Principles of Auditing and Other Assurance Services 19th edition Ray Whittington, Kurt Pany - Solutions

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Access the U.S. Department of Justice website, and briefly explain the characteristics of identity theft. Give two examples of ways to commit identify theft.
Access the Association of Certified Fraud Examiners website (www.acfe.com), and:a. List three qualifications for becoming a CFE.b. List three items located in the ACFE’s resource library.
Describe four examples of fraud engagements.
What are some risk factors associated with management fraud and employee fraud?
Explain the difference between data-mining software and public databases.
Define fraud and identify four examples of fraud.
In late 2001 through 2002, the accounting profession faced a "crisis of credibility." Describe the events that led up to this crisis.
What is the principal use and significance of an audit report to a large corporation with securities listed on a stock exchange? To a small family-owned enterprise?
Describe several business situations that would create a need for a report by an independent public accountant concerning the fairness of a company's financial statements.
Contrast the objectives of auditing at the beginning of this century with the objectives of auditing today.
What does an operational audit attempt to measure? Does an operational audit involve more or fewer subjective judgments than a compliance audit or an audit of financial statements? Explain. To whom is the report usually directed after completion of an operational audit?
Distinguish between a compliance audit and an operational audit.
Is an independent status possible or desirable for internal auditors as compared with the independence of a public accounting firm? Explain.
Spacecraft, Inc., is a large corporation that is audited regularly by a public accounting firm but also maintains an internal auditing staff. Explain briefly how the relationship of the public accounting firm to Spacecraft differs from the relationship of the internal auditing staff to Spacecraft.
How does the role of the SEC differ from that of the AICPA?
Apart from auditing, what other professional services are offered by public accounting firms?
What are the advantages of organizing a public accounting firm as a partnership rather than a sole proprietorship?
How does a professional corporation differ from a traditional corporation?
Public accounting firms are sometimes grouped into categories of local firms, regional firms, national firms, and international firms. Explain briefly the characteristics of each. Include in your answer the types of services stressed in each group.
Describe the various levels or positions of accounting personnel in a large public accounting firm.
As a result of a number of events that caused Congress to doubt the ability of the accounting profession to regulate itself, a number of reforms were made to the accounting profession's system of self-regulation.a. Provide a brief overview of the legislation that altered the self-regulation
A corporation is contemplating issuing debenture bonds to a group of investors.a. Explain how independent audits of the corporation's financial statements facilitate this transaction. b. Describe the likely effects on the transaction if the corporation decides not to obtain inde pendent audits of
The Sarbanes-Oxley Act of 2002 created the Public Company Accounting Oversight Board. Explain the major responsibilities of this board.
The self-interest of the provider of financial information (whether an individual or a business entity) often runs directly counter to the interests of the user of the information.a. Give an example of such opposing interests. b. What may be done to compensate for the possible bias existing because
Multiple Choice Questions Select the best answer for each of the following items and give reasons for your choice.a. Which of the following best describes the relationship between assurance services and attest services?(1) While attest services involve financial data, assurance services involve
The role of the auditor in the American economy has changed over the years in response to changes in our economic and political institutions. Consequently, the nature of an audit today is quite different from that of an audit performed in the year 1900. Classify the following phrases into two
Auditors should be familiar with available professional literature from a variety of sources. Listed below are 10 publications in the fields of auditing and accounting.1. Statements on Auditing Standards (SASs). 2. The Journal of Accountancy. 3. Regulation S-X, Form and Content of Financial
Each auditing term (or organizational name) in Column 1 below bears a close relationship to a term in Column 2.Column 1 1. Quality control2. Operational audit3. Internal control4. Government Accountability Ofﬁce5. Disclosure6. Critical characteristic that must be maintained by the accounting
CPAs become involved in a variety of types of engagements. For each of the following statements, indicate whether it relates to an examination (E), review (R), or agreed-upon procedures (A) engagement. If the statement does not relate to examinations, reviews, or agreed-upon procedures, reply N.
Match the following definitions (or partial definitions) of the various types of services to the appropriate service. Each service may be used once or not at all.Definition (or Partial Definition)a. An attest engagement in which the CPAs agree to perform procedures for a specified party and issue a
Match the following definitions (or partial definitions) of the various types of services to the appropriate term. Each term may be used once or not at all.Definition (or Partial Definition)a. A government agency authorized to regulate companies seeking approval to issue securities for sale to the
For the purposes of this problem, assume the existence of five types of auditors: CPA, GAO, IRS, bank examiner, and internal auditor. Also assume that the work of these various auditors can be grouped into five classifications: audits of financial statements, compliance audits, operational audits,
Feller, the sole owner of a small hardware business, has been told that the business should have its financial statements audited by an independent CPA. Feller, having some bookkeeping experience, has personally prepared the company’s financial statements and does not understand why such
In a discussion between Peters and Ferrel, two auditing students, Peters made the following statement: “A CPA is a professional person who is licensed by the state for the purpose of providing an independent expert opinion on the fairness of financial statements. To maintain an attitude of mental
Will Williams, a college senior, has begun the interviewing process. He has discovered a great variety of organizations in search of “accounting majors.” He finds that various public accounting firms, corporations, the GAO, and the IRS are all interviewing candidates at his school.Will has come
Smith & Co., a local Dallas public accounting firm, is incorporated as a professional corporation, with three shareholders, all CPAs. The shareholders have developed a combination of marketing, software, and professional expertise that has allowed them to perform the accounting service of compiling
Define assurance services. What are the two distinct types?
Explain the following statement: One contribution of the independent auditor is to lend credibility to financial statements.
The overall risk of the investment in a business includes both business risk and information risk. Contrast these two types of risk. Which one is most directly affected by the auditors?
Describe briefly the function of the GAO.
List two of the important contributions to auditing literature by the AICPA.
What is meant by a peer review in public accounting?
List three of the more important responsibilities of a partner in a public accounting firm.
What is the International Auditing and Assurance Standards Board? What is the purpose of its pronouncements? Do these pronouncements establish standards that override a member nation’s auditing standards?
Contrast the roles of the AICPA and the PCAOB in the development of auditing standards.
What is the difference between generally accepted accounting principles (GAAP) and AICPA generally accepted auditing standards (GAAS)?
In the context of an audit of financial statements, explain what is meant by professional skepticism.
Explain briefly the auditors’ responsibility for detecting noncompliance with laws by clients.
Evaluate the following quotation: “If a CPA firm completes a nonpublic company audit of Adam Company’s financial statements following AICPA generally accepted auditing standards and is satisfied with the results of the audit, an unmodified audit report may be issued. On the other hand, if no
Draft the standard form of audit report commonly issued after a satisfactory audit of a nonpublic client’s financial statements.
Alan Weston, CPA, completed an audit of Kirsten Manufacturing Company and issued a standard audit report. What does this tell us about the extent of the auditing procedures included in the audit?
When a CPA firm completes an audit of a nonpublic business and issues a report, does it express an opinion on the client’s accounting records, financial statements, or both? Give reasons.
A CPA firm does not guarantee the financial soundness of a client when it renders an opinion on financial statements, nor does the CPA firm guarantee the absolute accuracy of the statements. Yet the CPA firm’s opinion is respected and accepted. What is expected of the CPA firm in order to merit
If a CPA firm has performed a thorough professional audit of a client’s financial statements, should it not be able to issue a report dealing with facts rather than the mere expression of an opinion? Explain.
What is a “material” amount from the perspective of auditors? Give an example of how that amount may differ based on the nature of the item.
Explain how the auditors determine whether a client’s accounting is appropriate when the FASB Codification includes no specific guidance with respect to accounting for a particular type of transaction.
What is the meaning of quality control and peer review as these terms relate to the operation of a CPA firm? Is peer review mandatory? Explain.
Explain the basic objective of establishing quality control procedures in the following areas. a. Engagement performance. b. Human resources. c. Monitoring.
What are the duties and responsibilities of the Public Company Accounting Oversight Board?
Distinguish between the system review and the engagement review types of peer reviews.
Briefly describe four differences between an international audit report and one based on the PCAOB reporting standards.
Various organizations develop standards for audits and regulate CPA firms. Compare and contrast the roles of the AICPA, the PCAOB, and the state boards of accountancy along the following dimensions: a. Standard setting. b. Regulation of CPA firms. c. Source of authority.
An attitude of independence is a most essential element of an audit by a firm of certified public accountants. Describe several situations in which the CPA firm might find it somewhat difficult to maintain this independent point of view.
Jane Lee, a director of a nonpublic corporation with a number of stockholders and lines of credit with several banks, suggested that the corporation appoint as controller John Madison, a certified public accountant on the staff of the auditing firm that had made annual audits of the corporation for
Reed, CPA, accepted an engagement to audit the financial statements of Smith Company. Reed’s discussions with Smith’s new management and the predecessor auditor indicated the possibility that Smith’s financial statements may be misstated due to the possible occurrence of errors, fraud, and
While the AICPA administers a peer review program for CPA firms, the PCAOB staff performs practice inspections.a. Identify the two basic types of peer review. b. On what part of a firm’s practice does the PCAOB staff focus its inspections? c. Describe a PCAOB inspection. d. Describe how the PCAOB
Multiple Choice QuestionSelect the best answer for each of the following items and give reasons for your choice.a. Which of the following organizations can revoke the right of an individual to practice as a CPA?(1) The Public Company Accounting Oversight Board.(2) The American Institute of
Casa Royale, Inc., a nonpublic company, retained Ying and Company CPA to perform an audit of the financial statements for the current year. Howard Smythe, the partner in charge of the audit, drafted the following unmodified report:Independent Auditor's Report To the Management of Casa Royale,
State whether you agree (A) or disagree (D) with each of the following statements concerning the auditors’ standard report of a nonpublic company.Agree (A) or Statement Disagree (D)a. The report should begin with “CPA’s Report” at the top.b. The report is ordinarily addressed “to
Match each the following statements with the appropriate type of auditors’ report (each auditors’ report may be used once, more than once, or not at all):A. Adverse. D. Disclaimer. Q. Qualified. S. Standard unmodified.Statement Type of Audit Reporta. The auditors are unable to
State whether each of the following is or is not a principle (or a portion of a principle) underlying an audit conducted in accordance with Generally Accepted Auditing Standards.Principles Yes (Y) or No (N)1. The purpose of an audit is to provide financial statement users with an opinion
For each term in the first column select the partial (or complete) definition or illustration. Each partial (or complete) definition or illustration may be used only once.Term a. A report providing a summary of findingsb. A report providing reasonable assurancec. An errord. Financial reporting
Joe Rezzo, a college student majoring in accounting, helped finance his education with a part time job maintaining all accounting records for a small business, White Company, located near the campus. Upon graduation, Rezzo passed the CPA examination and joined the audit staff of a national CPA
Bart James, a partner in the CPA firm of James and Day, received the following memorandum from John Gray, president of Gray Manufacturing Corporation, an audit client of many years. Dear Bart: I have a new type of engagement for you. You are familiar with how much time and money we have been
Hide-It (HI), a family-owned business based in Tombstone, Arizona, builds custom homes with special features, such as hidden rooms and hidden wall safes. Hide-It has been an audit client for three years. You are about to sign off on a “clean” opinion on HI’s current annual financial
Enormo Corporation is a large multinational audit client of your CPA firm. One of Enormo’s subsidiaries, Ultro, Ltd., is a successful electronics assembly company that operates in a small Caribbean country. The country in which Ultro operates has very strict laws governing the transfer of funds
What is a financial reporting framework? Why is a financial reporting framework important to a financial statement audit?
Pike Company has had an annual audit performed by the same firm of certified public accountants for many years. The financial statements and copies of the audit report are distributed to stockholders each year shortly after completion of the audit. Who is primarily responsible for the fairness of
Davis & Co., Certified Public Accountants, after completing an audit of Samson Company, decided that it would be unable to issue an unmodified opinion. What circumstances might explain this decision?
State the principal assertions made by the auditors in the opinion paragraph of the AICPA auditors standard report.
Do the AICPA attestation standards supersede any of the AICPA generally accepted auditing standards? Explain.
Do the AICPA’s Statements on Quality Control Standards require every CPA firm to implement similar quality control procedures? Explain.
What is meant by the term ethical dilemma? Describe an ethical dilemma that you have faced.
According to the AICPA Conceptual Framework for Independence Standards, list and describe three categories of threats to accountant independence.
Explain how a CPA might have an indirect financial interest in an audit client. Does the AICPA Code of Professional Conduct prohibit such interests?
Bill Scott works as a manager in the Phoenix office of an international public accounting firm. His father has just taken a position as a purchasing agent for one of the public accounting firm's Phoenix clients. Has Bill's independence been impaired with respect to this audit client? Has the public
Three months ago, a national public accounting firm hired Greg Scott to work as staff auditor in its New York office. Yesterday, Scott's father was hired to be the chief financial officer of one of the public accounting firm's New York office clients. Has the independence of the public accounting
Describe what is meant by the term "covered member." Which part (or parts) of AICPA Code of Professional Conduct Standard 101 on independence relies on the concept of a covered member?
How do the rules for the audit of public versus nonpublic companies differ with respect to the independence of a CPA who performs routine accounting services for a client?
What bodies are given authority to issue performance standards under Rule 202 of the AICPA Code of Professional Conduct? What authoritative standards does each body issue?
Comment on the following: In performing a consulting engagement for a client, a CPA may perform any services that the client requests.
Sandy Schultz, CPA, has performed a consulting services job in which she made recommendations which ultimately resulted in one of her audit clients purchasing a computer manufactured by the AMZ Computer Corporation. Shortly thereafter, Ms. Schultz was surprised when she received a $1,000
Laura Clark, wife of Jon Clark, CPA, is a life insurance agent. May Jon Clark refer audit clients needing officer life insurance to Laura Clark or to another life insurance agent who will share a commission with Laura Clark? Explain.
Sally Adams is an audit manager for the firm of Jones & Smith, CPAs and is assigned to the audit of Libra Fashions, Inc. Near the middle of the audit Sally was offered the job of Libra’s chief financial officer.a. Discuss the implications of this offer assuming Libra is a nonpublic corporation.b.
Roger Royce, CPA, has encountered a situation that he thinks may pose a threat to his independence with respect to Watson, Inc., an audit client. The situation is not addressed by an independence rule or regulation. Using the AICPA Conceptual Framework for Independence Standards, describe how Royce
Jenko Corp. is an audit client of the Phoenix office of Williams and Co., CPAs. Williams and Co. has offices in Arizona, including ones in Phoenix, Tucson, and Tombstone. For purposes of independence, the AICPA requires that no “covered member” may have a direct or a material indirect financial
Tracy Smith, CPA, is in charge of the audit of Olympic Fashions, Inc. seven young members of the public accounting firm’s professional staff are working with Smith on this engagement, and several of the young auditors are avid skiers. Olympic Fashions owns two condominiums in Aspen, Colorado,
Ron Barber, CPA, is auditing the financial statements of DGF, Inc., a publicly held company. During the course of the audit, Barber discovered that DGF has been making illegal bribes to foreign government officials to obtain business, and he reported the matter to senior management and the board
Multiple Choice Questions Select the best answer for each of the following. Explain the reasons for your selection.a. Which of the following is not a covered member for an attest engagement under Rule 101 of the AICPA Code of Professional Conduct?(1) An individual assigned to the attest
The firm of Wilson and Wiener (WW), CPAs, has had requests from a number of clients and prospective clients to perform various types of services. Please reply as to whether the appropriate independence rules (AICPA and/or PCAOB) allow the following engagements using the following

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Principles of Auditing and Other Assurance Services 19th edition Ray Whittington, Kurt Pany - Solutions

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