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auditing
Auditing The Art and Science of Assurance Engagements 12th Canadian edition Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Ingrid B. Splettstoesser - Solutions
The Mobile Home Manufacturing Company is audited by the public accounting firm Rossi and Montgomery. Mobile Home has decided to issue stock to the public and wants Rossi and Montgomery to perform all the audit work necessary to satisfy the requirements for filing with the OSC. The public accounting
Cheng,, a recently qualified PA, has been assigned by his firm, Liu & Liu LLP, to serve as the senior auditor in charge of the fieldwork on a new audit engagement. The client is a medium-sized credit union that is heavily involved as a mortgage lender in the local real estate market. This is the
As a professional in the practice of giving advice, Jim knew when he had to ask questions, too. He called a lawyer friend of the family who owned a cleaning business at the other end of the country and was suitably cautioned, “It’s very competitive, and you don’t make much money. You'll have
Research the rules in your province with respect to accounting firm structure. Are LLPs permitted? What is the primary difference between a public accounting firm organized as a partnership and an LLP? Why would a public accounting firm choose to organize as an LLP?
How can a PA use the internet to assist the PA practice?
Although the CICA Handbook standards provide general guidance, the application of these standards is dependent upon particular circumstances. In practice, a professional accountant may encounter situations where CICA Handbook standards do not exist or may not apply. Since there is no substitute for
What benefits do organizations such as the CICA, CGAAC, and SMAC provide to their members?
What role does the CICA Handbook have in the professional activities of public accountants in Canada?
Explain how an objective state of mind and due care contribute to a PA’s qualifications to conduct a financial statement audit.
Using Table 3-1, explain how a professional accountant would embody each of the illustrated ethical principles.In Table 3-1
The auditor’s working papers usually can be provided to someone else only with the permission of the client. What is the rationale for such a rule? What are the exceptions to this rule?
The rules of conduct of professional accountants require them to report a breach of the rules of conduct by a member to their profession’s disciplinary body. What should they do before making such a report?
For what types of engagements are contingent fees acceptable as charged by professional accountants?
Why is it so important that a successor auditor communicate with the incumbent before accepting an appointment as auditor? What should the successor do if the incumbent does not reply?
Diane Harris, a PA, is the auditor of Fine Deal Furniture, Inc. In the course of her audit for the year ended December 31, 2011, she discovered that Fine Deal had serious going-concern problems. Henri Fine, the owner of Fine Deal, asked Diane to delay completing her audit. Diane is also the auditor
Each of the following scenarios involves a possible violation of the rules of conduct. Indicate whether each is a violation and explain why you think it is or is not.a. John Brown is an PA, but not a partner, with three years of professional experience with Lyle and Lyle, Public Accountants, a
a. Martha Painter, a PA, was appointed as the trustee of the So family trust. The So family trust owned the shares of the So Manufacturing Company, which is audited by another partner in Martha’s office. Martha owns 15 percent of the shares of the So Manufacturing Company and is also a director
When analyzing an ethical dilemma, why is a structured approach helpful?
Discuss whether the facts in any of the situations indicate violations of the rules of conduct for professional accountants. If so, identify the nature of the violation(s). The following are situations that may violate the general rules of conduct of professional accountants. Assume in each case
Donna, a PA, is approached by the owner of one of her clients, for whom she normally compiles monthly and annual financial statements, to perform an audit of the company’s inventories. The client, Fantastic Fashions Ltd., is a chain of retail clothing stores that operates in several local
Joseph Smith was the chairman and chief operating officer of Maximum Software Limited, providing software solutions to companies in Manitoba. Joseph owned 40 percent of the company and had several silent partners who sat on the board of directors but did not participate in the company's operations.
Barbara Whitley had great expectations about her future as she sat at her graduation ceremony in May 2011. She was about to receive her Master of Accountancy degree, and the following week she would begin her career on the audit staff of Green, Thresher & Co., a public accounting firm. Things
Jim has been thinking about CondoCleaners.com for the last three months now. He has been a bit distracted at work and has had some difficulty concentrating, as he has started organizing a request for proposal for his new website and for a market study to help him plan his approach. After
What organization is responsible for developing ethics standards for accountants at the international level? What are the fundamental principles of the international ethics standards?
What consulting or non audit services are prohibited for auditors of public companies? What other restrictions and requirements apply to auditors when providing non audit services to public companies?
What is an independence threat analysis? When and why should it be completed?
State several factors that have affected the incidence of lawsuits against public accountants.
In what ways can an individual public accountant positively respond and reduce liability in auditing?
Describe two types of legislation that could affect the financial statement audit; explain why there is an impact.
Helmut & Co., a public accounting firm, was the new auditor of Mountain Ltd., a private company in the farm equipment and supply business. In early February 2012, Helmut & Co. began the audit for the year ended December 31, 2011. The audit was to be run by Frost, a senior who had just joined Helmut
Watts and Williams, a firm of PAs, audited the accounts of Sampson Skins, Inc., a corporation that imports and deals in fine furs. Upon completion of the audit, the auditors supplied Sampson Skins with 20 copies of the audited financial statements. The firm knew in a general way that Sampson Skins
The public accounting firm of Andre, Mathieu & Paquette (AMP) was expanding very rapidly. Consequently, it hired several junior accountants, including Jim Small. The partners of the firm eventually became dissatisfied with Jim’s production and warned him that they would be forced to terminate him
Jan Sharpe recently joined the public accounting firm of Spark, Watts, and Wilcox. On her third audit for the firm, Jan examined the underlying documentation of 200 disbursements as a test of purchasing, receiving, vouchers payable, and cash disbursement procedures. In the process, she found 12
In confirming accounts receivable on December 31, 2009, the auditor found 15 discrepancies between the customer’s records and the recorded amounts in the subsidiary ledger. A copy of all confirmations that had exceptions was turned over to the company controller to investigate the reason for the
Marino Rossi, a public accountant, audited the financial statements of Newfoundland Rugs Ltd. Cooke, the president of Newfoundland Rugs, told Marino that the company was planning a private placement of company bonds to raise $500,000 of needed capital. The audit proceeded smoothly, and the audited
Jackson is a sophisticated investor. As such, he was initially a member of a small group that was going to participate in a private placement of $1 million of common stock at Clarion Corporation. Numerous meetings were held between management and the investor group. Detailed financial and other
Distinguish between business risk and audit risk. Why is business risk a concern to auditors?
Aqua Inc. was a privately owned company that operated a marina business from two lakefront properties in northern Ontario. The company was started by two brothers. The company provided boat docking, sold gasoline and boating supplies, and was very successful. Aqua’s accountant, John Purd, is a PA
Jim is in the process of organizing the business details for his business, getting a website established, and preparing marketing documentation. To save money, he has decided to do the initial cleaning himself until he has enough business to hire staff. He did some of his training at home,
A partner in a public accounting firm may be held liable for errors in the work of others. Identify at least two groups of such others and explain why the partner might be liable.
Differentiate between criminal action and civil action.
A common type of lawsuit against public accountants is for the failure to detect a defalcation. State the auditor’s responsibility for such discovery. Give authoritative support for your answer.
Distinguish among the auditor’s potential liability to the client, liability to third parties under common law, and criminal liability. Describe one situation for each type of liability in which the auditor could be held legally responsible.
How are entity-level controls related to cycles?
Distinguish between general audit objectives and management assertions. Why are the general audit objectives more useful to auditors?
An acquisition of equipment repairs by a construction company is recorded in the incorrect accounting period. Which transaction-related audit objective has been violated? Which transaction-related objective has been violated if the acquisition has been capitalized as a capital asset rather than
A banker found a set of financial statements difficult to read, and the disclosures seemed to be incomplete. Which presentation and disclosure-related objectives have been violated? Why?
Distinguish between the existence and completeness balance-related audit objectives. State the effect on the financial statements (overstatement or understatement) of a violation of each in the audit of accounts payable.
Frequently, questions have been raised regarding the responsibility of the independent auditor for the discovery of fraud (including defalcations and other similar irregularities) and concerning the proper course of conduct of the independent auditor when his or her examination discloses specific
Distinguish between management’s and the auditor’s responsibilities for the financial statements being audited.
It is well accepted that, throughout the conduct of the ordinary audit, it is essential to obtain large amounts of information from management and to rely heavily on management’s judgments. After all, the financial statements are management’s representations, and the primary responsibility for
Recently there have been a significant number of highly publicized cases of management fraud involving the misstatement of financial statements. Although most client managements possess unquestioned integrity, a very small number, given sufficient incentive and opportunity, may be predisposed to
Guilin & Partners is a PA firm that has audited ZFL for the past five years. During the past year, ZFL has grown to include exports to Asia. The president and the controller both retired last year. The new management met with Guilin this year to discuss this year’s audit and hope to reduce the
The following general ledger accounts are included in the trial balance for an audit client, Jones Wholesale Stationery Store.Income tax expense Income tax payable Accounts receivable Advertising expense Travel expense Bonds payable Common stock Unexpired insurance Furniture and equipment Cash
The following are two specific balance-related audit objectives in the audit of accounts payable.1. All accounts payable included on the list represent amounts due to valid vendors.2. There are no unrecorded accounts payable.The list referred to in the objectives is the aged accounts payable
The following (1 through 17) are the balance- related, transaction-related, and presentation- and disclosure- related audit objectives.REQUIREDIdentify the specific audit objective (1-17) that each of the following specific audit procedures (a. through 1.) satisfies in the audit of sales, accounts
Jane was the audit supervisor in charge of the audit of an advertising agency. Unfortunately, two other audit supervisors in the office resigned and moved on to other positions. Rather than hiring or promoting another supervisor, the firm reallocated clients. Jane was asked to take on some of the
Rene Ritter opened a small grocery and related products convenience store in 1990 with the money she had saved working as a Loblaws store manager. She named it Ritter Dairy and Fruits. Because of the excellent location and her fine management skills, Ritter Dairy and Fruits grew to three locations
Jim is doing preliminary planning to organize transaction flows at CondoCleaners.com. His secure website will use a credit card service to process customer payments, which will be deposited directly into the business bank account. He will pay for expenses using his own credit card or personal
Explain two important characteristics of professional skepticism.
Explain two important characteristics of professional skepticism. Discuss.
Distinguish between management fraud and employee fraud. Discuss the likely difference between these two types of fraud on the fair presentation of financial statements.
Define the term “illegal act.” What is the auditor’s responsibility with respect to illegal acts by clients?
What factors should an auditor consider prior to accepting an engagement?
What is the purpose of an engagement letter? Explain how it is important to both the auditor and management.
Identify the eight phases of the audit. Provide an example of an activity completed in each phase.
What benefits does the auditor derive from planning audits?
Your firm has performed the audit of Danko Inc. for several years, and you have been assigned the responsibility for the current audit. How would your review of the articles of incorporation and bylaws for this audit differ from that of the audit of a client that was audited by a particular public
Your firm has performed the audit of Danko Inc. for several years, and you have been assigned the responsibility for the current audit. How would your review of the articles of incorporation and bylaws for this audit differ from that of the audit of a client that was audited by a different public
Charles Ngu is assessing the management and governance structure of Major Appliance Manufacturing Co. Describe four types of evidence that Charles would gather, and state the relevance of the evidence to the assessment of the management and governance structure of the company.
Explain why it is important for working papers to include each of the following: identification of the name of the client, period covered, description of the contents, initials of the preparer, date of the preparation, and an index code.
What type of working papers can be prepared by the client and used by the auditor as a part of the working-paper file? When client assistance is obtained in preparing working papers, describe the proper precautions the auditor should take.
Who owns the working papers? Under what circumstances can they be used by other people?
Identify the major steps in developing the client risk profile. Provide an example of audit evidence for each step.
The minutes of the board of directors of Mary- gold Catalogue Company Ltd. for the year ended December 31, 2011, were provided to you.Meeting of February 16, 2011Ruth Ho, chair of the board, called the meeting to order at 4:00 p.m. The following directors were in attendance:Margaret Aronsond
During the audit of Xtra Technology Inc. (XTI), Andrea found the following journal entry occurring at the end of each month: Inventory ……… DR $20,000.00 Cost Variance ………………. CR $20,000.00 The accounting manager told Andrea that this was a regular entry made every month to account
You have been assigned the audit of your city’s largest car dealership. The car dealership has been one of your firm’s audit clients for many years. It is modern and is located in a building owned by the dealership corporation. The company has recently spent almost $100,000 modernizing its
The internet has dramatically increased global e-commerce activities. Both traditional “brick and mortar” businesses and new dot-com businesses use the internet to meet business objectives. For example, eBay successfully offers online auctions as well as goods for sale in a fixed-price
You are engaged in the annual audit of the financial statements of Maulack Corp., a medium-sized wholesale company that manufactures light fixtures. The company has 25 shareholders. During your review of the minutes, you observe that the president’s salary has been increased substantially over
Winston Black was an audit partner at Hen-son, Davis, LLP. He was in the process of reviewing the audit files for the audit of a new client, McMullan Resourcing. McMullan was in the business of heavy construction. Winston was conducting his first review after the field work had been substantially
Since the owner, Jim, is a qualified accountant, he would like to reduce professional fees by assisting with the preparation of working papers. Jim has purchased a basic accounting software package, which he uses to record transactions. He still does all the accounting for his
List the types of information the auditor should obtain or review as a part of understanding the industry and external environment. Provide one specific example of how the information will be useful in conducting an audit.
When a PA has accepted an engagement from a new client that is a manufacturer, it is customary for the PA to tour the client’s plant facilities. Discuss the ways in which the PA’s observations made during the course of the plant tour will be of help as he or she plans and conducts the audit.
An auditor acquires background knowledge of the client’s industry as an aid to his or her audit work. How does the acquisition of this knowledge aid the auditor in distinguishing between obsolete and current inventory?
Jennifer Bailey has many clients in the manufacturing business. She has worked in this sector for many years and believes that she knows the industry well. Explain why it is important for Jennifer to develop a client risk profile every year. For each step of the client risk profile, list the
Identify the three categories of client objectives that the auditor should understand. Indicate how each objective may affect the auditor’s assessment of inherent risk and evidence accumulation.
What is the purpose of the client’s performance measurement system? Give examples of key performance indicators for the following businesses: (1) A chain of retail clothing stores, (2) An internet portal, (3) A hotel chain.
What is meant by “planning materiality”? Identify the most important factors affecting the development of this figure.
Differentiate between identified misstatements, likely or potential misstatements, and further possible misstatements. Explain why all three are important.
How would the conduct of an audit of a medium sized company be affected by the company’s being a small part of a large conglomerate as compared with its being a separate entity?
You are the proprietor of an PA firm with a growing audit practice. You have accepted the audit of T-Division, one of six separate Canadian divisions of a large, private multinational corporation. Each division operate as a separate entity. The manager of each division receives a salary, plus a
You are the auditor in charge of the audit of the municipality of Sackville, New Brunswick. The municipality has a budget of about $65 million and has had a balanced budget for the last three years. There are about 10 people in the accounting office and the rest of the employees are operational,
Some accountants have suggested that the auditor’s report should include a statement of materiality level and audit risk that the auditor used in conducting the audit. REQUIRED a. The proponents of such disclosure believe that the information would be useful to users of the financial statements
Statements of earnings and financial position for Prairie Stores Corporation are shown on the next page.REQUIREDa. Use professional judgment in determining materiality based on revenue, net income before taxes, total assets, and shareholders€™ equity. Your conclusions should be stated in terms
You are evaluating audit results for current assets in the audit of Quicky Plumbing Co. You set the materiality for current assets at $12,500 for overstatements and at $20,000 for understatements. The estimated and actual misstatement ranges are shown below.REQUIREDa. Justify a lower materiality
Following are six situations that involve the audit risk model as it is used for planning audit evidence requirements in the audit of inventory.REQUIREDa. Explain what low, medium, and high mean for each of the four risks and planned evidence.b. Fill in the blanks for planned detection risk and
Joe Whitehead is planning the audit of a newly obtained client, Henderson Energy Corporation, for the year ended December 31, 2011. Henderson Energy is regulated by the provincial utility commission and, because it is a publicly traded company, the audited financial statements must be filed with
In the audit of Whirland Chemical Company, a large publicly traded company, you have been assigned the responsibility for obtaining background information for the audit. Your firm is auditing the client for the first time in the current year as a result of a dispute between Whirland and the
CondoCleaners.com has been in business now for three years. The current year’s annual sales is $320,000, with cost of goods sold at $275,000. There is no debt, and the company has fixed assets of $4,250 (a personal computer and vacuum cleaners). The company currently provides cleaning services
When does the auditor assess client business risk? Why?
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