sector ".
What is dividend?
Who can conduct cost audit under the Companies Act, 2013?
What do you mean by ‘capitalization of reserve’?
How do you distinguish between reserve and provision?
What is sinking fund? How and why it is created?
How secret reserve is created and utilized?
What is the difference between ‘capital reserve’ and ‘revenue reserve’?
What do you mean by ‘capital reserve’? How does the capital reserve differ from capitalization of reserve? Can capital reserve or capitalized reserve is available for distribution of dividend?
What is meant by ‘Capitalization of reserves’? State the advantages of such capitalization to the business and to the shareholders. What is the duty of an auditor in respect of capitalization?
What is secret reserve? Why it is created? Discuss the duties of an auditor in regard to secret reserve with reference to provision of the Indian Companies Act.
What is meant by ‘special reserve’? What are the purposes of creation of such reserves? What are the duties of the auditor regarding special reserve?
What do you mean by the term ‘depreciation’?
Is it necessary to make provision for depreciation?
State the main factors to be considered for determining the amount of depreciation.
Is it legally compulsory to charge depreciation on assets?
Discuss the provisions of the Companies Act regarding arrear depreciation.
Is there any statutory necessity to make disclosures of depreciation in company accounts?
What are the provisions of the Companies Act regarding depreciation on low-value items?
Is depreciation on wasting assets a necessary charge for arriving at the true and fair picture of the financial statements of a company?
Is it absolutely necessary that depreciation should be provided for before profits are distributed as dividend? What are the provisions of the Companies Act, 2013, regarding the quantum of
A limited company wants to change its method of providing for depreciation from reducing balance method to fixed instalment method. Can the company do so? If so, explain as to how? In this context,
An enterprise purchases an item of machinery on 1 April 2012 for ` 1,00,000. It depreciates this item at the rate of 10 per cent per annum on straight-line basis. On 1 April 2015, the enterprise
Discuss the accounting treatment of the following:(a) Change in the method of depreciation.(b) Change in the value of the asset.
A limited company wishes to change over from the written down value method of providing depreciation which it has hitherto been following to the straight-line method. The company seeks your opinion
Distinguish between the following:(a) Principles of auditing and objectives of auditing(b) Errors of omission and errors of commission.
‘Personal qualities of an auditor are important for the successful conduct of audit.’—Explain with reference to the necessary qualities of an auditor.
‘Auditor does not guarantee that the books of accounts do correctly show the true position of the entity’s affairs’—Comment.
Comment on the validity of the following statements:(a) ‘Although Accounting and Auditing are related, they are distinct from each other’.(b) ‘Every business organization should have an annual
‘The main objective of an audit is to express an opinion on the truth and fairness of the accounts.’—Explain the importance of having the accounts audited by an independent professional auditor.
What do you mean by the term ‘Auditor’s Independence’? How can you differentiate between‘Independence in fact’ and ‘Independence in appearance’? How the independence of an auditor can
Enumerate the contributions of different other subjects in the development of auditing principles, techniques and procedures.
A trader is worried that in spite of substantial increase in sales compared to the earlier year, there is considerable fall in gross profit. After satisfying himself that sales and expenses are
‘The latest methodology adopted in auditing is the risk-based audit methodology’—In the light of the above statement, answer the following:(a) What is risk-based audit methodology?(b) Why audit
Write short notes on the following:(a) Professional Skepticism;(b) Related party transactions;(c) Final review;(d) Peer review.
Because of a very significant scope limitation, the auditors are uncertain about the propriety of the client’s accounting for deferred income taxes. The possible amounts involved are so significant
Describe the additional reporting requirements of Government Auditing Standards.
a. Calculate the gross margin percentage for each of State University’s product lines.b. Compare State University’s gross margins to industry averages. Indicate any margins that appear out of
What are loss contingencies? How are such items presented in the financial statements? Explain.
Describe a disclosure checklist. What is its purpose
Match the following terms to the appropriate definition (or partial definition). Each definition is used once. Term a. Commitment b. Contingent liability c. General risk contingency d. Iron
This simulation integrates concepts first presented in Chapter 5 (see Figure 5.1 for Assertions about Account Balances) and information from throughout the procedural chapters (Chapters 10 through
Rita King, your staff assistant on the April 30, 20X2, audit of Maxwell Company, was transferred to another assignment before she could prepare a proposed adjusting journal entry for Maxwell’s
What information is provided in a public company audit report relating to critical audit matters?

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