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auditing international approach
Questions and Answers of
Auditing International Approach
The role of the auditor has changed over the years in response to changes in economic and political institutions. Consequently, the nature of an audit today is different from what it was in the
Markly Werke, Inc. is a public corporation that manufactures a line of home appliances.These comments were included in the company’s 2004 annual report to the shareholders:The integrity of the
Discuss the importance of timelines of corporate and audit reports as one of the quality characteristics of accounting information and the effect of this quality on investment decisions.
Discuss the term ‘scope limitation’ and explain why the auditor should ordinarily disclaim an opinion when the client imposes significant limitations on the audit procedures.
Discuss the effect of scope limitation on audit opinion and report wording.
Discuss the changes in accounting principles (1) when these changes are made in conformity with IFRSs or GAAP and (2) when these changes are not made in conformity with IFRSs or GAAP.
What is the role of the company’s audit committee in dealing with the matters concerned with audit reporting?
Discuss the recent changes made with regard to the auditor’s reporting responsibility (refer to the Sarbanes-Oxley Act of 2002, and the positions adopted by the IFAC, the PCAOB and the European
Audit situations 1 to 10 present various independent factual situations an auditor might encounter in conducting an audit. For each situation, do the following:(a) Identify which of the conditions
Some European companies are listed in the US. The Securities and Exchange Commission(SEC) generally requires foreign registrants to furnish financial information substantially similar to that
The form and content of an audit report are affected by environmental factors such as the legal and economic circumstances, as well as the accounting and auditing practices used in each jurisdiction.
There are major differences between accounting and auditing practices in the US and some of the EU member states.15 An unqualified audit report prepared on the basis of US format is shown as Figure
What are the requirements for auditing in an IT environment?
Describe e-business and e-commerce and their effects on auditing.
What is the impact of the auditor’s understanding of an entity’s business activities within the scope of audit?
To what extent do computerized information systems affect the auditor’s function?
What are the new types of audit risks in an e-commerce environment?
Discuss the features of risk management approach proposed by the IFAC in the context of IT.
How would it be possible to rely on accounting information in a changing IT environment?
What principles must be required to achieve the objective of the reliability of accounting information?
What are the features of computer-assisted audit techniques (CAATs)?
What factors should the auditor consider when using a CAAT?
What are the different classifications of CAATTs?
What advantages does an integrated test facility (ITF) have over a test data approach and how does it use test data?
In what way(s) is the assessment of audit risk affected in terms of transaction trails and data?
Describe the requirements in terms of security concepts when referring to reliable accounting information.
Identify and briefly explain the general criteria to achieve appropriate accounting information processing in the case of e-business transactions.
Advances in IT have changed the corporate reporting process. This has altered the traditional methods of handling accounting and auditing data.Discuss the role of auditors in a changing IT
One concern in the use of IT within companies is related to the considerable costs of such operations. The cost elements are not only related to the implementation phase of computerized accounting
Auditor’s planning is affected by several factors in an IT environment. The auditors express concerns about risk assessment. They have specific concerns regarding risk assessment in an IT
Computer-assisted audit techniques (CAATs) and computer-assisted audit tools and techniques(CAATTs) play an important role in performing audits in a computerized environment.Discuss the features of
Why are IT controls important within an organization?
What are the characteristics of company-level controls, general controls and application controls within the IT services of an organization? Provide examples of each of the above controls.
What are the main characteristics of the COBIT framework?
What are the features of the compliance road map based on the COBIT framework in internal control, internal and external auditing?
Describe the differences between the traditional approach of auditing and the approach of the continuous auditing process.
How will XBRL change the financial reporting structure of corporations?
Discuss the benefits of XBRL in companies’ reporting.
Is continuous monitoring the same as continuous auditing?
How is continuous assurance defined?
Explain briefly the contributions of the continuous risk assessment process within an entity.
What are the responsibilities of a company’s management in terms of monitoring business information in an IT environment?
‘Emerging trends in technology will fundamentally alter the way in which both business and accounting will be conducted.’ Discuss technological advances and their implications for accounting,
‘By assessing the combined results of the continuous monitoring and auditing processes, auditors are able to provide continuous assurance regarding the effectiveness of internal controls.’
In the aftermath of a series of high-profile business scandals, efforts were made to enhance corporate governance and risk management with the establishment of new regulations. The Sarbanes-Oxley Act
It has been stated that IT systems are an essential part of the overall financial reporting process. Discuss the place of IT within the organization and how it contributes to an effective system of
Developments in IT affect financial reporting and auditing. Discuss the effect of these changes on the demand for assurance services.
XBRL is a language for the electronic communication of business and financial data. It is believed that broadly adopting XBRL will benefit investors and other users of corporate financial
‘Continuous audits should be viable tools to satisfy the regulatory bodies’ requirements in the area of corporate reporting.’ Discuss this statement and how continuous audits could have been
Discuss the COBIT objectives in relationship to the COSO components of internal control systems within an entity. To what extent do the provisions of the SOX Act of 2002 contribute to overall COBIT
What types of assurance services are provided by the public accounting profession? What factors create a need for assurance services?
What is the essence of the ‘theory of inspired confidence’ developed by Limperg in the 1930s.
What are the main objectives of audits of financial statements? How does an audit enhance the quality of financial statements?
How do assurance services differ from audit services? How have these differences developed in recent years?
What are the main differences between reasonable and limited levels of assurance engagements?
Explain the objective of agreed-upon procedures engagement and provide five examples of such procedures.
To what extent is it reasonable to view the external auditor as a guarantor in the capital market economy? Explain.
In your opinion, what are the potential threats facing an external auditor when conducting all types of assurance services?
What are the major aspects of the relationship between the structure of audit market and its regulation?
What is the primary rationale for market regulatory bodies to require mandatory reporting on internal accounting controls and the auditor’s involvement in this respect?
To what extent do factors such as:(a) economic developments;(b) globalization and internationalization of capital markets;(c) the complexity of financial operations; and(d) information technology
Discuss the historical perspective of auditing with regard to Limperg (1930s) and Mautz and Sharaf (1960s).
Discuss the arguments supporting the idea that auditing is a field of knowledge. What are the contributions of Mautz and Sharaf in this area?
A company’s management, shareholders and creditors (mainly financial institutions) are directly concerned with the auditors’ function and performance, particularly in the case of publicly traded
Market concentration has been a feature of auditing in the past few decades. Large accounting firms have come to dominate audit and assurance services. Discuss the effect of market concentration on
What is the role of regulatory bodies such as the SEC and PCAOB in the US and the European Commission in the audit market? Discuss this in terms of:(a) setting audit standards;(b) monitoring and
Discuss the following statement with regard to internal control over financial reporting within publicly traded companies. Evaluate the importance of this issue from the viewpoint of various
Discuss the following statement:Michael Power (1997) states that the rise of auditing has its roots in political demands for accountability and control. He argues that the new demands and
Visit the websites of the AICPA (www.aicpa.org), IFAC (www.IFAC.org) and PCAOB(www.pcaobus.org). Identify attestation services that have been recently defined by these accounting bodies. Prepare a
What are the main aspects of the communication process by which accounting information reaches the potential users of this information?
Why is there a need for regulation of disclosure in capital markets? What types of disclosures should be regulated and which should not?
Explain the role of the independent audit function in the communication of corporate accounting information.
Discuss the importance of the notions of ‘expectation gap’ and ‘credibility gap’ in the corporate financial reporting process.
Discuss the factors influencing the mandatory and voluntary disclosures of financial information.
How and to what extent do regulatory bodies (such as SEC in the US and the European Commission)affect the supply of financial statement information by publicly-held corporations?
‘A statement of basic auditing concepts’ (American Accounting Association, 1973) explains different conditions creating demand for auditing. Discuss these conditions.
What are the major hypotheses with regard to the sources of demand for audit services?Explain each of these hypotheses.
How effective are auditors in enhancing the credibility of financial statements? What factors influence their effectiveness?
What is the relationship between financial disclosure, corporate governance and management incentives? What role do boards of directors and audit committees play in the disclosure process?
How effective are accounting standards (e.g. US GAAP, IFRS (or IAS)) in facilitating credible communication between corporate managers and outside investors? What factors determine their
In what way is the globalization of capital markets affecting the globalization of financial reporting?
To what extent, in your opinion, do the current format and content of audit reports respond to the needs and expectations of investors and lenders in capital markets?
Notwithstanding the efforts made by regulatory bodies and accounting policymakers in disclosure and corporate reporting, there is still some ambiguity surrounding several important topics in this
‘Managers generally have superior information to outside investors about their company’s expected future performance.’Discuss the above statement in a theoretical context. How does the
Discuss the question of whether investors, when pricing a security (e.g. in the case of initial public offerings), value the auditor’s ability to provide an insurance role. Discuss this in the
‘Improving the quality of financial reporting necessarily involves the imposition of certain burdens and costs on publicly listed companies. Despite these costs, it is believed that a more
The expectation gap usually refers to what the public expects or needs and what auditors can reasonably do. Users of financial reports expect auditors to provide assurances concerning material fraud,
What are the fundamental aspects of the theory of the firm?
What reasons support the creation of governance systems within corporations?
Explain the importance of accountability in the corporate governance structure.
Discuss how better transparency in financial reporting improves accountability within corporations.
What are the main reasons for the corporate malaise of recent years?
How can efficient corporate governance affect the company’s performance?
What are the elements of agency relationship according to Jensen and Meckling (1976)?
What is the importance of the implementation of control mechanisms in organizations?
Describe the major characteristics of shareholder-manager-auditor relationships in the governance framework.
Describe the role of boards of directors, corporate governance and independent auditors with regard to general meetings of shareholders.
Explain the concepts of information asymmetry, moral hazard and adverse selection.
What changes in the Sarbanes-Oxley Act of 2002 reinforce the governance system?
What do you suggest for reforming post-crisis corporate governance?
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