Auditing and Assurance Services 6th edition Timothy Louwers, Robert Ramsay, David Sinason, Jerry Straws - Solutions

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The management of Williams Co. is considering issuing corporate debentures. To enhance the marketability of the bond issue, management has decided to include a financial forecast in the prospectus. Management has requested that your CPA firm examine the financial forecast to add credibility to the
The accounting profession has developed Trust Services to help entities differentiate themselves by demonstrating that they are attuned to the risks posed by their environment and that they are equipped with controls that address those risks. Present the principles on which a Trust Services
The third general attestation standard indicates that the subject matter of the engagement must be capable of reasonably consistent evaluation against criteria that are suitable and available to the user.a. Explain why criteria are needed for an attestation engagement.b. Describe what makes a
Multiple Choice QuestionsSelect the best answer for each of the following and explain fully the reason for your selection.a. A report on an attestation engagement should:(1) State the nature of the client€™s control system.(2) State the practitioner€™s conclusion about the
Following are descriptions of potential needs of clients for various services. For each need identify the type of service that would best meet the client€™s need using the following:€¢ Attestation of prospective financial information€¢ PrimePlus/Elder Care
For each of the situations (a) through (f), select the CPA engagement that is most likely to be appropriate from the lists of services below:1. Compliance.2. Continuous auditing.3. Forecast.4. Internal control over financial reporting.5. MD&A.6. PrimePlus/ElderCare.7. Service organization audit.8.
SysTrust and WebTrust are Trust Services developed by the AICPA and the CICA.a. Present and describe the Trust Services principles.b. Present and describe the “criteria” related to Trust Services.c. What is the relationship between the principles and the criteria?d. Must a WebTrust or SysTrust
Assume that you are a partner with the firm of Slater & Lowe LLP. You have been asked by Grayson, Inc., an industrial supply company, to provide assurance about the change in existing customer satisfaction over the last three years. Grayson’s management has indicated that the criteria it intends
Katherine Whipple of Food Queen Grocery, Inc., has asked you and your team to meet with her concerning a possible attest engagement relating to the assertion that Food Queen has the lowest overall prices of all grocery stores in the Salt Lake City area. Food Queen has just recently moved into the
Some CPUs provide for more than two modes of operation. What are two possible uses of these multiple modes?
Describe the forces that have fueled the demand for assurance services.
Identify the circumstances under which CPAs may examine Management's Discussion and Analysis.
Discuss CPAs' competition for WebTrust in the market for consumer-to-business electronic commerce.
What types of PrimePlus/ElderCare services do CPAs typically perform?
Match the following definitions (or partial definitions) to the appropriate term. Each term may be used once or not at all.Definition (or Partial Definition)a. A service developed by the AICPA and CICA to provide assurance about the reliability of systems other than electronic commerce systems.b. A
Define internal auditing.
Nearly every large corporation now maintains an internal auditing department, but 50 years ago relatively few companies carried on a formal program of internal auditing. What have been the principal factors responsible for this rapid expansion?
"The principal distinction between public accounting and internal auditing is that the latter activity is carried on by an organization's own salaried employees rather than by independent professional auditors." Criticize this quotation.
Compare the objectives of internal auditors with those of external auditors.
Identify the 11 categories of the IIA's International Standards for the Professional Practice of Internal Auditing.
Briefly describe the factors that are important to the management of an internal auditing department.
Evaluate this statement: "An agreed-upon procedures engagement on compliance with a law is designed to provide users with negative assurance on whether an entity has complied with that law."
Explain the auditors' responsibility for testing compliance with laws and regulations in an audit in accordance with generally accepted auditing standards.
Identify the three types of audits that a governmental organization might obtain.
Describe the ethical principles set forth in Generally Accepted Government Auditing Standards.
"In an audit in accordance with Generally Accepted Government Auditing Standards the auditors must perform tests of compliance with all laws and regulations." Criticize this quotation.
The auditors' responsibility for reporting violations of laws and regulations under Generally Accepted Government Auditing Standards differs from their responsibility under generally accepted auditing standards. Compare these responsibilities.
Contrast the requirements of an audit in accordance with Generally Accepted Government Auditing Standards with the requirements of an audit in accordance with generally accepted auditing standards.
Explain why compliance with laws and regulations is so important in the audit of governmental organizations.
Distinguish between a sub-recipient and a primary recipient. Provide an example of each.
Identify the 14 requirements that may be applicable to federal financial assistance programs.
In order to function effectively, the internal auditor must often educate auditees and other par ties about the nature and purpose of internal auditing.a. Define internal auditing.b. Briefly describe three possible benefits of an internal audit department's program to educate auditees and other
Throughout this book, emphasis has been placed on the concept of independence as the most significant single element underlying the development of the public accounting profession.The term "independent auditor" is sometimes used to distinguish the public accountant from an internal auditor.
You are conducting the first audit of the marketing activities of your organization. Your preliminary survey has disclosed indications of deficient conditions of a serious nature. You expect your audit work to document the need for substantial corrective action. You feel certain that your audit
Matt Gunlock, CPA, is performing an audit of the City of Ryan in accordance with generally accepted auditing standards.a. Must Matt be concerned with the city's compliance with laws and regulations? Explain.b. How should Matt decide on the nature and extent of the tests of compliance that should be
Wixon & Co., CPAs, is performing an audit of the City of Brummet for the year ended June 30, 200X, in accordance with Generally Accepted Government Auditing Standards. During the course of the audit, Gerald Yarnell, a senior auditor, discovers violations of laws and regulations that constitute
North County School District expended $1,450,000 in federal financial assistance this year.a. Is North County School District required to have an audit in accordance with the Single Audit Act? Explain.b. What are the requirements of an audit in accordance with the Single Audit Act?
The City of Westmore is confused about the type of audit that it should obtain: an audit in accordance with generally accepted auditing standards, an audit in accordance with Generally Accepted Government Auditing Standards, or an audit in accordance with the Single Audit Act.a. Explain the
Multiple Choice QuestionsSelect the best answer for each of the following questions. Explain the reasons for your selection.a. Internal auditing can best be described as:(1) An accounting function.(2) A compliance function.(3) An activity primarily to detect fraud.(4) A control function.b. The
Under the Single Audit Act, auditors must test for compliance with the specific requirements of all major programs. State whether each of the following is required under thatact:
You are the chief audit executive for the internal auditing function of a large municipal hospital. You receive monthly financial reports prepared by the accounting department, and your review of them has shown that total accounts receivable from patients have steadily and rapidly increased over
Devry Corporation has established an independent foundation for the purposes of community improvement. The foundation employs an executive director and eight staff people. The internal auditors of the company were requested to do an audit of the foundation in 20X1 to determine problems with the
In performing an audit in accordance with Generally Accepted Government Auditing Standards, the auditors are required to issue an additional combined report on compliance with laws and regulations and on internal control.a. Describe the nature of the procedures that the auditors must perform beyond
In performing an audit in accordance with both generally accepted auditing standards and Generally Accepted Government Auditing Standards, the auditors are required to communicate information about weaknesses in the organization’s internal control. However, the requirements are different.a.
Robert Myers, CPA, has been engaged to audit the City of Mystic in accordance with the Single Audit Act. Robert is aware that the Single Audit Act requires additional tests of major federal financial assistance programs, and he is trying to identify those programs for this audit. The City of Mystic
Describe the scope of activities of an internal auditing function.
Evaluate this statement: "Internal auditors cannot be independent of the activities that they audit."
Describe how the organizational status of the internal audit department affects its independence.
Describe the requirements for becoming a Certified Internal Auditor.
Differentiate between financial statement audits and operational audits.
Describe the purpose of an operational audit.
Describe the additional documentation requirements of Generally Accepted Government Auditing Standards.
Describe the additional audit report required by Government Auditing Standards.
What is the purpose of the Single Audit Act?
When is an organization required to have an audit in accordance with the Single Audit Act?
Explain how major federal assistance programs are identified.
Describe what is meant by a questioned cost.
Steve Ankenbrandt, president of Beeb Corp., has been discussing the company's internal operations with the presidents of several other multi-division companies. Ankenbrandt discovered that most of them have an internal audit staff. The activities of the staffs at other companies include financial
Match the following terms with the appropriate definition (or partial definitions). Each definition may be used once or not at all.Terma. Compliance auditingb. Compliance Supplementc. Government Auditing Standardsd. Major federal financial assistance programe. Single Audit ActDefinition (or Partial
What is a business risk?
What conditions increase the demand for reliable information?
What risk creates a demand for independent and objective outsiders to provide assurance to decision makers?
Define and explain auditing. What would you answer if asked by an anthropology major, “What do auditors do?”
What is an attestation engagement?
What is an assurance service engagement?
What are the four major elements of the broad definition of assurance services?
What is the difference between financial statement auditing and financial accounting?
List and briefly explain each of the Auditing Standards Board’s management assertions. List at least one key question that auditors must answer with evidence related to each management assertion.
Why is the Auditing Standards Board’s set of management assertions important to auditors? Do these assertions differ from those included in PCAOB standards? If so, how are they different?
Why should auditors act as though there is always a potential conflict of interest between the auditor and the management of the enterprise under audit?
What are some examples of assurance services performed on nonfinancial information?
What are some of the major areas of public accounting services?
What are the elements of expanded- scope auditing according to the GAO?
Name some other types of auditors in addition to external, internal, and governmental auditors.
What are some of the functions of a state board of public accountancy?
What are some of the limitations to practicing public accounting across state and national boundaries?
Which of the following would be considered an assurance engagement? a. Giving an opinion on a prize promoter’s claims about the amount of sweepstakes prizes awarded in the past. b. Giving an opinion on the conformity of the financial statements of a university with gen-erally accepted accounting
It is always a good idea for auditors to begin an audit with the professional skepticism characterized by the assumption that a. A potential conflict of interest always exists between the auditor and the management of the enterprise under audit. b. In audits of financial statements, the auditor
In an attestation engagement, a CPA practitioner is engaged toa. Compile a company’s financial forecast based on management’s assumptions without expressing any form of assurance.b. Prepare a written report containing a conclusion about the reliability of a management assertion.c. Prepare a tax
A determination of cost savings obtained by outsourcing cafeteria services is most likely to be an objective of a. Environmental auditing. b. Financial auditing. c. Compliance auditing. d. Operational auditing.
The primary difference between operational auditing and financial auditing is that in operational auditinga. The operational auditor is not concerned with whether the audited activity is generating information in compliance with financial accounting standards.b. The operational auditor is seeking
According to the AICPA, the purpose of an audit of financial statements is to a. Enhance the degree of confidence that intended users can place in the financial statements. b. Express an opinion on the fairness with which they present financial position, results of operations, and cash flows in
Bankers who are processing loan applications from companies seeking large loans will probably ask for financial statements audited by an independent CPA because a. Financial statements are too complex for the bankers to analyze themselves. b. They are too far away from company headquarters to
The Sarbanes- Oxley Act of 2002 prohibits public accounting firms from providing which of the following services to an audit client? a. Bookkeeping services. b. Internal auditing services. c. Valuation services. d. All of the above.
Independent auditors of financial statements perform audits that reducea. Business risks faced by investors.b. Information risk faced by investors.c. Complexity of financial statements.d. Timeliness of financial statements.
The primary objective of compliance auditing is to a. Give an opinion on financial statements. b. Develop a basis for a report on internal control. c. Perform a study of effective and efficient use of resources. d. Determine whether client personnel are following laws, rules, regulations, and
What requirements are usually necessary to become licensed as a certified public accountant? a. Successful completion of the Uniform CPA Examination. b. Experience in the accounting field. c. Education. d. All of the above.
The organization primarily responsible for ensuring that public officials are using public funds efficiently, economically, and effectively is the a. Governmental Internal Audit Agency (GIAA). b. Central Internal Auditors (CIA). c. Securities and Exchange Commission (SEC). d. Government
Performance audits usually include [two answers]a. Financial audits.b. Economy and efficiency audits.c. Compliance audits.d. Program audits.
The objective in an auditor’s review of credit ratings of a client’s customers is to obtain evidence related to management’s assertion about a. Completeness. b. Existence. c. Valuation and allocation. d. Rights and obligations. e. Occurrence.
Jones, CPA, is planning the audit of Rhonda’s Company. Rhonda verbally asserts to Jones that all expenses for the year have been recorded in the accounts. Rhonda’s representation in this regard a. Is sufficient evidence for Jones to conclude that the completeness assertion is supported for
The risk to investors that a company’s financial statements may be materially misleading is calleda. Client acceptance risk.b. Information risk.c. Moral hazard.d. Business risk.
When auditing merchandise inventory at year- end, the auditor performs audit procedures to ensure that all goods purchased before year- end are received before the physical inventory count. This audit procedure provides assurance about which management assertion? a. Cutoff. b. Existence. c.
When auditing merchandise inventory at year- end, the auditor performs audit procedures to obtain evidence that no goods held on consignment are included in the client’s ending inventory balance. This audit procedure provides assurance about which management assertion? a. Completeness. b.
When an auditor reviews additions to the equipment (fixed asset) account to make sure that repair and maintenance expenses are not understated, she wants to obtain evidence as to management’s assertion regarding a. Completeness. b. Existence. c. Valuation and allocation. d. Rights and
The Sarbanes- Oxley Act of 2002 generally prohibits public accounting firms froma. Acting in a managerial decision- making role for an audit client.b. Auditing the firm’s own work on an audit client.c. Providing tax consulting to an audit client without audit committee approval.d. All of the
Substantial equivalency refers toa. An auditor’s tendency not to believe management’s assertions without sufficient corroboration.b. Providing consulting work for another firm’s audit client in exchange for the other firm’s providing consulting services to one of your clients.c. The waiving
Which of the following best describes the relationship between auditing and attestation engagements?a. Auditing is a subset of attestation engagements that focuses on the certification of financial statements.b. Attestation is a subset of auditing that provides lower assurance than that provided by
During an audit of a company’s cash balance on a company with operations in only one country, the auditor is most concerned with which management assertion?a. Existence.b. Rights and Obligations.c. Valuation or Allocation.d. Occurrence.
When auditing an investment in another company, an auditor most likely would seek to conduct which audit procedure to help satisfy the valuation assertion? a. Inspect the stock certificates evidencing the investment. b. Examine the audited financial statements of the investee company. c. Review

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