Auditing and Assurance Services An Applied Approach 1st edition Iris Stuart - Solutions

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What are the important ICFR for taxes?
What substantive audit procedures apply to taxes?
How does the auditor investigate disclosures for debt, pension and postretirement benefits, and taxes?
Which equity transactions tend to be more complicated? Less complicated?
What stock-related activities do many public companies outsource and to whom?
What aspects of merger and acquisition transactions involving stock are highly complicated? How are merger and acquisition transactions audited?
Why is auditing retained earnings a relatively simple audit procedure?
Why does the auditor need to identify and understand related party transactions?
What standards define related parties, and what is the definition?
What steps does the auditor conduct to identify related parties?
What steps does the auditor conduct to identify material related party transactions?
Once material related party transactions have been identified, what steps does the auditor perform on those transactions? What is the purpose of performing those steps?
What is the auditor ultimately trying to determine regarding material related party transactions and the financial statements?
Minutes after your college graduation, your family is gathered around discussing your achievements and future plans. Your uncle asks what exactly you plan to do with your degree in accounting. While there are many career opportunities, you explain, you are going to become a CPA and gain experience
Gene is a new staff-level auditor on the audit of CalPower, a publicly traded energy and utility company. On his first day, his senior informs him that the engagement team is scheduled to have lunch with the internal auditor to discuss ways to improve this year’s audit. While Gene has heard a lot
a. During the meeting with Cal Power’s internal audit group, Gene learns that the internal audit group’s focus has shifted significantly from operational audits to Sarbanes-Oxley Section 302 and 404 compliance. Section 302 deals with management’s responsibility over financial reports, and
During her studies at Florida Keys University, a public university that is part of Florida’s state university system, Amanda took a work-study position in the university’s financial reporting and accounting department. She figured it would be a great opportunity to gain some experience because
Annie’s audit firm has recently won the bidding for the audit of Big Spending, an organization supported by public funds provided from the federal government. Annie has never been involved in an audit of a government organization and is unfamiliar with the standards governing an audit of a
Your firm has recently been engaged as the auditor for Samwiches, a publicly traded restaurant holding company with yearly revenues of $15 billion. You are assigned to the quarterly review engagement in the first quarter after your firm picks up the client. Planning is being conducted for the
After completing your quarterly review of Samwiches (Problem 16-26), you are assigned to perform a SSARS review of the annual financial statements of Soops & Sal-lids—a nonpublic company. How will your review of Soops & Sal-lids (nonpublic) annual financial statements differ from your quarterly
Compare and contrast the differences between the following services that an auditor may provide—audit, attest, review, and compilation. Comment on the scope, work performed, level of assurance provided, extent of work performed, and underlying information used when forming the auditor’s opinion.
By now, you should be thoroughly familiar with the roles, responsibilities, duties, and so on, of an external auditor. Compare and contrast the work of an external auditor to that of an internal auditor. Similarly, compare and contrast the work of an external auditor to that of a forensic
Some universities now offer degrees in forensic accounting. Based on what you read about the activities of a forensic accountant, what are your thoughts about someone starting out fresh with an accounting degree going directly into forensic accounting?Is entering forensic accounting first a good
The firm of Kay and Cee, CPAs, was engaged to perform a compilation of TCV Corporation, a private company, for the year ended 2010. The owner of TCV Corporation signed the engagement letter provided by Kay and Cee and then provided all the underlying data needed for the financial statements. Kay
Yacht Crew Training, Inc. is a privately owned corporation that has been in business for 15 years. The company specializes in training individuals who work on private yachts. Its promotion materials state that in 2009 the company trained 600 deckhands and 900 stewards and that the two mock-up yacht
Brad Jolie is a CPA who has worked for a very large public accounting firm for 12 years. He is being considered for the partnership but will likely have to move to another city if he is elected and accepts the position. He really does not want to move so he started looking around to see what job
Place letters of an accountant’s career position in front of each description of services that fit. You may use any number of letters on each line and use the letters as many times as they fit.(a) An accountant working for a public accounting firm performing audits and quarterly reviews of public
Match the accountants with the services provided1. Attest 2. Financial statement review 3. Financial statement compilation 4. Agreed-upon procedures 5. Comfort letters for underwriters6. Special projects for those in governancea. Independent auditorsb. Forensic accountantsc. Auditors
Kate and Sawyer, CPAs, have been hired by Kate’s mother in relation to the financial statements of her company, a local diner that she owns 100%. Although she is 35 and can support herself, Kate still lives in her mother’s home.(a) Fill out the chart below. List the engagements Kate and Sawyer,
You have been engaged by Markus Industries to examine its projected financial statements for 2011.Required:For each of the following, state the evidence sources and procedures you would use to evaluate the reasonableness of the assumption.(a) The Molding Division’s sales forecast assumes that
Magnolia Snook and Associates, CPAs, has been engaged by the Dobson Fabrication Company to apply agreed upon procedures to forecast assumptions with respect to a new labor contract for 2011. The current labor contract at Dobson will expire on August 31, 2011, and the new contract is expected to
Upton Industries, a public company, prepared a comprehensive interim financial report covering the first two quarters of their fiscal year 2011, which ends December 31. Upton management engaged Jamison, CPAs, to perform a review, and the following review report was published with the interim
Hobson Brothers, Inc., engaged Young, Simpson, and Norris, CPAs, to compile their financial statements from books and records maintained by Jim Hobson, one of the principals in the business. The Hobson’s own and operate three air-conditioning businesses in Kansas City. Although the business is
Smothers & Nelson, CPAs, have previously been engaged by Garrison Corporation to perform compilations and tax returns. Henry Garrison, the company’s president, indicated to the accountants that he needed “something more” than they previously provided. Mr. Garrison told Jose Vegas, the
You are performing a review for a company with a plant that uses many different types of metals, including steel, aluminum, and copper. As part of your inquiry, you ask about the inventory and control of scrap. The plant manager says: “We don’t inventory scrap, but I know where it is. We
Go to the AICPA Web site and find AU 801, titled Compliance Auditing Considerations in Audits of Governmental Entities and Recipients of Governmental Financial Assistance. Read AU 801. Based on the information provided in Chapter 16 on GAS, how does AU 801 seem to coordinate with and overlap the
If information in a registration statement is not true, professionals associated with the public offering may be sued by those who suffer a loss. However, they may offer as a defense that they did not know that the information was untrue and they had reasonable grounds for their belief.Go to the
Go to the AICPA Web site and find AU 622 describing the withdrawal of the auditing standard on “Agreed Upon Procedures.” Why do you think “Agreed Upon Procedures” was originally included as an audit standard when those activities did not culminate in an audit opinion or audit report? Why
In what way does a forensic accountant approach an engagement differently from an auditor?
Based on the IIA definition, what are the components of internal auditing?
How do management and internal audit activities differ in evaluating and assessing ICFR to comply with Sections 302 and 404 of SOX?
What is the difference between financial statement and compliance audit work? Why do government units and other entities need compliance audits?
What is the benefit of the Single Audit Act?
What is the primary purpose of the Government Accountability Office (GAO)? What activities does it carry out to accomplish its purpose?
What are the different levels of financial statement assurance provided by audits, reviews, and compilations?
What is required of an accountant to perform a compilation? Do any procedures have to be conducted to verify the accuracy or integrity of information received from the entity and used as the basis for the financial statements?
What are the characteristics of suitable criteria? Why are they needed for an attest engagement to be possible? What are the objective criteria for financial statements?
Under what circumstances do attest reports have limited distribution?
Explain the role of the auditor in the corporate governance process. Is this role more important or less important today than twenty years ago?
What is involved in the auditing process?
How does the principal–agent relationship apply to the audit process?
Describe the three standard-setting organizations involved in writing auditing standards and the roles of each in establishing guidelines for auditors.
What is evidence? How does the auditor use it in the audit process?
How does the auditor gather evidence using substantive testing? Describe three types of substantive tests.
Describe management’s assertions regarding the financial statements.
What are the various regulatory bodies that regulate the accounting profession?Describe the functions of each.
How would you describe the auditing profession to a friend? Describe at least one element of the profession that is appealing to you. Describe another element that is less appealing, and explain why.
Describe management’s incentive to misstate financial statements. What challenge do auditors face as they review such misstatements?
What are classes of transactions? What other terms might be used to describe them? How does the auditor use the concept of transaction classes in the audit process?
What are tests of account balances? How are they used in the audit process?
Explain how the audit report is used to describe the responsibilities of the auditor and management, the work done by the auditor during the audit, and the conclusions reached by the auditor regarding the financial statements being audited.
After it was convicted of a felony in connection with the failed Enron audit, Arthur Andersen went out of business in August 2002 because it could no longer file audit opinions with the SEC. In 2005, the conviction was overturned due to procedural errors in the instructions the judge gave to the
What is the purpose of an audit?
Describe the phases in the audit process including the steps in each phase.
What is the purpose of the engagement letter? How does it benefit both the auditor and the client’s management?
Describe the quality control measures the audit firm uses to ensure that the audit process corresponds to professional standards.
How does the auditor gain an understanding of the audit client and its environment?
What is the risk of material misstatement in the financial statements? How should the auditor respond to this risk?
How do audit strategy and audit plan differ? How are both related to the assessed risk of material misstatement?
1. During the initial planning phase of an audit, a CPA most likely woulda. Identify specific internal control activities that are likely to prevent fraud.b. Evaluate the reasonableness of the clientâ€™s accounting estimates.c. Discuss the timing of the audit procedures with the
You are in charge of planning the audit for BCS, Inc., and will use the audit risk model to plan the internal control testing and the substantive testing for the client.a. If inherent risk is assessed at 0.5 for the purchase cycle and internal control risk is assessed at 0.3, what is detection
Describe how materiality is used in (1) planning and performing the audit and (2) evaluating evidence gathered during the audit process.a. Provide an example describing how materiality might be used in planning and performing the audit.b. Provide an example describing how materiality might be used
Calculating materiality. Dell Computers reported total revenue of $49,205,000,000 and total assets of $23,215,000,000 in 2005.a. Calculate materiality for the company using the worksheet in this chapter.b. How will the auditor use this materiality level in planning the audit?c. Describe how the
Using the audit process to plan and perform the audit. You are in charge of planning the audit for a large bookstore selling CDs, DVDs, and books. Follow the steps discussed in the chapter. Assume that you have agreed to perform the audit and an engagement letter has been signed. The client has a
Identifying significant accounts and calculating materiality. Anaheim Enter-prises, which operates in California, sells patio furniture imported from China; the merchandise is marketable twelve months of the year in California. Shipments from China come by sea and take two months to arrive unless a
The Securities and Exchange Commission sued KPMG, LLP, and four KPMG partners in 2004 in connection with the Xerox Corporation audits from 1997–2000. According to the SEC, KPMG allowed Xerox to manipulate its earnings by mak-ing “top-side” adjustments to its financial statements at year-end
Parmalat, one of Italy’s largest companies, is best known for its shelf stable milk products. The company filed for bankruptcy protection in December 2003 after a ten-year fraud that removed at least $17.4 billion from the company. The fraud was referred to as a Ponzi scheme in which company
BJ Services, a U.S. company, sells products and services to petroleum companies worldwide. BJ Services, S.A., a wholly owned subsidiary of BJ that operates in Argentina, made illegal payments of $72,000 in 2001 to Argentine customs officials so they would allow the company to import equipment. If
The auditing standards require the auditor to determine materiality. How does the auditor do this?
What is audit risk? Explain how the auditor reduces it to an “acceptably low level.”
Describe the five components of an internal control system. As an auditor, how will you document the five parts of the internal control system?
Explain how the auditor tests internal controls in a financial statement audit.
The auditing standards require the auditor to gather “sufficient appropriate evidence.” What does this mean?
When does the auditor perform control tests to test his or her assessment of control risk? Is it assessed for the audit as a whole or for each business process?
Why would an auditor gather evidence using a combination of internal control testing and substantive testing?
Describe compensating controls, and provide one example.
Describe five procedures a company might use as internal control procedures.
What are dual-purpose tests? How does the auditor use them?
What information does the evidence the auditor gathers using internal control tests provide? What information does the evidence the auditor gathers using substantive testing provide? Which type of evidence is better?
How does the auditor communicate internal control deficiencies to management and the audit committee in a financial statement audit?
What is an integrated audit? Which companies use it?
What is the COSO internal control framework? How is it used?
What is reasonable assurance? Is it good?
What are internal control deficiencies in design and in operation?
Describe management’s report on internal controls over financial reporting. Where is it reported and how often?
What does it mean for an audit client if the auditor discloses a material weakness in internal controls over financial reporting?
What are significant accounts and disclosures? How do management and the auditor identify them?
Describe a walk-through. How does the auditor use this auditing technique?
Explain how the auditor tests internal controls over financial reporting.
Can the auditor use the work of others in the internal control testing process? If so, explain the process.

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