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auditing
Auditing and Assurance Services Understanding the Integrated Audit 1st edition Karen L. Hooks - Solutions
R&R is a public corporation that, as of December 31, 2009, is subject to a year-end integrated audit by its independent auditing firm, Young & Young. An excerpt of Young & Young’s audit opinion states:In our opinion, the consolidated financial statements present fairly, in all
Your professor has asked you to complete a research paper concerning the link between the auditing profession and financial reporting standard setters and regulators.Required:For each independent situation, determine which regulating or standard-setting body you should research:a. The entity that
Auditors cannot change the financial statements. Explain the influence the auditor has on management’s decisions regarding financial statement presentation. Also, explain your perception of the possible tension created by any power struggle inherent in the management-auditor relationship. How do
How do the capital markets and economy benefit as a result of all public-traded companies having an independent audit?
Shareholders, management, and the Board of Directors/audit committee all benefit from an audit but are said to have different perspectives. If each group were solely responsible for the decision, would these three categories of constituents prefer to have the same set of economic events reported
Michael is a new employee in the financial reporting department of Goldberg Corporation, a mid-size publicly held corporation with annual revenues of $75 million. As Goldberg Corporation prepared for its annual audit, his manager came to him to complain about the auditors. Their audit fees were so
Javier is an experienced, second year staff at a mid-sized CPA firm who has only worked on audits of large, privately held companies. His firm recently won a proposal for the year-end audit of a small, publicly traded company. Javier’s evaluations have indicated that he is a hard worker and
Jessica is the lead hospitality industry audit partner at a prestigious international accounting firm. Jessica recently won an engagement of a large, publicly traded hotel chain. In planning the upcoming year’s audit, she schedules one manager, three seniors, and six staff members, all of whom
Over the course of Young & Young’s audit of SQL Group, a publicly traded company, Young & Young concluded that SQL’s financial statements presented fairly according to U.S. GAAP, but its internal controls over financial reporting were not effective as of the audit date. Management’s
Jason is a senior accounting major at State University who is entering his last semester. He needs one more accounting class to fulfill his requirements and notices an opening in the undergraduate auditing class. As Jason’s father is the chairman of the board for a publicly traded company in the
AH Family is a large privately owned and operated corporation in its 40th year of operation. When Patricia, the founder’s daughter, recently became AH Family’s CEO, she formulated an aggressive multinational expansion plan that will add locations in Europe and Asia. To accomplish this goal,
Meagan is a graduate student in the accounting program at your school. While she has excelled in her auditing classes, managerial and cost accounting, and AIS classes, she has not performed as well in her required financial accounting classes but has still maintained a high overall GPA. Meagan
Barton and Sons, Inc. is a small, privately-held corporation that operates two retail stores in western Kentucky. Jorge Barton and his two sons own all of the company’s stock and manage the store operations. The family takes pride in the corporation’s success in terms of growing sales and lack
You are a newly-hired associate auditor for Praxo & Hanks, CPAs, a professional services firm that provides financial audits, integrated audits, and tax work for a variety of private and public company clients in the mid-Atlantic region of the United States. Your first week with the firm was
Go to the PCAOB Web site (www.pcaobus.org). Find Auditing Standard No. 5, “An Audit of Internal Control over Financial Reporting that is Integrated with an Audit of Financial Statements.” Go to Appendix B and read paragraphs B1–B9. Summarize the content of these paragraphs about integrating a
Go to the PCAOB Web site (www.pcaobus.org). Explain the PCAOB mission and its Rule making process
On the AICPA Web site (www.aicpa.org), find “Students and CPA Candidates.”What is included under “The CPA Exam”?
What is an audit? A financial statement audit? An audit of internal control over financial reporting (ICFR)? An integrated audit?
What are assertions? For purposes of an audit, who makes assertions?
How are auditing and accounting different? Why do you have to be a good accountant to be a good auditor?
What is audit evidence?
What is the COSO Internal Control Framework (COSO IC Framework), and why is it important?
How does an audit benefit the capital markets? How does it benefit the company being audited?
What is the difference between a financial statement error and financial statement fraud?
How might audits prevent as well as detect misstated financial statements? Why is this of value to the capital markets?
Why do shareholders value audited financial statements?
Why do the Board of Directors and audit committee value an integrated audit?
What benefits can management derive from a company having an integrated audit?
What is a shareholder usually a remote owner? Why does the fact that shareholders are remote owners cause them to benefit from an audit?
How can a company benefit from an audit in terms of its operations and performance?
Why is knowledge of auditing valuable to an accountant who is not working as an auditor?
In terms of their impact on auditing standards and audits, what is the relationship of the SEC and the PCAOB? The SEC and the AICPA? The SEC and FASB? Congress and the SEC? State governments and the AICPA?
What are Auditing Standards (AS)? Statements on Auditing Standards (SAS)? Which entity issues each? How are they related? To what kinds of audits does each apply?
What types of activities are performed by an internal auditor? An operational auditor? A forensic auditor?
What standards does the AICPA produce in addition to auditing standards?
What is the difference between an audit, a review, and other types of attest engagements?
What different organizational structures can be used by CPA firms, and how are they different?
What are the different tiers or categories of firm sizes into which CPA firms are grouped, and what are the characteristics of each tier?
What are the different ranks of individual professionals within a CPA firm, and what responsibilities are assigned to each rank?
Why are CPA firms not structured as typical corporations?
Explain why auditors need to consider both existence and occurrence, and completeness when auditing an account balance? In terms of the transactions posted, how much “audit comfort” does investigating these two assertions provide?
What is the value of auditors going through a formal process of linking management assertions to audit procedures to collect evidence? How does this process improve the audit?
Why does the auditor begin planning the financial statement audit phase before completing the tests of operating effectiveness of ICFR? Why not after the internal control audit is completed?
Is it possible that an auditor can make a professional judgment error and still be behaving with due professional care? Explain.
Statistics indicates concern for both alpha and beta errors. In audit terms this might be described as being concerned about the risk of concluding that the financial statements are misrepresented when they are actually fair, AND the risk of saying that the financial statements are fair when they
Why would the auditor want to inform management of problems with internal control as early as possible, so that remediation can be performed as early as possible?
Why are analytical procedures a required step in audit planning?
The following terms are important in an integrated audit. Explain what they mean in the context of an audit and how/why they are related.
List the 10 GAAS from the PCAOB standards and the 10 AICPA standards in 2 columns. a. Identify differences in each of the standards.b. Highlight any differences that you think indicates a difference in meaning.c. Add a 3rd column and list the field work and reporting concepts from AS 5 that are
You are the auditor for a non-public company, “A Golden Rule Carpentry”. The company has a 12/31 fiscal year end. During your audit, you did not identify any material misstatements in the financial statements. Required:(a) Draft the appropriate audit report for the financial statement audit
For each of the following accounts, list the 5 management assertions from most to least important for that account. State the reason justifying your order. Cash is completed as an example.
Identify each of the following items as being associated with (a) An AICPA financial statement audit (b) A PCAOB integrated audit(c) Both sets of audit standards_____ AS 5_____ “Must” means a mandatory responsibility_____ Operating effectiveness of ICFR must be tested_____ Significant risks
Match the following terms and descriptions. (1) _____ management assertion(2) _____appropriate(3) _____design and operating(4) _____negligence(5) _____material(6) _____entity level(7) _____professional skepticismA. Making a judgment error does not necessarily indicate this as long as the auditor
Order the following pieces of evidence based on their reliability from most to least reliable: (a) A memo prepared internally and sent from the audit client CFO to the audit client CEO.(b) An oral communication with the same information as in (a) spoken to the auditor by the accounts receivable
Given the following stages of an audit, identify in which stage the following audit activities occur. Audit Stages(1) Preliminary engagement activities (2) Planning and risk assessment(3) ICFR controls testing(4) Substantive procedures(5) Completion, wrap up and reportingAudit Activities(a)
Traber Electronics is a small privately owned retailer of electronic equipment and household appliances. Traber Electronics is required to provide audited financial statements as part of a due diligence investigation in consideration of a potential acquisition of Traber by a public company. In the
Arin Pate, CPA, is scheduled to work on the integrated audits of two client companies in the coming month: Jacoh Industries and Morton Baxx, Ltd. Arin was assigned to both of these audit engagements in the prior year. As she works on the preliminary audit planning phase, Arin notes the following
The beginning of an auditing class is often frustrating for students because they feel there are so many things that they do not thoroughly understand. One of the challenges is that so many parts of an audit are either concurrent or iterative. Required: Reference the overview diagram of an
Go to the PCAOB Web site (www.pcaobus.org). What do the Auditing Standards issued by the PCAOB as of the current date cover? Are there any standards that are currently proposed but not yet final?
Find the most current 10K (SEC annual report) and 10Q (SEC quarterly report) for Starbucks, either through the company’s Web site or the SEC Web site. Find the auditor’s report for the annual financial statements and the auditor’s review report for the quarterly financial statements (if
Go to the Web site for international auditing standards: www.ifac.org/iasb/. Look for any standards and rules on that Web site that parallel those of the AICPA and PCAOB. Describe what you see as similarities and differences.
What is the difference between audits performed under PCAOB and AICPA standards?
What are preliminary engagement procedures?
What is ICFR?
In general, how does the auditor obtain information about the client company for planning and risk assessment?
What are audit planning and risk assessment considered together, early in the audit?
What does it mean when we say that an auditor assesses the design effectiveness of the system?
Why does audit planning continue throughout the audit? Give an example of why the auditor might revise planning after testing the operating effectiveness of a company’s controls?
What is the relationship between management’s financial statement assertions and audit evidence?
What is sufficient competent (appropriate) evidence? What is the trade-off between sufficient and appropriate?
What is the difference between convincing and persuasive evidence?
How does the source of evidence affect its reliability? Discuss.
What might influence an audit firm’s decision about whether it wants a company as a client?
What considerations help the audit firm decide whether it can effectively perform an audit?
What is engagement risk? How does the auditor reduce this risk during the client acceptance process?
What are other preliminary engagement procedures beyond client acceptance and continuance?
Why do underwriters require comfort letters?
What procedures are performed in a review of interim financial information of a public company?
In what circumstances does the auditor performing a review of a public company’s interim financial information have to issue a review report?
What is required of the auditor when a company offers securities for sale in a public market?
What are entity-level controls? Why are they important?
What is included in audit documentation? What is an audit plan document?
How does an auditor perform an analytical procedure? What might be an example?
How are tests of details of balances different from tests of controls and dual purpose tests? How are tests of details of balances related to evidence?
What is the fundamental difference in the audit purpose and reports for a public and nonpublic company?
Why might the auditor of a nonpublic company choose to omit testing of internal controls?
Do you think it is necessary to prohibit all of the services on the “prohibited services” list in order to protect the public interest? Are there any on the list that you would permit, and why?
Can you choose the philosophical position discussed in this chapter with which your views are closest? Which one is furthest from your views?
Should tax services be a “prohibited service” for a firm that is conducting an audit? Consider whether performing more services for a client may increase the audit firm’s knowledge of the client. Also consider whether additional services may make the audit firm more economically dependent on
Some people have said that auditing is no longer self-regulated because of the Sarbanes Oxley mandated registration and inspection process of the PCAOB, and because the PCAOB now sets auditing standards. Does this loss of some of its self regulation diminish the profession, or does it just increase
Explain the theory of moral development, including the 3 levels identified by the theory. When auditors are performing their jobs, which level applies to their behavior? Why would it be a problem if this were not the case?
Explain the difference in the compensation contracts of doctors and their patients and auditors and their clients, and the significance this difference has for auditor independence.
Assume the auditor has a contract with society. What are the components of that contract? In other words, what does the auditor commit to give and what does the auditor receive?
What do we mean when we use the phrases “independence in fact” and “independence in appearance”? Why does the auditing profession use both phrases? How do both relate to ideal behavior and the rules that govern auditors?
For the follow situations indicate whether a rule of the AICPA Code of Conduct applies, if yes, which rule, whether the rule has been violated, and why or why not. a. Walker, CPA, is purchasing a home and has received a large mortgage, under normal lending procedures, with a bank that is an audit
For the following topics list arguments both in support of and against the topic, basing your arguments on any of the philosophical positions provided in the text. You may use the same or different underpinning philosophies for the different positions. a. Restrictions prohibiting an auditor from
Respond to the following: a. Chris Armas, CPA, is a partner responsible for the audit engagement of Mario Manufacturing. Chris has a dependent daughter who is employed by Mario Manufacturing as a machine operator – a non-financial and non-audit-sensitive position. Is this a violation of the AICPA
The following are paired lists of terms that have specific meaning within the AICPA Code of Conduct. For each, explain how the pair of terms interacts or contrast regarding their impact on auditor independence: a. Direct financial interest: Immediate familyb. Material: Indirect financial interestc.
Jacoby & Ricks, CPAs is responding to a request for proposal from Z-Berr Industries, a privately-held company located near Milwaukee. Z-Berr is a rapidly-growing company engaged in the manufacture and distribution of bicycle wheels and tires. The company recently expanded its product offerings
Perrie Brenigen, CPA, is an in-charge accountant for the firm of Duben & Associates. During her four years with Duben & Associates, Brenigen has served on the audit teams for several health care clients. Brenigen recently received an employment offer from one of her audit clients, Health
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