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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
Customers purchasing products through a company’s website generally pay for those goods by providing their personal credit card information. Describe how a company’s sale of products through its website affects the auditor’s tests of accounts receivable in the financial statement audit.
You are auditing the financial statements been your client for several years. Because you were busy of the Reis Company, a small manufacturing firm that has working on another engagement, you sent a staff accountant to begin the audit, with the suggestion that she start with accounts
Is problem requires the use of ACL software. Use the Metaphor_Trans_All file in ACL Demo, which is a file of outstanding sales invoices (each row rep¬resents an invoice transaction). The suggested command or other source of information needed to solve the problem requirement is included at the end
Jim has obtained close to 50 commercial accounts for cleaning. Most customers pay well, although there are about five customers to whom he has to give reminder calls. If the account goes more than 30 days overdue, he cancels service, and no further services are provided to that customer. So far, he
Identify the five accounts receivable balance- related audit objectives. For each objective, list one audit procedure.
Identify the seven accounts receivable presentation and disclosure-related audit objectives. For each objective, list one audit procedure.
Explain why you agree or disagree with the following statement: “In most audits, it is more important to test carefully the cutoff for sales than for cash receipts.” Describe how you perform each type of test assuming the existence of pre numbered documents.
You are auditing general cash for Trail Supply Corp. for the fiscal year ended July 31. The client has not prepared the July 31 bank reconciliation. After a brief discussion with the owner, you agree to prepare the reconciliation with assistance from one of Trail Supply€™s clerks. You obtain
The following are fraud and other irregularities that might be found in the client’s year-end cash balance. (Assume the balance sheet date is June 30.)1. A cheque was omitted from the outstanding cheque list on the June 30 bank reconciliation. It cleared the bank July 7.2. A cheque was omitted
Regional Transport Company is a large branch of a national company. Regional maintains its own bank account. Cash is periodically transferred to the central head office account in Montreal. On the branch account€™s records, bank transfers are recorded as a debit to the home office clearing
Santasgiftworld.com is an online retailer of children’s toys. The chief executive officer has noticed that margins have been deteriorating over those of previous years due to an increase in cost of goods sold coupled with a much faster increase in freight out and bad-debt expenses. He has also
Yip-Chuk Inc. had weak internal control over its cash transactions. Facts about its cash position at November 30 were as follows:The cash account showed a balance of $18,901.62, which included un-deposited receipts. A credit of $100 on the bank€™s records did not appear on the records of the
Three years ago, Peng started a business providing translation and document services to businesses that source goods from China for the Canadian retail market. At first, Peng did all of the work himself, marketing his services to potential customers, receiving orders, translating documents,
To increase his reach with customers in condominium towers, Jim has decided to accept payment from users of PayPal.com in addition to the credit card payments that he was accepting via his secure website. Jim had been using PayPal.com for about three months. One morning he received emails from
Explain the relationships among the initial assessed level of control risk, tests of controls for cash disbursements, and tests of details of cash balances. Give one example in which the conclusion reached about internal controls in cash disbursements would affect the tests of cash balances.
Evaluate the effectiveness and state the shortcomings of the preparation of a bank reconciliation by the accountant in the manner described in the following statement: “When I reconcile the bank account, the first thing I do is to sort the cheques in numerical order and find which numbers are
Explain the relationship between the human resources and payroll cycle and inventory valuation.
The company you are auditing has a local area network with office automation software, accounting software, and point of sale equipment. Provide examples of five different categories of access rights, and state the control purpose of each access right category.
DrinkOh Limited uses an application service provider to process its payroll. Its employees enter their hours using their smart phones. The payroll clerk collects the smart phone data and transmits it to the application service provider for payroll processing. Describe three controls that should be
Items 1 through 9 are selected questions typically found in questionnaires used by auditors to obtain an understanding of internal control in the human resources and payroll cycle. In using the questionnaire for a client, a “yes” response to a question indicates a possible internal control,
List three risks of error that could occur in the human resources and payroll cycle. For each risk of error, identify a control that would prevent or mitigate the error.
In comparing total employee benefits expense with that of the preceding year, Marilyn Brendin, public accountant, observed a significant increase, even though the total number of employees had increased only from 175 to 195. To investigate the difference, she selected a large sample of payroll
Cilly Stress, a fourth-year honours computer science student at a highly regarded university, was working as part-time cleaning staff at the Classy Manufacturing Company (CMC) when she was expelled from school for misuse of the university’s computer resources. Cilly was able to improve her
a. List the risks of error or fraud that are present at Kowal Manufacturing. For each risk, state the type of misstatement that could occur.b. State whether the fraud risk could lead to misappropriation of assets or fraudulent financial reporting. Explain how these frauds could take place.c. For
This problem requires the use of ACL software. For this problem, open an existing ACL Project, then choose the Sample Project data files. In the “Tables” folder, open the “Payroll Analysis” subfolder, then the “Payroll” file. The suggested command or other source of information needed
Jim is handling the payroll of his 15 full-time employees. As Jim allocates the work, he knows the hours that his employees have worked, and he records the data daily in a spreadsheet. At the end of the week, he uses the online calculator at Canada Revenue Agency’s (CRA) website to calculate the
List three risks of misappropriation of assets or fraud that could occur in the human resources and payroll cycle. For each risk of misappropriation or fraud, identify a control that would prevent or mitigate the error.
List three risks of inadequate disclosure or fraudulent financial reporting in the human resources and payroll cycle. For each risk of inappropriate disclosure, identify a control that would prevent or detect it.
Distinguish among a payroll master file, a TD-1 form, and a T4 payroll summary return. Explain the purpose of each.
What is the purpose of testing both employee access rights setup and employee access rights changes? What would be the impact upon the audit if either or both of these processes had control weaknesses?
What is the importance of cash discounts to the client, and how can the auditor verify whether they are being used in accordance with company policy?
Explain why the emphasis in auditing capital assets is on the current-period acquisitions and disposals rather than on the balances in the account carried forward from the preceding year. Under what circumstances would the emphasis be on the balances carried forward?
What is the relationship between the audit of fixed assets accounts and the audit of repair and maintenance accounts? Explain how the auditor organizes the audit to take this relationship into consideration.
In auditing amortization expense, what assertions should the auditor keep in mind? Explain how each can be verified.
Why does the auditor examine transaction detail for subsidiaries, affiliates, officers, and directors?
Explain why most auditors consider the receipt of goods and services the most important point in the acquisition and payment cycle.
You were in the final stages of your examination of the financial statements of Ozine Corporation for the year ended December 31, 2011, when the corporation’s president came to talk to you. He believed that there was no point to your examining the 2012 acquisitions data files and testing data in
Hardware Manufacturing Company Limited, a closely held corporation, has operated since 1994 but has not had its financial statements audited. The company now plans to issue additional share capital to be sold to outsiders and wishes to engage you to examine its 2011 transactions and render an
You are conducting an external audit of the company’s financial statements and are working at the client’s office two weeks after the year end.a. Design a test with two audit procedures, in addition to sample selection, using the unmatched supplier invoice file to test at least one control
a. Use Quick Sort for each column in the table and iden¬tify any concerns you have about the data. What are the internal control implications of the problems with the data? (Quick Sort)b. Determine the total cost of all purchases, ignoring any concerns in part (a). What audit procedures would you
In connection with her examination of the financial statements of Knutson Products Co. Ltd., an assembler of home appliances, for the year ended May 31, 2012, Raymonde Mathieu, public accountant, is reviewing with Knutson’s controller the plans for a physical inventory at the company warehouse
The table below shows sales, cost of sales, and inventory data for Aladdin Products Supply Inc., a wholesale distributor of cleaning supplies. All amounts are in thousands.REQUIREDa. Calculate the following ratios:(1) Gross margin as a percentage of sales.(2) Inventory turnover.b. List several
Bill is a PA working on the financial statement audit of MEM-2 Inc., a company that manufactures computer memory devices for sale in Canada, England, and Europe. He reviewed the internal controls over purchasing, as well as background information on the client’s industry, and made the following
Technology Parts Inc. is a wholesaler of computer hardware components. The company purchases inventory items in bulk directly from parts manufacturers and sells the parts to computer and other technology equipment manufacturers that use them as components in their products. Technology Parts Inc.
This problem requires the use of ACL software. For this problem, start ACL, then click on “Open an existing project,” and within the project, open “Sample Project.ACL.” Click on the plus sign beside the “Tables” folder, which will reveal a series of files. We will be conducting an
Since CondoCleaners.com is a service organization, it does not have any inventory that is distributed or sold. However, Jim periodically buys large quantities of cleaning products for his business when they are on sale. As it turns out, just prior to the March year end, he purchased three months’
What characteristics do liabilities have in common? How do they differ?
Evaluate the following statement: “The most important audit procedure to verify dividends for the year is a comparison of a random sample of cancelled dividend cheques with a dividend list that has been prepared by management as of the dividend record date.”
Explain how the audit of dividends declared and paid is affected if a transfer agent disburses dividends for a client. What audit procedures are necessary to verify dividends paid when a transfer agent is used?
Evangeline Ltd. took out a 20-year mortgage for $2,600,000 on June 15, 2012, and pledged its only manufacturing building and the land on which the building stands as collateral. Each month a payment of $20,000 is paid to the mortgagor. You are in charge of the current-year audit for Evangeline,
The Fox Company is a medium-sized industrial client that has been audited by your public accounting firm for several years. The only interest-bearing debt owed by Fox Company is $200,000 in long-term notes payable held by the bank. The notes were issued three years previously and will mature in six
Bee Corporation€™s partial balance sheet includes the following information:REQUIREDa. Design two audit procedures to test existence related to the above investments for Bee€™s 2012 financial statements.b. Design two audit procedures to test authorization related to the above investments
The Bergonzi Corporation is a medium-sized wholesaler of grocery products with 4,000 shares of stock outstanding to approximately 25 shareholders. Because of the age of several retired shareholders and the success of the company, management has decided to pay dividends six times a year. The amount
E-Antiques Inc. is an internet-based market for buyers and sellers of antique furniture and jewellery. The company allows sellers of antique items to list descriptions of those items on the E-Antiques website. Interested buyers review the website for antique items and then enter into negotiations
When Jim established CondoCleaners.com the company was incorporated with two common shares with no par value. The shares have a book value of $2.00. The only other equity on the balance sheet is retained earnings. REQUIRED How does the audit of owners’ equity for a closely held company such as
Distinguish between the tests of controls and tests of details of balances for liability accounts in the capital acquisition and repayment cycle.
Explain the meaning of the following: The auditor should actively evaluate whether there is substantial doubt about the client’s ability to continue as a going concern.
Distinguish between a management representation letter and a management letter, and state the primary purpose of each. List some items that might be included in each letter.
Explain why you think securities regulators in certain jurisdictions require public companies to provide MD&A in their annual reports.
Distinguish between regular working-paper review and independent review, and state the purpose of each. Give two examples of important potential findings in each of these two types of review.
In an examination of Marco Corporation as of December 31, 2012, the following situations exist. No related entries have been made in the accounting records.1. Marco Corporation has guaranteed the payment of interest on the 10-year, first-mortgage bonds of Chen Corp. an affiliate. Outstanding bonds
Ruben Chavez, a public accountant, has prepared a management representation letter for the president and controller to sign. It contains references to the following items:1. Inventory is fairly stated at the lower of cost or net realizable value and includes no obsolete items.2. All actual and
Betty Ann Jarrett, a public accountant, was reading the annual report of Watgold Ltd. and noticed that the president’s report contradicted several items in the audited financial statements included in the report. REQUIRED What are Betty Ann’s responsibilities in this instance?
Melanie Adams is a public accountant in a medium-sized public accounting firm who takes an active part in the conduct of every audit she supervises. She follows the practice of reviewing all working papers of subordinates as soon as it is convenient, rather than waiting until the end of the
You are a public accountant in the public accounting firm of Lind and Hemming. One of your larger clients is Yukon Corp., a company incorporated under the Canada Business Corporations Act, which has a December 31 year end. Yukon’s 2011 audit was completed in January 2012; the auditor's report was
CondoCleaners.com is a typically well-run small business. There are no lawsuits, and Jim has never used a lawyer. He set up the company himself and maintains the share records, board of directors minutes and shareholder minutes as well. There were no unusual transactions either before or after the
Why would an auditor use an Emphasis of Matter or an Other Matters paragraph with an unqualified audit report?
List the conditions requiring a departure from an unqualified opinion, and give one specific example of each of those conditions.
Distinguish between the levels of materiality and pervasiveness an auditor considers when assessing how to deal with an inappropriate use of an accounting principle or known material error in the financial statements.
Munroe Corp. had a bad year financially and the president, Jan de Boer, instructed the controller not to amortize the capital assets so that the company would show a small profit. The controller argued that ASPE required Munroe to amortize the capital assets on a regular basis and a qualified
At times, for a variety of reasons, an auditor must rely on another firm of auditors to perform part of an audit. What reference does the primary auditor make to the secondary auditor in the auditor’s report? Justify your response.
Roscoe, a public accountant, has completed the examination of the financial statements of Excelsior Corporation as of and for the year ended December 31, 2012. Roscoe also examined and reported on the Excelsior financial statements for the prior year. Roscoe drafted the following auditor’s
The following are independent situations for which you will recommend an appropriate auditor’s report: 1. Subsequent to the date of the financial statements as part of the post-balance sheet date audit procedures, a public accountant learned of heavy damage to one of a client’s two plants due
Lesley, a PA, is auditing the financial statements of a jewellery store specializing in the sale of fine diamonds. Because of the difficulties in authenticating gemstones, Lesley reviews a report from a gemologist retained by the client who assisted in valuing the inventory. However, upon inquiry
Materia Blues Inc. is a company that manufactures and distributes books internationally. The company has proposed that the following comments be included in the company’s 2013 annual report to the shareholders:“The integrity of the financial information reported by Materia Blues Inc. is the
CondoCleaners.com is now in its third year of operations. The prior two years’ financial statements received a review engagement report. In the current year, Jim has decided that an audit will be completed for the annual financial statements. He has hired your local public accounting firm to do
List the nine parts of an unqualified auditor’s report and explain the meaning of each part. How do the parts compare with those found in a qualified report?
What is the purpose of the introductory statement in the auditor’s report? Identify the most important information included in the introductory statement.
What are the purposes of the management responsibility paragraph in the auditor’s report? Identify the most important information included in the paragraph.
What are the purposes of the auditor responsibility section in the auditor’s report? Identify the most important information included in the section.
On February 17, 2013, a public accountant completed the examination of the financial statements for Buckheizer Corporation for the year ended December 31, 2013. The audit is satisfactory in all respects. On February 26, the auditor completed the tax return and the pencil draft of the financial
Explain what is meant by “contingencies.” Give an example of a contingency, and discuss its appropriate disclosure in the financial statements.
Distinguish between an “attest engagement” and a “direct reporting engagement.”
The financial statements prepared for a compilation engagement may not be complete according to an acceptable financial reporting framework. Why is this exception permitted? Provide examples of information that might be excluded.
Explain how the review engagement for an NPO differs from the review engagement for a profit oriented entity.
On what does the auditor comment in his or her report on financial forecasts? On what does the auditor disclaim an opinion and why?
Joseph, a public accountant, has been keeping the books for his father’s business, JoPar Tech Ltd., in the evenings, while working with other clients during the day. Yesterday, Joseph’s father proudly announced that he had negotiated a loan with the Federal Business Development Bank at
You are doing a review engagement and the related tax work for Regency Tools, Inc., a tool and die company with $2,000,000 in sales. Inventory is recorded at $125,000. Prior-year unaudited statements, prepared by the company without assistance from a public accounting firm, disclose that the
O’Sullivan, a public accountant, has completed the audit of Sarawak Lumber Supply Co. Ltd. and has issued a standard unqualified report. In addition to a report on the overall financial statements, the company needs a special audit report on three specific accounts: sales, net fixed assets, and
The following items represent a series of unrelated procedures that an accountant may consider performing in an engagement to review or compile the financial statements of a. non-public entity. Procedures may apply to only one, both, or neither type of engagement.1. The accountant should establish
Chow, a PA, is assisting his client, Western Resources Inc., a closely held company, that is seeking to secure a new line of credit from a local bank. Chow has performed a review of the company’s financial statements for several years and always issued a review engagement report without
Ballantine Church has been located on a central downtown street in Toronto for over 120 years. Originally, the church was in the middle of farmland, but is now surrounded by high-rise apartments and condominiums. The church has an active parish community that engages in fundraising in the
Quality Review is the franchisor of a national accounting review course for candidates taking CA, CGA, and CMA examinations. Quality Review is responsible for providing all materials, including DVDs, doing all national and local advertising, and giving assistance in effectively organizing and
Explain why criteria are so important with respect to assurance engagements.
It is now March 2013 and Jim, the owner of CondoCleaners.com, has requested you work with him in preparing three-year forecast information for the upcoming year end and two subsequent years. Jim intends to use the forecasts, together with the audited financial statements, to seek additional
Identify the three parties to an accountability relationship, and explain the roles of each.
Give three examples of the special reports that a public accountant may be asked to issue. Explain why these reports would be requested.
Why do public accountants prepare reports on the results of applying specified auditing procedures to financial information other than financial statements?
How do the general standards applicable to review engagements differ from generally accepted auditing standards?
Contrast the level of assurance provided by negative assurance discussed in Sections 8100, 8200, 8500, and 8600 of the CICA Handbook with the level of assurance provided by the opinion given in the auditor’s report.
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