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business
principles of auditing
Questions and Answers of
Principles of Auditing
Day, a small manufacturing company, has appointed you to make an audit and issue an opinion for the 19X9 calendar year. In January 19X9, the nine shareholders (all individuals) elected to be taxed as
For the following statements indicate whether the statement is true or false.a. Operational auditing is a type of auditing that is performed only by governmental auditors and internal auditors.b.
The following questions relate to aspects of operational auditing. Select the best response. a. Governmental auditing often extends beyond examinations leading to the expression of opinion on the
An internal auditor states: I view operational auditing as a natural extension for my traditional responsibilities. My operational audit work is built on and integrated with my financial auditing. In
The Veterans Administration agency rents to its employees government-owned housing at its field stations. GAO auditors examined the rentals being collected for about 15 per cent of the quarters and
Financial auditing and operational auditing have several similarities and differences. List the important similarities and differences of an operational audit and an audit of financial statements.
A city government's mayor engaged an independent CPA firm to conduct an operational audit of city services for sanitation (garbage collection) and maintenance of streets and sewers. The purpose of
The president of a manufacturer of plastic containers questioned the efficiency of current office procedures. The internal audit department was requested to conduct an operational audit of the
A state government funds nursing homes operated by cities within the state. The county board is concerned because the nursing homes are experiencing significant budget overruns. The state auditor
A state public service commission requests an operational audit of the efficiency and effectiveness of a state-owned public utility.Required:a. What type of auditor might be engaged to conduct the
Will you accept the following as good voucher?(a) A bill of Rs. 5,000 submitted by a salesman for his travelling allowance(b) A cash memo for Rs. 500 for a perambulator of a company producing rolled
How do you vouch the following?(a) Custom duty paid on import of machinery(b) Income from house property(c) Royalty payable to a foreign collaborator (d) Traveling expenses (e)
What are the differences between auditing and accountancy?
Give the type or types of evidences generally available in respect of the following:(a) Construction work-in-progress(f) Contingent liability in respect of bills(b) Leasehold land discounted(c)
How do you verify the following items?(a) Raw material stock (g) Machine purchased on H. P. system(b) Land (h) Patterns and designs(c) Preliminary expenses (i) Freehold properties(d) Investment (j)
How will you as an auditor deal with the following?(a) Cash(d) Unpaid dividends(b) Provision for taxation(e) Goods in transit(c) Leasehold properties(f) Disposal of plant
State which of the following statements are true:(a) If capital expenditure is treated as revenue expenditure the profit for the year is understated, but in the long run, because of depreciation,
Mention important items for which auditor would refer to each of the following:(a) Board’s meeting minutes book(b) Shareholders’ meeting minutes book
What is dividend?
What is long-form audit report?
How is an auditor of banking company appointed?
“Verification of advances is an important function of an auditor of a bank.” Explain.
State the duties of a bank auditor in writing long form audit report in respect of the following aspects:• Cash • Books and records• Investments • Inter-branch accounts• Advances • Audit
“In the case of a bank only a balance sheet audit is carried out.” Justify.
Explain in brief the specific problems, which the auditor has to look into in every bank.
Discuss briefly important areas you will review as an auditor in conducting the audit of a bank.
What is investigation?
What is investigation? Distinguish investigation from audit.
Are investigation and audit the same?
What do you understand by ‘investigation’? Explain the general procedure followed in an investigation.
How can misappropriation of cash and goods be checked?
A fraud is suspected in a business house and you are asked to carry out an investigation.Explain briefly how you would proceed in this matter.
Discuss in brief the powers of inspector.
What special points should be borne in mind by you in carrying out an investigation on behalf of a person who wants to purchase business as a going concern?
What are the important purposes of investigation?
What are the points to be borne in mind in carrying out an investigation on behalf of a banker who wants to lend money to a borrower, which is a company?
Mention the circumstances under which an investigation of a company can be ordered by the central government? What should be the procedure of investigation in such a case?
The Directors of a private limited company of which you are an auditor ask you to fix the value of its equity shares. Discuss the factors you would consider to evaluate the shares.
What are the general powers and duties of an investigator appointed by the central government? Discuss the investigator’s report according to the Companies Act.
A going concern having become sick has approached the state government for taking over the undertaking. You have been asked to investigate into the affairs of the concern. Chalk out the procedure of
You are appointed to find out the possible reasons of shortfall in the working capital of a company. Discuss how you would investigate the matter.
Define ‘propriety audit’. Distinguish between traditional audit and propriety audit. What are the benefits of propriety audit? Is there any provision for such audit in case of companies under the
Discuss the reasons as to why the conduct of a chartered accountant in practice is considered material if he(a) solicits professional work(b) engages in undercutting(c) accepts appointment as an
Define ‘Professional Misconduct’ and state how professional misconduct and professional ethics are related. Give few instances of professional misconduct with case decisions.
In view, of the provisions of the Chartered Accountants Act, 1949 state and justify your views on the following cases(a) Whether you would accept offer of appointment as auditor of a firm in which
Enumerate the instances of professional misconduct of a chartered accountant in practice, which, however, does not require action by the high court.
Draft an audit programme covering eight special points for examining the accounts of(a) Sports club(d) College hostel(b) Medical college(e) Publishing concern(c) Travelling agent
Is the audit of sole-proprietorship business compulsory?
Discuss the appointment, scope of work, rights and duties of an auditor of a soleproprietorship business.
Is the audit of partnership business compulsory?
What are the advantages of the audit of a partnership firm? What special points should be included in the audit report in respect of such an audit?
“The auditor of an individual or a firm has no statutory obligation to comply with.”Comment.
Describe the steps to be taken by the auditor before commencement of a new audit of a partnership firm.
Can an auditor be appointed by a partner or his legal representative to audit the accounts of a firm?
State the special points to be considered while conducting audit on behalf of the following perons:• A sleeping partner • A retiring partner • The legal representatives of a deceased partner
Does the audit of accounts of a partnership firm differ from that of a company? If so, in what respect?
Describe the procedure of auditing for government accounts and the accounts of public sector undertakings.
Describe the main features which affect auditing of public sector undertaking.
You have been approached by promoters to give an opinion on the financial statements to be included in the prospectus of a proposed corporation to be named U-Park Corporation. U-Park will own and
The following questions relate to the auditor's responsibility for reporting on inconsistency of application of accounting principles. Select the best response. a. Raider uses the last-in, first-out
J.O. Cole, a sole proprietor, operates a trucking business. Cole also has assets and liabilities in connection with other activities. You are retained to audit the accounts of the J.O.C. Truck Lines
The following questions relate to the auditor's responsibility with respect to litigation, claims, and assessments. Select the best response.a. When auditing contingent liabilities, which of the
For each of the following statements indicate whether the statement is true or false.a. The objective of the fourth standard of reporting is to enable users of financial statements to determine the
The following questions relate to circumstances resulting in departure from the auditor's standard report. Select the best response. a Which of the following will not result in modification of the
The following questions relate to circumstances resulting in departure from the auditor's standard report. Select the best response.a. The management of Stanley Corporation has decided not to account
The following questions relate to the auditor's responsibility when associated with comparative financial statements. Select the best response. a When financial statements of a prior period are
A client, without consulting its CPA, has changed its accounting so that it is not in accordance with generally accepted accounting principles. During the regular audit engagement the CPA discovers
The client of a CPA is a partnership. The drawings of the managing partner are considerably in excess of the partner's pro rata share of earnings. Other partners are not aware of the excess drawings
Included with financial statements of the Bowie Manufacturing Company is a typical standard report. Based on this opinion, could you properly conclude that the company is applying generally accepted
You are engaged in your second annual audit of the financial statements of the Nittany Corporation, a medium-sized manufacturing company with 25 stockholders that manufactures optical instruments.
The financial statements for the Old Salt Shipbuilding Company, prepared for the year ended June 30, 19X9, contain the following note:It is the Company's consistent accounting practice to recognize
You have assigned your assistant to the audit of the Bell Sales Company's fire insurance policies. All routine audit procedures with regard to the fire insurance register have been completed (i.e.,
Lerna Corporation (whose fiscal year will end December 31, 19X8) informs you on December 18, 19X8 that it has a serious shortage of working capital because of heavy operating losses incurred since
The processing operations of Gaylord Company, your client, require a basic raw material, colgum, which is imported and refined by domestic suppliers. Colgum is combined with other raw materials of
You are engaged as the auditor for an employees' profitsharing pension trust which has been in existence for a number of years. Each qualified employee has an equity in the trust which the employee
The Landa Manufacturing Company was incorporated and began business on January 1, 19X3. It has been successful and now requires a bank loan for additional working capital to finance expansion. The
Prior to the current year, CA had been the auditor of all the company's subsidiaries. However, during the current year, the company had acquired five new subsidiary companies whose accounts will be
The consolidated profit of Y Ltd. and its subsidiaries for the year ended December 31, 19X6 is \($490,000.\) During the audit of X Ltd., one of the subsidiaries, CA notices that there is \($5,000\)
You are finishing your audit of the financial statements of Pecan Corporation for the year ended September 30, 19X4. The corporation's report to stockholders, which will include your standard report,
The Trevor Corporation commenced doing business on January 1, 19X1. It pro- duces one product, which is sold to a single customer, Redford Corporation. R. Redford is president of both corporations
Track Corporation acquired a large tract of land in a small town approximately 10 miles from Phoenix City. The company executed a firm contract on November 15, 19X8 for the construction of a 1-mile
You have performed an audit, in conformity with generally accepted auditing standards, of the financial statements of the Aurora Manufacturing Corporation for the year ended December 31, 19X7. These
In the review of the preliminary draft of the 19X6 annual report, CA notices that the president states in a message to shareholders that "the financial statements show an increase in operating
In a press release the XS Company stated that its consolidated profit for the first quarter ended March 31, 19X7 was \($754,000.\) Although CA had nothing to do with the preparation of this figure,
The shares of S Ltd., a manufacturing company, have recently been listed on a Canadian stock exchange. In anticipation of preparing the first quarterly interim report to shareholders, the comptroller
On January 10, 19X8, you were engaged to audit the financial statements of Caten Equipment Corporation for the year ended December 31, 19X7. Caten has sold trucks and truck parts and accessories for
Your client, the Bambi Corporation, manufacturers baby carriages as its only product. The corporation maintains perpetual inventory records in quantities and values and also takes a complete physical
During the month of April, you are engaged to audit the balance sheet of a new client as of March 31. The client manufactures steel casting and forgings. A physical count of all inventories is made
Assume that a CPA is expressing an opinion on Azalea Company's financial statements for the year ended September 30, 19X3, that the CPA completed field work on October 21, 19X3, and that the CPA now
Your client is involved in litigation involving a claim for damages that would be material with respect to its financial position if the plaintiff prevails. In response to your client's request for a
As is customary in completing your audit, you request the client to furnish you with a comprehensive representation letter. Your client, J. Hawler, who operates the business as a sole proprietor,
Since the management of a company is responsible for its financial statements and the auditor is responsible only for the report, management may choose the form of presentation and the degree of
For each one of the following statements indicate whether the statement is true or false.a. Use of a computer for significant accounting applications does not in any way change specific audit
The following questions relate to the control risk assessment in computerized systems. Select the best response.a. In obtaining an understanding of a client's EDP controls, the auditor will encounter
The following questions relate to the use of computer-assisted audit techniques. Select the best response.a. Which of the following is true of generalized audit software packages?1. They can be used
On page 324 is a flowchart that depicts the payroll processing function of Campbell Company. Write your own word descriptions for each of the numbered blank symbols. C Supervisor Payroll department
Carl Applewhite has been the auditor for a number of years of Reardon Ltd., a large merchandising concern which carries over 50,000 different items in inventory. During the current fiscal year the
Carla Andress is the auditor of Alexis Company, Ltd., a large manufacturing company with several plants across Canada. The company has used EDP equipment since 19X3 to process most of its accounting
The assets of Capital Western Wear Shop at May 31, 19X7, are listed below:During the course of your annual audit of the company's financial statements, the owner will not permit circularization of
You have been engaged by San Jacinto Savings and Loan Association to audit its financial statements for the year ended December 31, 19X6. The CPA who audited the financial statements at December 31,
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