Auditing An International Approach 6th edition Wally J. Smieliauskas, Kathryn Bewley - Solutions

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List the four major categories of general controls and identify the objectives of each.
What is the SDLC? What type of controls does the use of the SDLC include with respect to program development and changes?
Describe the duties of systems analysts, programmers, computer operators, data conversion operators, librarians, and the control group. Which duties should be separated within the computer department?
Identify and provide examples of controls related to the use of files and data.
Briefly describe record counts, batch totals, and hash totals. What types of errors in input would each of these controls likely identify?
What is the objective of processing controls? List and briefly describe different processing controls.
What is the objective of output controls? List and briefly describe different output controls.
What are the major steps in audit team’s assessment of control risk in an IT environment?
List points at which misstatements may be introduced in an IT environment.
What are the major control issues in end- user computing environments?
What control procedures can be used to achieve control over computer operations in an end- user computing environment? What control procedures can be used to achieve control over computerized processing in an end- user computing environment?
Identify physical controls, technical controls, and administrative controls that protect computerized processing systems from fraud.
In which of the following circumstances would an auditor expect to find that an entity had implemented automated controls to reduce risks of misstatement? a. When errors are difficult to predict. b. When misstatements are difficult to define. c. When large, unusual, or nonrecurring transactions
An example of a program in which the audit team would be most interested in testing auto-mated application controls is a(n) a. Payroll processing program. b. Operating system program. c. Data management system software. d. Utility program.
Which of the following would reduce the effectiveness of internal control in an accounting information system? a. The computer librarian maintains custody of computer program instructions and detailed lists. b. Computer operators have access to operator instructions and detailed program lists. c.
Which of the following is true with respect to fraud risk factors in an IT environment? a. Employees in an IT environment are highly skilled. b. Audit teams cannot evaluate the accounting information system during the year. c. Higher dollar amounts are involved in an IT environment. d. Employees
Controls used in the management of a computer center to minimize the possibility of using an incorrect file or program are a. Control totals. b. Record counts. c. Limit checks. d. External labels.
In an environment that is highly automated, an auditor determines that it is not possible to reduce detection risk solely by using substantive tests of transactions. Under these circum-stances, the auditor most likely would a. Perform tests of controls to support a lower level of assessed control
The client’s computerized exception reporting system helps audit teams conduct a more efficient audit because it a. Condenses data significantly. b. Highlights abnormal conditions. c. Decreases the necessary level of tests of computer controls. d. Is an efficient computer input control.
Audit teams use the test data method to gain certain assurances with respect to a. Input data. b. Machine capacity. c. Control procedures contained within the program. d. General controls.
When using test data, why are audit teams required to prepare only one transaction to test each IT control? a. The speed and efficiency of the computer results in reduced sample sizes. b. The risk of misstatement is typically lower in an IT environment. c. Audit teams generally perform more
Audit teams can obtain evidence of the proper functioning of password access control to a accounting information system by a. Writing a computer program that simulates the logic of an effective password control system. b. Selecting a random sample of the client’s completed transactions to check
When processing controls within the accounting information system may not leave visible evidence that could be inspected by audit teams, the teams should a. Make corroborative inquiries. b. Observe the separation of duties of personnel. c. Review transactions submitted for processing and comparing
Which of the following statements most likely represents a control consideration for an entity that performs its accounting using mobile computing devices? a. It is usually difficult to detect arithmetic errors. b. Unauthorized persons find it easy to access the computer and alter the data files.
A customer intended to order 100 units of product Z96014 but incorrectly ordered product Z96015, which is not an actual product. Which of the following controls most likely would detect this error? a. Check digit verification. b. Record count. c. Hash total. d. Redundant data check.
Which of the following automated application controls would offer reasonable assurance that inventory data were completely and accurately entered? a. Sequence checking. b. Batch totals. c. Limit tests. d. Check digits.
Which of the following persons is responsible for controlling access to systems documentation and access to program and data files? a. Programmers. b. Data conversion operators. c. Librarians. d. Computer operators.
Auditing Automated Controls. You are auditing payroll for Alexander Inc., which uses computerized processing for its payroll transactions; the various steps in Alexander’s system follow: • As employees provide services, they enter the number of hours worked on time sheets that their supervisor
Tests of Controls: General Controls. The audit team of Packer Company identified the following general controls in obtaining its overall understanding of Packer’s internal control over the automated processing of transactions: 1. Packer has routine maintenance on its computer equipment and
Tests of Controls: Input Controls. Knight Company is a medium- size manufacturing entity that uses an automated transaction system to process its customer orders. Orders are collected and processed on a daily basis in batches. In its processing of customer orders, Knight requires input of the
Tests of Controls: Processing and Output Controls. Mark Company’s audit team is evaluating the controls that Mark has implemented over the automated processing of payroll transactions. During the understanding and assessment stages of the audit, the following processing and output controls have
Assume that, when conducting procedures to obtain an understanding of Denton Seed Company’s internal controls, you checked “No” to the following internal control questionnaire items: • Does access to online files require specific passwords to be entered to identify and validate the terminal
You are engaged to examine the financial statements of Horizon Incorporated, which has its own computer installation. During the preliminary understanding phase of your study of Horizon’s internal control, you found that Horizon lacked proper separation of the programming and operating
The following are brief stories of actual employee thefts and embezzlements perpetrated in an IT environment. Required: What type of control procedure that might have prevented or detected the fraud was missing or inoperative? a. An accounts payable terminal operator at a subsidiary entity
Indicate the benefits of each of the following examples of general controls. a. Echo checks are designed and built into the computer by the manufacturer. b. The company schedules regular maintenance on its computer hardware.c. The company involves users in its design of programs and selection of
For each of the following examples of general controls, classify the control based on appropriate category (program development controls, program change con-trols, computer operations controls, and access to programs and data controls). In addition, for each, provide the objective of the control
In its automated processing system over payroll transactions, Brady Company enters the following data from its employees’ attendance records (# corresponds to a numeric field; A corresponds to an alphabetic field): • Employee number (###-##-####, the employees’ Social Security number). •
Ajax Inc., an audit client, recently installed a new accounting information system to process its shipping, billing, and accounts receivable records more efficiently. During interim work, an assistant completed the review of the accounting information system and the internal controls. The
Georgia Beemster, CPA, is examining the financial statements of the Louisville Sales Corporation, which recently installed a computerized processing system. The following comments have been extracted from Beemster’s notes on computer operations and the processing and control of shipping notices
The following provides a brief description of the computerized payroll system used by Merriman in its biweekly processing of payroll for its employees. 1. Employees automatically record their attendance (hours worked) as they log in at the beginning and end of the workday. 2. At the end of each
What happens to the gas pressure within a sealed gallon can when it is heated? Cooled? Why?
Because of the use of personal computers by many businesses, audit teams must know about the potential internal control weaknesses inherent in such an environment. This knowledge is crucial if audit teams are to make a proper assessment of the related control risk and to plan an effective and
Why are general controls so important in the audit team’s evaluation of internal control and assessment of control risk and risk of material misstatement?
What is the objective of input controls?
How can data entry and formatting controls minimize the likelihood of input errors?
What is the audit team’s objective in obtaining an overall understanding of internal control in a computerized processing environment?
Which important duties are generally not separated in end- user computing environments?
What is computer forensics? How can it be used in fraud investigation?
Use the computer- based electronic audit documentation on the textbook website to perform a test of the computerized payroll processing program. The electronic audit documentation contains a simple program that accepts payroll trans-action input and calculates an individual’s weekly gross and net
What functional responsibilities are associated with the payroll cycle?
Which duties should be separated in the payroll cycle?
How does a company ensure that terminated employees are removed from the payroll?
Describe a walkthrough of the payroll transaction flow from hiring authorization to payroll check disbursement. (a) What document copies would be collected? (b) What controls should be noted?
What documents should be included in an employee’s personnel file?
What features of a payroll system could be expected to prevent or detect the (a) Payment of a fictitious employee and (b) Omission of payment to an employee?
What are the most common errors and frauds in the personnel and payroll cycle? Which control characteristics are auditors looking for to prevent or detect these errors and frauds?
An audit team most likely would assess control risk at the maximum if the payroll department supervisor is responsible for a. Examining authorization forms for new employees. b. Comparing payroll registers with original batch transmittal data. c. Authorizing payroll rate changes for all employees.
Which of the following departments most likely would approve changes in pay rates and deductions from employee salaries? a. Personnel. b. Treasurer. c. Controller. d. Payroll.
Matthew Corp. has changed from a system of recording time worked on clock cards to a computerized payroll system in which employees record time in and out with magnetic cards. The computerized system automatically updates all payroll records. Because of this change a. A generalized computer audit
Effective control over the cash payroll function would mandate which of the following? a. The payroll clerk should fill the envelopes with cash and a computation of the net wages. b. Unclaimed payroll envelopes should be retained by the paymaster. c. Each employee should be asked to sign a receipt.
A large retail enterprise has established a policy that requires the paymaster to deliver all unclaimed payroll checks to the internal audit department at the end of each payroll distribution day. This policy was most likely adopted to a. Ensure that employees who were absent on a payroll
Auditors ordinarily ascertain whether payroll checks are properly endorsed during the audit of a. Clock cards. b. The voucher system. c. Cash in bank. d. Accrued payroll.
In determining the effectiveness of an entity’s policies and procedures relating to the occurrence assertion for payroll transactions, auditors most likely would inquire about and a. Observe the separation of duties concerning personnel responsibilities and payroll disbursement. b. Inspect
Which of the following activities most likely would be considered a weakness in an entity’s internal control over payroll? a. A voucher for the amount of the payroll is prepared in the general accounting department based on the payroll department’s payroll summary. b. Payroll checks are
Which of the following payroll control activities would most effectively ensure that payment is made only for work performed? a. Require all employees to record arrival and departure by using the time clock. b. Have a payroll clerk recalculate all time cards. c. Require all employees to sign their
Which of the following activities performed by a department supervisor most likely would help to prevent or detect a payroll fraud? a. Distributing paychecks directly to department employees. b. Setting the pay rate for departmental employees. c. Hiring employees and authorizing them to be added to
Prepare a schedule of the major risks in the payroll cycle. Identify the financial statement assertions related to each. Create a two- column schedule like this:Payroll Cycle Risk Assertion
Two accountants were discussing control activities and tests of controls for payroll systems. The senior accountant in charge of the engagement said: “It is impossible to determine who authorizes transactions when the payroll account is computerized.” Required: Evaluate the senior
Payroll Processed by a Service Organization. Assume that you are the audit senior conducting a review of a new client’s payroll system. In the process of interviewing the payroll department manager, she makes the following statement: “We don’t need many controls because our payroll is done
You are the senior auditor in charge of the annual audit of Onward Manufacturing Corporation for the year ending December 31. The company is of medium size with only 300 employees. All 300 employees are union members paid by the hour at rates set forth in a union contract, a copy of which is
The diagram in Exhibit 8C. 22.1 describes several payroll tests of controls. It shows the direction of the tests, leading from samples of clock cards, pay-rolls, and cumulative year- to- date earnings records to blank squares.Required: For each blank square in Appendix Exhibit 8C. 22.1, write
Explain how the auditor can help you in your investment decision making.
What is the difference between auditing and accounting?
Distinguish between forensic accounting and fraud auditing.
What are the elements of comprehensive auditing?
What is the essence of the risk reduction definition of auditiong.
What is auditing? What condition creates demand for audits of financial reports?
What is the difference between a client and an auditee? What are the three parties in three-party accountability?
What would you say if asked by an anthropology major, “What do auditors do?”
The chair of the board of Hughes Corporation proposed that the board hire as controller a PA who had been the manager on the corporation's audit performed by a firm of independent accountants. The chair thought that hiring this person would make the annual audit unnecessary and consequently save
Put yourself in the position of the person hired as controller in the above situation. Suppose the chair of the board moves to discontinue the annual audit because Hughes Corporation now has your services on a full-time basis. You are invited to express your views to the board. Explain how you
Identify four major factors affecting information risk that make the need for independent audits important in today’s business world. Give two examples for each.
Auditors must have a thorough knowledge of generally accepted accounting principles (GAAP) if they are to properly perform an audit of the financial statements of a company. Explain why this is so. Use capital leases as an example of the need for this knowledge.
Bigdeal Corporation manufactures paper and paper products and is trying to decide whether to purchase and merge Smalltek Company. Smalltek has developed a process for manufacturing boxes that can replace other containers that use fluorocarbons for expelling a liquid product. The price may be as
Your neighbour invited you to lunch yesterday. Sure enough, it was no “free lunch,” because he wanted to discuss the annual report of the Dodge Corporation. He owns Dodge shares and has just received the report. He says, “PricewaterhouseCoopers prepared the audited financial statements and
Audits may be characterized as (a) financial statement audits, (b) compliance audits—audits of compliance with control policies and procedures and with laws and regulations, (c) economy and efficiency audits, and (d) program results audits. The work can be done by independent (external) auditors,
What do you think management certification of financial statements means? Has management’s responsibility changed since the inception of SOX? Why do we need auditors if management “certifies” its financial statements?
Identify a major finding from the auditor general of your province in 2012. How extensively was it reported in the news media? Identify the three-party accountability in these engagements. Do you think that the media reports reflect well on the auditor?
As part of your regular year-end audit of a publicly held client, you must estimate the probability of success of its proposed new product line. The client has experienced financial difficulty during the last few years and, in your judgment, a successful introduction of the new product line is
What is meant by self-regulation? How is self-regulation for the profession being affected in the post-Enron environment?
What are the differences between Canadian and U.S. accountability boards? Compare the differences in their monitoring reports. Which ones do you think are better?
What is the difference between auditing standards and auditing procedures?
By what standard would a judge determine the quality of due professional care? Explain.
Why does an auditor obtain an understanding of the internal control system?
Define audit evidence.
What are the nine important features of a standard unmodified audit report?
What four kinds of audit opinion statements are identified in this chapter? What is the message of each one?
What are the major differences between assurance standards and GAAS?
In the “Fore!” feature, identify the assertion, the three parties to the engagement, and the criteria being used. Is a high level of assurance being provided? Explain.
What is the meaning of quality control as it relates to a PA firm?

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Auditing An International Approach 6th edition Wally J. Smieliauskas, Kathryn Bewley - Solutions

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