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auditing
Principles of Auditing and Other Assurance Services 19th edition Ray Whittington, Kurt Pany - Solutions
Items 1 through 5 present various independent factual situations an auditor might encounter in conducting an audit. For each situation, assume:• The auditor is independent.• The auditor previously expressed an unmodified opinion on the prior year’s financial statements.• Only single-year
For each of the following brief scenarios, assume that you are reporting on a client’s financial statements. Reply as to the type(s) of opinion (per below) possible for the scenario. In addition:• Unless stated otherwise, assume the matter involved is material. If the problem doesn’t tell
Last year, Johnson & Barkley, CPAs, audited the consolidated financial statements of Jordan Company (a nonpublic company) for the year ended December 31, 20X0, and expressed a standard unmodified report.Johnson & Barkley also audited Jordan’s this year’s financial statements—for the year
The auditors’ report that follows was drafted by a staff accountant of Williams & Co., CPAs, at the completion of the audit of the financial statements of Lenz Corporation (nonpublic company) for the year ended December 31, 20X1. Assume that there is substantial doubt about the entity’s
The auditors’ report that follows was drafted by a staff accountant of Smith & Co., CPAs, at the completion of the audit of the financial statements of Lenses Co. (a public company) for the year ended December 31, 20X1.Report of Registered Public Accounting FirmTo the Management of Lenses Co.:We
Sturdy Corporation (a nonpublic company) owns and operates a large office building in a desirable section of New York City’s financial center. For many years, management of Sturdy Corporation has modified the presentation of its financial statement by:1. Reflecting a write-up to appraisal values
Roscoe & Jones, Ltd, a CPA firm in Silver Bell, Arizona, has completed the audit of the financial statements of Excelsior Corporation as of, and for, the year ended December 31, 20X1.Findings related to the financial statements and the audit include:• Excelsior is a nonpublic company that
Rotter & Co, Ltd, a CPA firm in Silver Bell, Arizona, has completed the audit of the financial statements of Exchecker Corporation as of, and for, the year ended December 31, 20X1. Findings related to the financial statements and the audit include:• Exchecker is a public company that presents
For each of the following brief scenarios, assume that you are the CPA reporting on the client€™s financial statements. Using the form included with this problem, describe the reporting circumstance involved, the type or types of opinion possible in the circumstance, and the appropriate
For each of the following brief scenarios, assume that you are reporting on a client€™s current year financial statements. Reply as to the type or types of opinion possible in the circumstance.S Unmodified€”standardU Unmodified with emphasis-of-matter or other-matter paragraphQ
Your firm audits Metropolitan Power Supply (MPS). The issue under consideration is the treatment in the company’s financial statements of $700 million in capitalized construction costs relating to Eagle Mountain, a partially completed nuclear power plant.Seven years ago, MPS began construction
List three primary differences between the audit report for nonpublic entities and the one for public entities.
Provide a list of the types of unmodified and modified audit opinions.
When the current auditors make reference to the work of the component auditors, does this result in expression of a qualified opinion? Explain.
Wade Corporation has been your audit client for several years. At the beginning of the current year, the company changed its method of inventory valuation from average cost to last in, first out (LIFO). The change, which had been under consideration for some time, was in your opinion a logical and
The auditors know that the client’s accounting for deferred income taxes is not in accordance with generally accepted accounting principles, but because of a very significant scope limitation they have not been able to determine the amount of the misstatement involved and have not been able to
Section 404 of the Sarbanes-Oxley Act of 2002 includes two sections. Describe those sections.
What information must be included in management’s report on internal control over financial reporting in the annual report filed with the Securities and Exchange Commission?
Describe the difference between a significant deficiency and a material weakness in internal control.
Comment on the accuracy of the following statement: “Since both significant deficiencies and material weaknesses must be reported to the audit committee, for practical purposes, there is no distinction between the two.”
What is a compensating control?
While performing a walk-through, auditors ordinarily make certain inquiries of employees. Provide three examples of such inquiries.
When performing an audit of internal control over financial reporting, auditors may distinguish among the following types of transactions: routine, nonroutine, and accounting estimates. Distinguish between these three types of transactions and give an example of each.
When performing an integrated audit, auditors should identify significant accounts and disclosures. What makes an account significant? What factors should be considered in deciding whether an account is significant?
Provide an example of a situation in which the design of controls may be effective but those controls do not operate effectively.
What requirements exist when the auditors use the work of client personnel as a part of the evidence obtained for an audit of internal control? In which areas of the audit would one expect this to be most likely to occur?
Provide an example of a situation in which the performance of substantive procedures for the financial statement audit might affect the internal control audit.
Provide three examples of findings by the auditors that are at least significant deficiencies and strong indicators of the existence of a material weakness in internal control.
If an adverse internal control report is issued by the auditors, may an unqualified report be issued on the financial statements?
The CPA firm of Carson & Boggs LLP is performing an internal control audit in accordance with PCAOB Standard No. 5. The partner in charge of the engagement has asked you to explain the process of determining which controls to test. Describe the process, presenting each of the links in this process
Tests of controls are ordinarily performed for both financial statement audits and internal control audits.a. What is the objective of tests of controls when performed for internal control audits?b. What is the objective of tests of controls when performed for financial statement audits?c. How are
The CPA firm of Webster, Warren, & Webb LLP issued an adverse opinion on the internal control of Alexandria Financial, a public company, due to a material weakness. The weakness involved the lack of sufficient accounting expertise to evaluate and adopt appropriate accounting principles. Subsequent
Multiple Choice QuestionsSelect the best answer for each of the following questions. Explain the reasons for your selection:a. In an integrated audit, which of the following must the auditors communicate to the audit committee?b. In an integrated audit, which of the following lead(s) to an adverse
While performing an internal control audit in conformity with PCAOB Standard No. 5, the auditors must be able to identify both control strengths and control weaknesses. Items (1) through (11) present various control strengths and deficiencies. For each item, select from the following list the
Bill Jensen, a staff member of Zhan & Co., CPAs, has given you the following list of what he refers to as “internal control deficiencies” for the Zabling Co. audit and has asked you to review each point and make certain that you agree that each is an internal control deficiency. For each of the
During audits of internal control over financial reporting of various issuers, the auditors encountered the independent situations below. For each situation a through e select from the following list the appropriate audit responses. Each reply may be used once, more than once, or not at all.1.
Your working papers for an integrated audit being performed under PCAOB Standard No. 5 include the narrative description below of the cash receipts and billing portions of internal control of Slingsdale Building Supplies, Inc. Slingsdale is a single-store retailer that sells a variety of tools,
For each of the following independent cases, state the highest level of deficiency that you believe the circumstances represent—a control deficiency, a significant deficiency, or a material weakness. Explain your decision in each case.Case 1: The company processes a significant number of routine
Identify management’s four overall responsibilities with respect to internal control over financial reporting that arise due to the Securities and Exchange Commission’s implementation of the Sarbanes-Oxley Act of 2002.
What is meant by the “as of” date when reporting on internal control over financial reporting?
Provide examples of antifraud programs that the auditors might expect the client to have.
Describe what is meant by a “walk-through.” Must walk-throughs be performed during audits of internal control over financial reporting? May the client perform a walk-through and the auditors then review the client’s work?
Auditors often perform walk-throughs in integrated audits. Describe the evidence that is typically provided by a walk-through.
A client operates out of 25 locations. Must the CPA perform tests related to internal control at each of these locations?
Comment on the following: “Auditors must decide, based on cost considerations, whether to test the design effectiveness or operating effectiveness of controls.”
Comment on the following: “Inquiry alone does not provide sufficient evidence to support the operating effectiveness of a control.”
Comment on the following: “All controls should be tested either prior to or on the ‘as of’ date.”
Describe the requirements involved when auditors are engaged to report on whether a previously reported material weakness continues to exist.
Match the following definitions (or partial definitions) to the appropriate term. Each term may be used once or not at all..:.
In communications with clients, should CPAs refer to themselves as auditors or as accountants? Explain.
Provide four types of special-purpose financial reporting frameworks.
What are the general types of procedures performed during a review of the quarterly financial statements of a company that has audits of its annual financial statement?
What are the types of procedures performed during the review of the financial statements of a nonpublic company?
Can the CPAs report on a nonpublic client's financial statements that omit substantially all disclosures required by generally accepted accounting principles? Explain.
Describe a CPA's reporting responsibility when compiling financial statements that are not expected to be used by a third party.
You have been asked by Ambassador Hardware Co., a small nonpublic company, to submit a proposal for the audit of the company. After performing an investigation of the company, including its management and accounting system, you advise the president of Ambassador that the audit fee will be
Schmich and Schmich, CPAs in Minneapolis, Minnesota, has completed the audit of XYM Co. for the year ended December 31, 20X1. The financial statements for this nonpublic client are prepared following the cash basis of accounting.Note 7 to the financial statements refers to an uncertainty due to
Occasionally, public accounting firms are engaged to report on specified elements, accounts, and items of financial statements.a. Discuss three types of reports that may be provided for specified elements, accounts, and items of financial statements.b. Why should reports on the application of
You have been engaged by the management of Pippin, Inc., a nonpublic company, to review the company's financial statements for the year ended December 31, 20XX. To prepare for the engagement, you consult the Statements on Standards for Accounting and Review Services.a. Discuss the procedures
In connection with a public offering of first-mortgage bonds by Guizzetti Corporation, the bond underwriter has asked Guizzetti's CPAs to furnish it with a comfort letter giving as much assurance as possible on Guizzetti's unaudited financial statements for the three months ended March 31. The
Andrew Wilson, CPA, has assembled the financial statements of Texas Mirror Co., a small nonpublic company. He has not performed an audit of the financial statements in accordance with generally accepted auditing standards. Wilson is confused about the standards applicable to this type of
Multiple Choice QuestionsSelect the best answer for each of the following and explain fully the reason for your selection.a. Which of the following is not typically performed when the auditors are performing a review of client financial statements?(1) Analytical procedures applied to financial
The following statements relate to auditor reporting on financial statements prepared using special-purpose financial reporting frameworks. For each, indicate whether the statement is correct or incorrect..:.
Bill Jones, the president of AMTO, a nonpublic audit client of your firm, has come to you and indicated that his company established a subsidiary in the country of Laos this year and that he wants your firm to issue an audit report on that subsidiary for use in Laos for various purposes.The
Indicate whether a CPA may provide each of the following services, and whether independence is required, by placing a check in the appropriatebox.
Jiffy Clerical Services is a company that furnishes temporary office help to its customers. The company maintains its accounting records on a basis of cash receipts and cash disbursements.You have audited the company for the year ended December 31, 20X4, and have concluded that the company’s
Loman, CPA, who has audited the financial statements of the Broadwall Corporation, a publicly held company, for the year ended December 31, 20X6, was asked to perform a review of the financial statements of Broadwall Corporation for the period ending March 31, 20X7. The engagement letter stated
Norman Lewis, an inexperienced member of your staff, has compiled the financial statements of Williams Grocery. He has submitted the following report for your review:The accompanying financial statements have been compiled by us. A compilation is an accounting service, but we also applied certain
Webstar, a nonpublic company, is owned by Ben Williams and three of his friends. Previously the company’s financing has been internally generated, with limited equity contributions by the owners. The company has not been audited in the past, and Williams has said to you that while he generally
You are a young CPA just starting your own practice in Hollywood, California, after five years’ experience with a “Big 4” firm. You have several connections in the entertainment industry and hope to develop a practice rendering income tax, auditing, and accounting services to celebrities and
Evaluate this statement: "All companies should be audited annually."
Evaluate this statement: "Auditors perform attestation services and accountants perform accounting services."
Can auditors express an unmodified opinion on financial statements that are not presented on the basis of generally accepted accounting principles? Explain.
Comment on the following: "Because of the nature of the frameworks the clients use, audits of special-purpose financial reporting frameworks result in an audit report that is restricted for use by those within the entity."
A client has prepared financial statements using a financial reporting framework generally accepted in another country. The statements are intended only to be used in that country. Describe the auditor's reporting options.
Describe a unique reporting aspect about the CPAs' required review of the quarterly financial statements of public companies.
How do CPAs of public companies assist audit committees in performing their oversight function with respect to quarterly financial statements?
What types of services may be performed by CPAs with respect to the financial statements of nonpublic companies?
How does a review of the financial statements of a nonpublic company differ from an audit?
Are engagement letters needed for accounting and review services? Explain.
What procedures are required when a CPA performs a compilation of financial statements?
What should the accountants do if they discover that the financial statements they are compiling contain a material departure from generally accepted accounting principles?
Assume that a public accounting firm is reviewing the financial statements of a nonpublic company and discovers that the firm is not independent. What alternatives are available to the firm?
State whether you agree or disagree with each of the following relating to the topic of special-purpose financial reporting frameworks.a. International Financial Reporting Standards are considered a special-purpose financial reporting framework.b. Cash basis financial statements are considered as
Auditors who audit public and nonpublic companies must be familiar with professional standards developed by a variety of sources. For each of the types of services below, indicate the proper source of professional requirements. Each source may be used once, more than once, or not at all.Servicea.
Explain the relationship between assurance services and attestation services.
List and describe the three types of attestation engagements.
Distinguish between an attestation engagement in which the practitioners report directly on the subject matter and one in which the practitioners report on an assertion about the subject matter.
What are "suitable criteria" and how do they relate to an attestation engagement?
Explain what is meant by attestation risk. What are its components?
What is XBRL? How do assurance services relate to it?
"A company would normally include a financial projection in its annual report rather than a financial forecast." Comment on the validity of this statement.
Describe the major elements of a report on the examination of a financial forecast.
Describe the objectives of the practitioners' examination of Management's Discussion and Analysis.
List the principles that may be included in the criteria for a Trust Services engagement.
Contrast the types of systems on which assurance is provided in a WebTrust engagement as compared to a SysTrust engagement.
Describe the primary purpose and intended users of each of the three types of service auditor reports presented in the Professional Standards.
Identify three types of assurance services that are currently under development by the AICPA.
Other types of assurance services provided by CPAs have developed as a natural extension of the audit function.a. Explain what is meant by the term assurance services.b. Describe the forces that have caused a demand for other types of assurance services.c. Describe the subset of assurance services
The attestation standards provide guidance for three basic types of engagements.a. Describe these three types of engagements.b. Describe the types of procedures performed for each of these three types of engagements.c. Discuss the degree of assurance provided by each type of engagement.d. Identify
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