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auditing international approach
Questions and Answers of
Auditing International Approach
Which of the following procedures would an auditor normally plan only for a first-time audit?a. Review litigation against the company that was settled in prior years.b. Review capital stock
Match the term or terms that relate to each description. Each term may be used once, more than once, or not at all. Description 1. The confirmation of a CPA's responsibility for an audit. 2. In all
The use of audit committees has become widespread. Independent auditors have become increasingly involved with audit committees and consequently have become familiar with their nature and
Joe Melton, CPA, has been contacted by the president of Mudalum Company (a company developing a process to turn mud into aluminum) and asked to perform the company's audit for the current year.
Management of Consolidated Systems Company (CSC), a publicly held company, has asked three accounting firms, including yours, to bid on its annual audit. It has given permission to you and the
The following audit engagement letter was drafted by D. Minus, a new staff assistant.This will confirm our arrangements with you to express an unqualified opinion on the financial statements of Lurch
Your knowledge of general economic conditions during the year ended December 31, 19X9, included the facts that inflation had been recorded at a high 12 percent rate, which caused a serious slowdown
Your client, Kelting \& Company, established a manufacturing facility in a Central American country several years ago because of the availability of cheap labor. Goods manufactured at this plant are
You are in the process of planning the audit of Computer Logic, a supplier of integrated circuits (chips) and associated software for complex peripheral control functions, including mass storage,
Temple, CPA, is auditing the financial statements of Ford Lumber Yards, Inc., a privately held corporation with 300 employees and five stockholders, three of whom are active in management. Ford has
Parker is the in-charge auditor with administrative responsibilities for the upcoming annual audit of FGH Company, a continuing audit client. Parker will supervise two staff assistants on the
You have been assigned to the audit of Hogeye Ranch Company. In assessing audit risk for various accounts, you have gathered the following information.Accounts receivable Accounts receivable consists
You have been assigned to the planning phase of the audit of ABC Company. One of the procedures that you have been assigned to perform is to compare a set of projected ratios and balances for \(19
Late in the calendar year, Shallow and Shallow, a regional CPA firm, was approached by Undermyne Computers, Inc., a developer of innovative computer software, about changing auditors. Crest and
Cook, CPA, has been engaged to audit the financial statements of General Department Stores, Inc., a continuing audit client, which is a chain of medium-sized retail stores. General's fiscal year will
Name the five components of internal control.
Why is the control environment the foundation of internal control?
Describe the seven factors that influence the control environment.
Name eight examples of risk that management should identify and control.
Discuss four categories of control activities.
The information and communication component of internal control includes the accounting system. What other forms of communication are included?
What is the purpose of the monitoring component of internal control?
Describe the inherent limitations of internal control.
The understanding of internal control that relates to an assertion should be used to take three actions. Name these three actions.
Name the three procedures the auditor uses to obtain an understanding of relevant internal control policies and procedures.
What is the difference between a flowchart and an internal control questionnaire?
Why would studying and evaluating each of the client's controls not necessarily be the most efficient way of determining the scope of related substantive tests?
What is an audit strategy?
Describe two alternative audit strategies.
Give three reasons for using the primarily substantive approach.
Describe the steps in Figure 9.6. FIGURE 9.6 Flowchart of the Primarily Substantive Approach Obtain an understanding of relevant internal control policies and procedures-document the understanding
Describe the steps in Figure 9.7. FIGURE 9.7 Flowchart of the Lower Control Risk Approach Obtain an understanding of relevant internal control policies and procedures-document this understanding.
Give a four-part comparison of the two audit strategies.
In Figure 9.9, why are there fewer substantive tests for the existence assertion than for the valuation assertion? FIGURE 9.9 Illustration of Accounts Receivable Assertions Assertion: Valuation-Net
Which of the following is not a characteristic of the primarily substantive approach?a. The auditor usually gathers all or most of the evidence with substantive tests.b. Usually little or no reliance
Which of the following is not a characteristic of the lower control risk approach?a. Control risk is usually assessed at maximum level.b. Substantive tests are usually restricted.c. The auditor
Which of the following is not part of the control environment?a. Management philosophy and operating style.b. Organizational structure.c. Information and communication systems.d. Assignment of
If the auditor uses the primarily substantive approach instead of the lower control risk approacha. A higher level of understanding of internal control is required.b. The auditor plans to assess
The understanding of internal control that relates to a financial statement assertion should be used to do all of the following excepta. Determine inherent risk for that assertion.b. Identify types
To obtain an understanding of the relevant policies and procedures of internal control, the auditor performs all of the following excepta. Make inquiries.b. Inspect documents and records.c. Make
After obtaining an understanding of an entity's internal control, an auditor may assess control risk at the maximum level for some assertions because the auditora. Believes the internal control
An auditor may decide to assess control risk at the maximum level for certain assertions because the auditor believesa. Sufficient evidential matter to support the assertions is likely to be
An auditor's flowchart of a client's accounting system is a diagrammatic representation that depicts the auditor'sa. Assessment of control risk.b. Identification of weaknesses in the system.c.
Management's attitude toward aggressive financial reporting and its emphasis on meeting projected profit goals most likely would significantly influence an entity's control environment whena. The
Which of the following questions would an auditor most likely include on an internal control questionnaire for notes payable?a. Are assets that collateralize notes payable critically needed for the
Which of the following internal control procedures would an entity most likely use to assist in satisfying the completeness assertion related to long-term investments?a. Senior management verifies
Equipment acquisitions that are misclassified as maintenance expense most likely would be detected by an internal control procedure that pro- vides fora. Segregation of duties of employees in the
Sound internal control procedures dictate that immediately upon receiving checks from customers by mail, a responsible employee shoulda. Add the checks to the daily cash summary.b. Verify that each
During the course of acquiring an understanding of the internal control of her client, Consent Company, Ms. Search was pleased to discover that the recordkeeping in general and the accountability for
For each of the following situations, indicate whether the auditor would use a primarily substantive approach or a lower control risk approach for most or all of the assertions. Give reasons for your
For each of the procedures listed below, do the following.a. Indicate what assertion(s) is being audited.b. Indicate whether the procedure is (1) acquiring an understanding of internal control (which
Examine the flowchart for sales, shipping, billing, and collecting on page 271 and do the following:a. Write a narrative description of the system.b. From a review of the flowchart and of the
Examine the flowchart for purchases and do the following:a. Identify the sections of the flowchart and for each section write an accompanying narrative of the document flows.b. Supply answers and
Examine the flowchart for payroll shown and do the following:a. Identify the sections of the flowchart and for each section write an accompanying narrative of the document flows (use pages
In 19X4 XY Company purchased more than \(\$ 10\) million of office equipment under its "special" ordering system, with individual orders ranging from \(\$ 5,000\) to \(\$ 30,000\). "Special" orders
Assume that an independent auditor is auditing the financial statements of a small not-for profit institution. He finds that the information system is handled by one individual who writes checks,
Listed hereafter are eight responsibilities that might be performed by individuals in an accounting department. Assume that five people are employed for the purpose of handling these eight
In an effective internal control system, the following functions are separated: (1) authorizing a transaction, (2) recording a transaction, (3) maintaining custody of assets that result from a
You have been engaged by the management of Alden, Inc. to review its internal control over the purchase, receipt, storage, and issue of raw materials. You have prepared the following comments to
The flowchart depicts part of a client's revenue cycle. Some of the flowchart symbols are labeled to indicate control procedures and records. For each symbol numbered 61 through 73, select one
Butler, CPA, has been engaged to audit the financial statements of Young Computer Outlets, Inc., a new client. Young is a privately-owned chain of retail stores that sells a variety of computer
Field, CPA, is auditing the financial statements of Miller Mailorder, Inc. (MMI) for the vear ended January 31, 19X5. Field has compiled a list of possible errors and fraud that mav result in the
An auditor's working papers include the narrative description below of the cash receipts and billing portions of internal control of Rural Building Supplies, Inc. Rural is a single-store retailer
Taylor, CPA, has been engaged to audit the financial statements of University Books, Inc. University Books maintains a large revolving cash fund exclusively for the purpose of buying used books from
Describe four reasons why auditing should be studied.
Give examples of two assertions or representations of an organization.
Explain the difference between accounting and auditing.
Explain the differences among the following.a. Financial statement auditing.b. Compliance auditing.c. Operational auditing.
Explain the differences among the following.a. External auditors.b. Internal auditors.c. Government auditors.
Describe four elements of the theoretical framework of auditing.
What are four conditions that create a demand for auditing?
Describe three reasons why independent auditors are the appropriate group to provide the potential investor with an unbiased opinion as to whether the financial statements are fairly presented.
Explain how stewardship or agency theory helps to explain the demand for audits.
Explain the motivational effect that an audit has on preparers of financial statements.
Describe three reasons why an audit is not a guaran- tee of the exactness or accuracy of the assertions or representations in financial statements.
What is meant by integrity?
Answer these questions about the history of auditing.a. Describe a method of auditing that seemed to be prevalent in ancient Egypt and Babylonia.b. Describe the audit of public accounts in ancient
Which of the following types of audits is performed to determine whether an entity's financial statements are fairly stated in conformity with generally accepted accounting principles?a. Operational
Which of the following types of audit uses as its criteria laws and regulations?a. Operational audit.b. Compliance audit.c. Financial statement audit.d. Financial audit.
Which of the following types of auditing is per- formed most commonly by CPAs on a contractual basis?a. Internal auditing.b. Government auditing.c. Internal Revenue Service auditing.d. External
Which of the following statements does not prop- erly describe an element of the theoretical frame- work of auditing?a. The data to be audited can be verified.b. Short-term conflicts may exist
Which of the following statements does not de- scribe a condition that creates a demand for auditing?a. Conflict between an information preparer and a user can result in biased information.b.
Which of the following statements does not prop- erly describe a limitation of an audit?a. Many audit conclusions are made on the basis of examining a sample of evidence..b. Some evidence supporting
For each description, list the letter or letters whose term or terms define the description. Each term may be used once, more than once, or not at all. Description 1. This activity makes use of
Reread the broad definition of auditing in the chapter and discuss the meaning of each of the following key words and phrases as they relate to the definition.a. Systematic process.b. Objectively
Reread the definition of operational auditing in the chapter. Select the key words and/or phrases that distinguish this definition from that of financial statement auditing. Discuss the meaning of
Odom Company is a medium-sized producer of fishing rods with approximately $5 million of annual sales. The company is wholly owned by Mike Odom, who serves as its president and is active in its daily
Ms. Wilson is president of Wilson Company, which operates hamburger restaurants in Houston, New Orleans, Memphis, and Dallas. She believes that her company may be large enough to need an operational
Explain why each of the following audits would be classified as (1) financial statement, (2) operational, or (3) compliance.a. Audit of the contract costs of building jet fighter planes.b. Audit by
Members of a single family own the majority of the capital stock of Custom Furniture Company, a small corporation not listed on any stock exchange. The balance of the capital stock is held by a few
Describe the type of work performed and the general education requirements needed to enter each of the following career paths in accounting:a. Public accounting.b. Private accounting.c. Government
What are the three general requirements that must be followed to obtain a license to practice public ac counting?
Describe the differences among the following types of CPA firms.a. International CPA firms.b. National CPA firms.c. Regional CPA firms.d. Local CPA firms..
Describe the scope of service of each of the following services offered by CPA firms.a. Audit.b. Review.c. Tax services.d. Management consulting services.e. Accounting services.
Under what conditions is it acceptable for a CPA to perform management consulting services for an audit client?
Describe the five suggestions on how CPA firms can effectively implement a system of quality control.
Name the two sections of the Division of CPA Firms and describe the purpose of each section.
Give an explanation of each of the following parts of the independent auditor's report:
a. The heading.b. The addressee.c. The first sentence of the opening paragraph.d. The second and third sentences of the opening paragraph.e. The first sentence of the scope paragraph.f. The second
Name the generally accepted auditing standards from which the following phrase or phrases are taken. (For example, the phrase "adequate technical training and proficiency" is taken from the first
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