Auditing The Art and Science of Assurance Engagements 12th Canadian edition Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Ingrid B. Splettstoesser - Solutions

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Consult Paragraphs 6–7 of PCAOB Auditing Standard No. 13. If you were auditing WorldCom, what type of documentary evidence would you require to evaluate the validity and propriety of a top-side journal entry made to the revenue account?
Consider the principles, assumptions and constraints of Generally Accepted Accounting Principles (GAAP). Define the revenue recognition principle and explain why it is important to users of financial statements. Briefly.
Consult Paragraphs 29 and 32 of PCAOB Auditing Standard No. 5. Briefly identify the types of revenue earned by Sunbeam. Do you believe that any of the different types of revenue earned by Sunbeam might be subject to significantly differing levels of inherent risk? Why or why not?
Consult Paragraphs 52-53 of PCOAB Auditing Standard No. 12. For one of Sunbeam’s revenue types (please choose one), brainstorm about how a fraud might occur. Next identify an internal control procedure that would prevent, detect, or deter such a fraudulent scheme. Discuss.
Consult Paragraphs 13-21 of PCAOB Auditing Standard No. 15. What is meant by a restructuring reserve? As an auditor, what type of evidence would you want to examine to determine whether a company was inappropriately accounting for its restructuring reserve?
Consult Paragraphs 29 and 32 of PCAOB Auditing Standard No. 5. As an auditor, do you believe that the different components of the restructuring reserve might be subject to significantly differing levels of inherent risk? Why or why not? Discuss.
Consult Paragraphs 28-30 of PCAOB Auditing Standard No. 5. Identify at least one relevant financial statement assertion related to the restructuring reserve account. Why is it relevant? Discuss.
This case describes a situation in which a company overstated its recorded expenses in 1996 (as compared to understating recorded expenses). Why would a company choose to overstate its expenses and understate its net income?
Consider a customer who receives extraordinary discounts and terms to purchase merchandise at the end of the year (e.g., the wholesaler that purchased grills from Sunbeam). Do you believe that the customer has a moral obligation to report these actions to a company’s audit committee? Why or why
Provide one specific example of how Sunbeam violated the revenue recognition principle in this situation? In your description, please identify a journal entry that may have been used by Sunbeam to commit the fraudulent act. Discuss.
Consult Paragraph 2 of PCAOB Auditing Standard No. 5. Do you believe that Sunbeam had established an effective system of internal control over financial reporting related to revenue recorded in its financial statements? Why or why not? Consult Paragraphs 7–9 of PCAOB Auditing Standard No. 15. As
Consult Paragraphs 4-8 of PCAOB Auditing Standard No. 15. Next, consider the alleged accounting improprieties related to increased expenses from the 1996 audit. If you were auditing Sunbeam, what type of evidence would you like to review to determine whether Sunbeam had recorded the litigation
For the excessive litigation reserves and excessive cooperative advertising amount, identify the journal entry that is likely to have been proposed by Andersen to correct each of these accounting improprieties. Why would Sunbeam be interested in recording journal entries that essentially reduced
Consult Paragraphs 17-23 of PCAOB Auditing Standard No. 14. As discussed in the case, during both the 1996 and 1997 audit, Phillip Harlow allegedly discovered a number of different accounting entries made by Sunbeam that were not compliant with Generally Accepted Accounting Principles (GAAP).
Consult Sections 204 and 301 of SARBOX. In the post-Sarbanes audit environment, which of the issues that arose in 1996 and 1997 would have to be reported to the audit committee at Sunbeam? Do you believe that communication to the audit committee would have made a difference in Harlow’s decision
Consult Paragraphs 5-8 of PCAOB Auditing Standard No. 8 and Paragraphs 7-10 of PCAOB Auditing Standard No. 12. Based on your understanding of inherent risk assessment and the case information, identify three specific factors about Sunbeam that might cause you to elevate inherent risk.
Consult Paragraphs 8-10 of PCAOB Auditing Standard No. 13. Comment about how your understanding of the inherent risks identified at Sunbeam (in Question 8) would influence the nature, timing, and extent of your audit work at Sunbeam.
Consider the principles, assumptions, and constraints of Generally Accepted Accounting Principles (GAAP). Define the full disclosure principle and explain why it is important to users of financial statements.
Consult Paragraphs 5-8 of PCAOB Auditing Standard No. 8 and Paragraphs 7-10 of PCAOB Auditing Standard No. 12. Based on your understanding of inherent risk assessment and the case information, identify three specific factors about Qwest’s business model that might cause you to elevate inherent
Consult Paragraphs 8-10 of PCAOB Auditing Standard No. 13. Comment on how your understanding of the inherent risks identified at Qwest (in Question 10) would influence the nature, timing, and extent of your audit work at Qwest.
Consult Paragraphs 29 and 32 of PCAOB auditing standard No. 5. Next consider revenue earned in the construction services and the communication services businesses. Do you believe that any of the different types of revenue earned by Qwest might be subject to significantly differing levels of
Describe specifically why the up-front revenue recognition practice for sales of IRUs by Qwest was not appropriate under Generally Accepted Accounting Principles (GAAP).
Consult Paragraphs 4-6 of PCAOB Auditing Standard No. 15. Based on your understanding of audit evidence, did Arthur Andersen rely on sufficient appropriate audit evidence in its audit of Qwest’s up-front revenue recognition processes? Why or why not?
Consult Paragraphs 28-30 of PCAOB Auditing Standard No. 5. Identify one relevant financial statement assertion related to revenue recognized for IRU sales by Qwest. Why is it relevant?
Consult Paragraphs 39-41 and Paragraph A5 (in Appendix A) of PCAOB Auditing Standard No. 5. For the assertion identified in Question 15, identify a specific internal control activity that would help prevent or detect a misstatement related to the practice of up-front revenue recognition of IRUs by
Describe why the recognition of revenue for IRU swaps for fiber-optic assets that were not actually needed by Qwest is inappropriate under GAAP. Next, consult Paragraphs 7-8 of PCAOB Auditing Standard No. 15. As an auditor, what type of evidence would allow you to determine whether the recognition
Consult Paragraphs 11-12 of PCAOB Auditing Standard No. 15. Identify one relevant financial statement assertion related to the revenue account that is impacted by an IRU swap. Why is it relevant?
Consult Paragraphs 39-41 and Paragraph A5 (in Appendix A) of PCAOB Auditing Standard No. 5. For the assertion identified in Question 18, identify a specific internal control activity that would help prevent a misstatement related to the recognition of revenue for IRU swaps.
Explain specifically why Qwest’s failure to disclose the extent of nonrecurring revenue violated the full disclosure principle.
Next, for the assertion identified in Question 18, identify a specific internal control activity that would help detect a misstatement related to the recognition of revenue for IRU swaps.
Do you believe it is ethical for a CEO to establish a company’s earnings expectation at an unreasonably high number and then require the company’s employees to meet or exceed that expectation to keep their jobs? Why or why not? Discuss.
Consider the role of an upper manager at Dex. Do you believe that a “point of publication” method of accounting is allowable under Generally Accepted Accounting Principles? Whether you do or not, please make an argument that supports the recognition of revenue related to the Colorado Springs
Consult Paragraph 67 of PCAOB Auditing Standard No. 12. Do you believe that Qwest had established an effective system of internal control over financial reporting related to the presentation and disclosure of its nonrecurring revenue? Why or why not? Discuss.
Consult Paragraph 25 of PCAOB Auditing Standard No. 5. Define what is meant by control environment. Why does the “tone at the top” have such an important effect on internal control over financial reporting? Based on the case information, do you believe that the proper “tone at the top” was
Consult Paragraph A4 (in Appendix A) of PCAOB Auditing Standard No. 5. What is the auditor’s responsibility related to information disclosed by management at the time of an earnings release, if any? What is the auditor’s responsibility related to the information disclosed by management in the
Consider the principles, assumptions, and constraints of Generally Accepted Accounting Principles (GAAP). Define the revenue recognition principle and explain why it is important to users of financial statements. Discuss.
Describe specifically why the revenue recognition practices of Dex were not appropriate under GAAP. Discuss.
Consult Paragraph A5 (in Appendix A) of PCAOB Auditing Standard No. 5 and Paragraph 68 of PCAOB Auditing Standard No. 12. Do you believe that Qwest had established an effective system of internal control over financial reporting related to the revenue recorded by Dex in its financial statements?
Consult Paragraphs 65-66 of PCOAB Auditing Standard No. 12. Based on your understanding of fraud risk assessment, what three conditions are likely to be present when a fraud occurs (that is, the fraud triangle)? Based on the information provided in the case, which of these three conditions appears
Consider the principles, assumptions, and constraints of Generally Accepted Accounting Principles (GAAP). Define the conservatism constraint and explain why it is important to users of financial statements.
Consult Sections 204 and 301 of SARBOX. What is the role of the audit committee in the financial reporting process? Can you provide an example of how the audit committee might have been helpful in the BFA situation? Discuss.
Consult Paragraph 56 of PCAOB Auditing Standard No. 12. What is meant by the term whistleblower within the context of the financial reporting process? Do you think that all whistleblower complaints should go directly to the audit committee? Why or why not? Do you think that a whistleblower program
Consult Paragraph 5 of PCAOB Auditing Standard No. 10. Do you believe the Arthur Andersen auditors responded appropriately to the information received from BFA’s former accountant, Karen Paetz? Why or why not?
Consult Section 401 of SARBOX. How would Section 401 apply to the BFA audit? Do you believe that Section 401 would have improved the presentation of BFA’s financial statements?
Define what is meant by a transaction being executed on an arm’- length basis. Next, consult Paragraphs 52-53 of PCAOB Standard No. 12. Explain why gains recorded on transactions with related parties would have greater inherent risk of being overstated. An arm’s length transaction is one that
Consult Paragraphs28-30 of PCAOB Auditing Standard No. 5. What is the most relevant financial statement assertion about the related party transaction activity at BFA? Why?
Consult Paragraphs 39-41 and Paragraph A5 (in Appendix A) of PCAOB Auditing Standard No. 5. For the assertion identified in Question 15, identify a specific internal control activity that would help prevent or detect a misstatement connected to the related party transaction activity at BFA.
Consider the role of president at BFA. Next assume that as president you are representing the upper management team at the Foundation’s annual meeting. During the question-and-answer session, an investor asks you to justify the creation of ALO and whether the real estate transactions between BFA
Consider the significant year-end transactions consummated by BFA. Do you believe that the accounting for these transactions violated the conservatism constraint? Why or why not? Please be specific.
Consult Paragraph 14 of PCAOB Auditing Standard No. 5. Do you believe that BFA had established an effective system of internal control over financial reporting related to its significant year end transactions? Why or why not?
Consult Paragraphs #12–15 of PCAOB Auditing Standard No. 13. Consider the sale of the Santa Fe Trails Ranch II stock by Foundation Investments to Friend. Do you believe that the auditor should have completed any additional testing beyond vouching the payment received from Friend? Provide the
Consult Paragraphs 5-8 of PCAOB Auditing Standard No. 8 and Paragraphs 7-10 of PCAOB Auditing Standard No. 12. Based on your understanding of inherent risk assessment, identify three specific factors about BFA that might cause you to elevate inherent risk. Briefly provide your rationale for each
Consult Paragraphs .04-.06 of AU Section 334. Comment on why the existence of related parties (such as ALO and New Church Ventures) presents additional risks to an auditor. Do you believe that related party transactions deserve special attention from auditors? Why or why not?
Assume you are an investor in BFA. As an investor, what type of information would you be interested in reviewing before making an investment in BFA? Do you believe that BFA should have been exempt from Arizona banking laws? Why or why not? Discuss.
Consult Paragraph 7 of PCOAB Auditing Standard No. 9. Consider the planning phase for the audit of BFA’s trust department operations. As an auditor, what type of evidence would you want to collect and examine to determine whether BFA was meeting the U.S. Treasury regulations for nonbank passive
Consult Paragraphs 23-25 of PCAOB Auditing Standard No. 12. Define what is meant by control environment. Based on the information provided in the case, explain why the control environment is so important to effective internal control over financial reporting at an audit client like the Baptist
Consider the principles, assumptions and constraints of Generally Accepted Accounting Principles (GAAP). Define the conservatism constraint and explain why it is important to users of financial statements. Discuss in detail.
Consult Paragraphs 7-10 of PCAOB Auditing Standard No. 12.Based on your understanding of inherent risk assessment; identify three specific factors about IOS and/or FOF that would be likely to impact your audit procedures if you were conducting an audit of IOS and/or FOF.
Consult Paragraphs .04-.06 of AU Section 334. Given that all of FOF Prop’s investments in natural resources had also been owned (or were currently owned) by a member of the King group, please comment on why the existence of related parties (such as King Resources and FOF) present additional risks
If you were auditing one of the transactions between King Resources and FOF, what type of evidence would you seek to examine to determine whether the transaction was consummated on an “arm’s length” basis?
Consult Paragraphs 4-8 of PCAOB Auditing Standard No. 15.Based on your understanding of audit evidence; did Arthur Andersen rely on competent and sufficient audit evidence in auditing the valuation assertion related to FOF’s natural resources assets? Why or why not?
Consider the series of comparisons prepared by the Denver office of Arthur Andersen of prices charged by the King group to FOF, King affiliates, and other knowledgeable industry purchasers. Can you think of any additional evidence that would have strengthened the “Summary of 1968 Sales”?
Consult Paragraphs .09-.10 of AU Section 329. Please explain the primary purpose of substantive analytical procedures (i.e., the type of procedures that are completed during the testing stages of an audit). If you completed such procedures on FOF, do you think you could use KRC’s “Consolidated
Do you believe Andersen’s contention that they had a duty of client confidentiality to KRC that would, indeed, prohibit the firm from disclosing to FOF any relevant knowledge it may have had related to KRC’s costs? Why or why not?
Explain why FOF’s decision to record substantial increases in its natural resource assets violated the conservatism constraint. Please be specific.
Consult Paragraph 2 and Paragraph A5 (in Appendix A) of PCAOB Auditing Standard No. 5. Do you believe that FOF has established an effective system of internal control over financial reporting related to the valuation of its natural resource assets? Why or why not?
Consider the valuation assertion related to the natural resources assets. Do you think it is reasonable for an auditor to rely on a recent sale of a 10 percent interest as evidence to justify a revaluation of FOF’s remaining 90 percent interest in the natural resource assets? Why or why not?
Consult Paragraphs 7-8 of PCOAB Auditing Standard No. 15.What other evidence could an auditor seek to justify the valuation of an asset where there is no active trading market? Comment on whether Arthur Andersen’s guidelines for the appreciation of national resource properties were appropriate
Consult PCAOB Ethics and Independence Rule 3520. What is auditor independence and what is its significance to the audit profession? What is the difference between independence in appearance and independence in fact? Based on the case information, do you believe that Arthur Andersen violated any
Consider that both KRC and FOF, including its NRFA, were audited by Arthur Andersen. In addition, Arthur Andersen audited King’s personal accounts. Do you believe these relationships impair the independence of Arthur Andersen? Why or why not?
Would your answer be any different if the fact pattern changed so that different partners were assigned to both the KRC audit and the NRFA audit? Please assume that both audit teams were completely different. Why or why not would your answer be different?
Refer to Sections 201 and 203 of SARBOX. Based on your understanding of the FOF audit, do you believe these sections were needed? Why or why not? Be specific.
Your local veterinarian is complaining about all of the “accountants” he has had to work with—the government has been in to look at his income taxes, the bookkeeper has been sick so he has had to hire someone else, and now you are coming in to do an audit. Using the definition of an audit,
Briefly describe the accounting organizations that exist in Canada and identify the professional designations they award. What roles do these organizations play for their members?
What are the major differences in the scope of the audit responsibilities for public accountants, auditors from the Auditor General’s Offices, Canada Revenue Agency auditors, and internal auditors?
Daniel Charon is the loan officer of the Georgian Bay Bank. Georgian Bay Bank has a loan of $540,000 outstanding from Regional Delivery Service Ltd., a company specializing in the delivery of products of all types on behalf of smaller companies. Georgian Bay’s collateral on the loan consists of
Vial-tek has an existing loan in the amount of $1.5 million with an annual interest rate of 9.5 percent. The company provides an internal company-prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace Vial-tek’s existing loan agreement with
Projections indicated that there would be record numbers of homeless over the next few years, so the city decided that it was important to make shelters available. Accordingly, contracts were signed with two hotels in the downtown area over a three-year period. The hotels committed to have rooms
Wu, a PA, is planning her first audit of a closely held small business. In prior years, Wu compiled the financial statements of the company. She also helped to set up its accounting system and supervised the work of the company’s bookkeeper, who has limited knowledge of accounting. This year,
A small, but expanding, specialty home- products retailer recently implemented an internet portal that allows customers to order merchandise online. In the first few months of operation, their internet site attracted a large number of visitors; however, very few placed orders online. The retailer
A large conglomerate is considering acquiring a medium-sized manufacturing company in a closely related industry. A major consideration by the management of the conglomerate in deciding whether to pursue the merger is the operational efficiency of the company. Management has decided to obtain a
Explain what is meant by determining the degree of correspondence between information and established criteria. What are the information and established criteria for the audit of Glickle Ltd.’s tax return by a Canada Revenue Agency auditor? What are they for the audit of Glickle Ltd.’s
Mont Louis Hospital, which is affiliated with a leading university, has an extremely reputable research department that employs several renowned scientists. The research department operates on a project basis. The department consists of a pool of scientists and technicians who can be called upon to
Jim and Cecilia were having lunch at the public accounting firm cafeteria downtown and discussing the future. They had both been recently promoted to managers, with incomes approaching six figures. Cecilia and her husband had recently purchased a house, while Jim had accumulated a sizable nest egg,
Explain why the auditor needs to know how to conduct a risk assessment.
What is the relationship between the risk assessment process and the collection of audit evidence?
Describe the different types of assurance engagements that could be provided for a hospital.
What are the differences and similarities among audits of financial statements, compliance audits, and operational audits?
Using a law firm as an example, describe the different audit, attestation, and assurance services that could be provided to the firm, with examples.
Explain why auditors need to be knowledgeable about e-commerce technologies.
What are the advantages and disadvantages of practicing as a large public accounting firm rather than a small one?
How did business failures by Enron and WorldCom affect quality control procedures for public accounting firms in Canada and the United States?
How has Sarbanes-Oxley affected the Canadian regulatory environment for PAs?
What is the role of the CPAB?
Describe the role of International Standards on Auditing. Discuss whether a PA who conducts an audit in accordance with generally accepted auditing standards simultaneously complies with international standards on auditing.
What is meant by the term “quality control” as it relates to a public accounting firm?
State what is meant by the term “practice inspection.” What are the implications of the term for the public accounting profession?
A local PA, who has been in practice for several years, recently met with representatives of an internet service provider that is interested in developing a website for the PA’s practice. The PA has been reluctant to develop an internet site but is willing to learn more about the types of
For each of the following procedures that are taken from the quality control manual of a public accounting firm, identify the applicable element of quality control from Table 2-2 on page 39 and explain why the procedure is important for the audit engagement,a. Appropriate accounting and auditing
The following comments summarize the beliefs of some practitioners about quality control and practice inspection: Quality control and practice inspection are quasigovernmental methods of regulating the profession. There are two effects of such regulation. First, it gives a competitive advantage to

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Auditing The Art and Science of Assurance Engagements 12th Canadian edition Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Ingrid B. Splettstoesser - Solutions

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