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auditing
Auditing and Assurance Services Understanding the Integrated Audit 1st edition Karen L. Hooks - Solutions
What does “going concern” mean?
What impact does multiple geographical business locations have on the client acceptance decision?
Why is complexity of a potential client’s IT system important to the proposing auditor?
What is an 8K? Annual report? Management discussion and analysis?
Why does an incoming auditor communicate with the predecessor auditor? What information does the proposing or incoming (successor) auditor request?
What is a media or data search?
What are some reasons an audit firm might decide to refrain from proposing on an engagement?
What is an engagement letter, and what are its contents?
Identify the most important accounts, management assertions, and risks for each of the following industries:
Create a table, and for each industry discussed provide the following information:(a) List the primary business activity.(b) Identify the most significant risk about which the auditor is concerned.(c) What accounts and related management assertions are related to the risk?(d) What could happen to
As a result of the Sarbanes-Oxley Act of 2002, much greater emphasis has been placed on audit committees and their responsibilities than was in the past. Public companies are required to have an audit committee as a subset of its board of directors. Thus, the presence of audit committees has become
Why is fraud that is committed by management always considered material, even if the amount is not quantitatively material?
What is a top down approach to planning an audit? What are the steps? How does this approach link the financial statements to ultimate audit program steps? Why does AS 5 direct the auditor to use this approach in assessing materiality?
When a control is tested at an interim date the following are things the auditor considers in deciding how much audit evidence must be obtained about the control during the roll forward period. How would each one affect the evidence needed and why?a. The importance of the controlb. How much
Explain why controls have to be tested for the entire fiscal year if they are to be relied on in the financial statement audit. Why do they only have to be tested related to their effectiveness at the fiscal year end for an ICFR audit.
Samantha is a senior manager at a national CPA firm. She has recently taken over the planning responsibilities on her firm’s largest client, a mid-size publicly traded company with multiple subsidiaries around North America. The client chose her firm primarily due to its cost efficiencies
Stephanie is a senior auditor at Hart & Brand CPA firm. This is Hart & Brand’s first year on a new public client, Bellezza Casa. Bellezza Casa is a home and garden specialty retailer that consists of 120 retail locations nationwide and has no subsidiary businesses. This year, Bellezza
You are the senior on an audit team for a large public company. This is your second year on the engagement and you have established a good working relationship with some of the client’s staff. Your firm has only been the independent auditor of this company for four years, and the company has a
Philly Communications is the largest provider of telephone and cable service in Pennsylvania. During its yearend audit, the manager at Dell & Wayne, Philly's independent audit firm determined that the appropriate amount for materiality at the financial statement level to be used during planning
Fred is a partner at D&Y, an international professional services firm. Fred’s primary client, Green Investments, is a publicly traded holding company with subsidiaries around the world. Most of Green Investment’s subsidiaries are audited by D&Y’s worldwide affiliates. However, two of their
Assume the role of the audit manager on a publicly traded internet auction company. The company is known as an industry innovator and has recently implemented a new IT system. Upon a review of the company’s operations, you also discover that the client has a heavy reliance on complex IT controls
As a manager at RHC, LLP, part of Charlie’s tasks include drafting the audit plan for his audit clients, including determining the appropriate audit procedures to be performed over the course of the audit.Required:1. List the procedures Charlie can utilize to complete the audit in accordance with
Classify each of the following based on whether they can be performed at an interim date (assuming appropriate procedures are performed during the roll forward period) or whether they must be performed at or after the fiscal year end. Briefly justify your answer.
The following two paragraphs are used to present the auditor’s opinions of XYZ company:In our opinion, the financial statements referred to above present fairly, in all material aspects, the financial position of XYZ company as of October 31, 2009 and 2010, and the changes in net assets and its
The first standard of fieldwork of the generally accepted auditing standards states that audit work is to be adequately planned. Two tools that auditors use to document their planning activities include an audit planning memorandum and an audit plan or program.Required:a. Describe an audit planning
Refer to Auditing in Action on Roll Forward Procedures featuring Shadow Company. Assume that Shadow has a significant amount of cash held in an interest-bearing bank account, and that the auditors performed substantive procedures to determine the fairness of the recorded amount of interest revenue
Several specific audit procedures are listed below. For each item, identify the type of procedure listed and which of the assertions is being addressed by the procedure.(a) Examine a list of investment securities held by the client’s trustee. (b) For a sample of transactions posted to the
Several audit objectives are listed below. For each item, identify the related assertion and a specific audit procedure that can be applied to accomplish the objective.(a) Establish whether recorded amounts due from customers are valid.(b) Determine whether leases are properly recorded as capital
Auditors can use documentary evidence for vouching or tracing. Several audit objectives are listed below, each of which may apply inspection of documentary evidence to accomplish the objective. For each item, indicate whether the specific audit procedure that could be applied would involve (1)
What are some reasons why the original strategy and plan for an integrated audit may need to be modified?
What is involved in developing the audit strategy?
How are auditors able to begin planning an audit engagement for a first-year audit when they have not yet spent any significant time working on the client?
How is the audit plan affected if the entity has a parent or subsidiary, or other entities that are related parties?
How can planning for the audit be affected by the work of the client’s internal auditors? By whether the company outsources any of its processes?
Does the work performed in audit planning change in the subsequent years of auditing the same client?
What are some events that must be considered when planning the audit from a timing perspective?
How does the client’s industry, its basis of reporting, and regulatory reports required affect scoping the engagement?
What is important about analytical procedures and audit planning?
What user characteristics do the auditing standards assume users have when judging what is material to a company’s financial statements?
What are the risk assessment and planning steps that take the auditor from considering materiality at the financial statement level to designing the audit procedure to testing the operating effectiveness of an internal control?
What are the risk assessment and planning steps that take the auditor from considering materiality at the financial statement level to designing the substantive audit procedure intended to identify any material misstatements in the financial statements and disclosures?
What does it mean to use a benchmark to set financial statement materiality? What benchmarks are used? How might the benchmark differ based on the type of company being audited?
What is meant by the terms tolerable misstatement and tolerable rate of error? How do they relate to materiality?
Why is assessing the risk of fraud important for the planning stage? What do the audit standards require regarding fraud risk during planning?
What is the Fraud Triangle? What are its components? Why is it an effective way for the auditor to approach fraud?
What are client anti-fraud controls, and why are they important to the auditor?
What are examples of “recent significant developments?” Why and in what ways would they affect the audit strategy?
As the auditor’s association with a first-year audit client continues past the client acceptance process, what sources of information about the client become available to the auditor? What information may be received from these sources?
How is supervision defined in the auditing standards?
Why might specialists be needed on an audit engagement? What areas of knowledge and skills might be provided by specialists?
If an audit team needs an IT specialist to be involved in the audit, when might the IT specialist become involved? What tasks might the IT specialist perform at various stages of the audit?
The supervision and review needed might vary based on the characteristics of the auditing professional and the task to which he or she is assigned. Why? How does that relationship or trade-off work?
What are the reasons an auditor might plan to perform some procedures at an interim date and others during or after the client has closed its books after the fiscal year end?
What do the auditing standards mean when they refer to the nature, timing, and extent of audit tests? How does nature, timing, and extent relate to materiality, management’s assertions and controls?
How do the competence and objectivity of others affect the auditor’s use of their work?
What are indicators of the objectivity of others performing work that is used by the auditor?
What does the auditor consider in evaluating the work of others? What tests might the auditor perform?
What does the auditor have to do if others provide direct assistance on the audit?
Access and read AICPA AU 322, “The Auditor’s Consideration of the Internal Audit Function in an Audit of Financial Statements.” Do you believe that the auditor will be able to determine whether and how to utilize the work of the internal audit function in the financial statement audit as a
To which of the following accounts would the management assertion “valuation” be relevant, and why? For any accounts that it is not relevant, explain why.
For a company that sells retail goods to customers both online and in stores located in shopping malls with payment made via cash and bank credit cards, which of the following are important classes of transactions? Why? For those that are not, why not?
A company uses inventory tags that are electronically scanned into its accounting information system to track receipt, movement and removal of items of inventory from the manufacturing floor. Prior to producing quarterly and annual financial statements the company performs a physical count of
How does the commitment to competence of the COSO IC control environment relate to the quality control concept of assignment of staff to certain tasks on an audit engagement?
The chapter discusses “Circumstances that Demand Special Risk Assessment attention.” Pick 4 of the 8 shown in the exhibit. Explain how these situations might ultimately result in financial statement misstatements. Provide another example that explains the concept. Explain why. (I would delete
Compare and contrast the internal control provisions required under the Foreign Corrupt Practices Act (1977) and the Sarbanes Oxley Act (2002)
Explain the importance of a walkthrough, how one is performed, and list 5 relevant questions that the auditor might ask during a walkthrough. What types of responses to your questions might the auditor receive that would cause concern about the effectiveness of ICFR?
Stan is an auditor for Cartman & Kenny, CPA. He has recently been assigned to a new private client called Southpark Services, a provider of web management services. Cartman and Kenny have clients throughout the United States. The company manages their client’s website, keeping them up to
Natasha is a staff level auditor assigned to evaluate the ICFR for the XYZ corporation audit. Natasha follows her firm’s audit program to assess ICFR. Step 1.3 of the audit program says “the auditor should evaluate the overall attitude and awareness of an entity’s board of directors
You have been assigned to work on your firm’s largest client, DOMO Electronics, a publicly traded company with operations in North and South America, Europe, and Asia. In your process of evaluating ICFR, your audit program instructs you to evaluate DOMO Electronics’ Control Environment, a major
Suppose you are a new auditor with a small audit firm on the audit of Juan Stuart’s Daily News, a large private corporation with a significant minority stockholder that operates media outlets across the United States. The majority stockholder manages the day-to-day activities of the business.
Lois is evaluating the ICFR for Pawtucket Patriot Brewery. She is examining an activity that occurs periodically, specifically an inventory count. This is not an everyday operation of Pawtucket Patriot Brewery. But they don’t have a good IT system to track inventory and the only way the
Suppose you are auditor on the ICFR audit of Big Papi, Inc, a publicly traded company. Your senior has assigned you a significant list of steps to perform testing the operating effectiveness of ICFR. She tells you that before you can perform the list of audit procedures, you obtain an understanding
[Adapted from Wiley CPA Review] Dana, an auditor for the audit firm C&C, recently finished up testing controls relating to management’s assertion concerning the completeness of sales transactions. In her audit work papers, Dana included the following:“I inspected the entity’s reports of
Separate and assign the following activities to employee A, B and C to accomplish the best control. Explain why.a. Assemble supporting documents for cash disbursementsb. Maintain custody of the signature plates used for the computer processes when checks are producedc. Authorize the update of the
Joan Hacker, CPA, is the CFO of Smooth Ride, a publicly-held boat trailer manufacturer. At the close of the second quarter of 2009, Joan received the physical count of raw materials inventory amounting to $2,695,872. At the same time, Joan’s self-designed computer model for deriving a inventory
Greg Norman is the auditor in charge of the Rogers Pharmaceutical Company audit. In assessing the internal controls for the company, Greg finds that the company bills customers and receives payments at three offices in three separate states using three different and incompatible software systems
Simmons Optics Company is a medical device manufacturing company in Florida. As such, it has a number of new products at various stages of development, with many swings notable in its Research and Development budget aimed at taking advantage of tax credits. With the downswing in the economy and
You are engaged to audit the financial statements of Sebastian Construction Company. The company specializes in the construction of medical clinics. The percentage-of-completion method is used by Sebastian to account for all construction projects. As Sebastian completes a project, the building and
Milton Baxter is the in-charge auditor for Apex Company, a long-time client of the Baxter CPA Group. The company has expanded into a new industry by acquiring equipment that will be used to manufacture several types of products. The CEO has indicated that as one of the conditions for providing
Hammer Orthopedic Corporation periodically invests large sums in marketable equity securities. The investment policy is established by the investment committee of the board of directors and the treasurer is responsible for carrying out the directives of the investment committee. All securities are
What does the definition of ICFR imply as requirements for ICFR to enhance reliable financial reporting?
What is the COSO definition of internal control? How is it different from the definition of ICFR?
What are internal control benefits related to operations and management?
What effect does the auditor’s assessment of ICFR have on the financial statement audit?
What is “tone at the top”? “Corporate culture”?
What aspects of management’s philosophy and operating style may affect ICFR and financial reporting?
How are risks from external and internal factors different? Give examples.
What is involved in risk assessment and risk management?
What are control activities for information processing, and what purpose do they serve? How do general and application IT controls differ?
What is segregation of duties? How is it useful? How can it be rendered ineffective?
Why can accomplishing good segregation of duties be difficult in some IT environments?
What does AU 319 indicate as a necessary condition for communication? In what way is the COSO expectation broader?
How do managers monitor ICFR? How do those outside the business contribute to monitoring ICFR?
What is the FCPA? What instigated its passage? What did it do?
What management responsibility is established by Section 302 of SOX?
What management responsibility is established by Section 404 of SOX? How is the independent auditor involved?
Why does the ICFR audit address the financial statement assertions?
What do the following assertions mean?
What are inquiry, inspection, observation, reperformance, and tracing?
What questions might be relevant for the auditor to ask company employees during a walkthrough?
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