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principles of auditing

Questions and Answers of Principles of Auditing

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
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
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 aa. Charitable organization in which an employee of
Under which of the following circumstances would the independence of a CPA be considered impaired if the CPA, who is also an attorney, serves as auditor and provides legal services to the same
Inclusion of which of the following in a promotional brochure published by a CPA firm would be most likely to be considered by many CPAs to be a violation of the AICPA Rules of Professional
In which of the following circumstances would a CPA who audits XM Corporation lack independence?a. The CPA and XM’s president are both on the board of directors of COD Corporation.b. The CPA and
A CPA purchased stock in a client corporation and placed it in a trust as an educational fund for the CPA’s minor child. The trust securities were not material to the CPA but were material to the
The code of conduct of the profession would most likely be considered to be violated if a CPAa. Owns a building and leases a portion of the space to an audit client.b. Has an insured account with a
The AICPA Code of Professional Conduct states that a CPA shall not disclose any confidential information obtained in the course of a professional engagement except with the consent of the client.
The CPA should not undertake an engagement that requires independence if his or her fee is to be based ona. The findings of a tax authority.b. A percentage of audited net income.c. Per diem rates
A CPA s audit report on a client s balance sheet, income statement, and statement of cash flows was sent to the stockholders. The client now wishes to present only the balance sheet along with an
Many CPAs believe that the AICPA Code of Professional Conduct has been violated when the CPA represents that specific consulting services will be performed for a stated fee and it is apparent at the
Which of the following is required for a firm to designate itself “Member of the American Institute of Certified Public Accountants” on its letterhead?a. At least one of the partners must be a
As a CPA, you are encountering some difficult questions from professional asso¬ ciates about ethical concepts. Here are some examples.a. Why does the accounting profession prohibit CPAs from owning
For a number of years, Mr. Alserv, a CPA, has performed bookkeeping services for a corporate client, including the recording ofthe journal entries and the posting of the accounts. Mr. Alserv also
According to the Committee on Basic Auditing Concepts, what are the four conditions that create a demand for auditing?
Distinguish among the characteristics of local, regional, and national CPA firms.
State the following:a. The five attestation general standards.b. The two attestation standards of field work.c. The four attestation standards of reporting.
Describe the five-stage process of issuing Auditing Standards Board pronouncements.
What are the three common components of the states' rules on becoming a CPA?
Describe the differences between a state board of public accountancy, a state society of certified public accountants, and the American Institute of Certified Public Accountants.
What is the purpose of the Securities and Exchange Commission?
What is the definition of internal auditing?
To whom does the General Accounting Office report and what is its broad responsibility?
What was the purpose of the Commission on Auditor's Responsibilities?

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