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auditing

Questions and Answers of Auditing

Discuss the concepts of nature, timing, and extent as they relate to controls testing.
What is the relationship between the results of tests of controls and substantive testing?
The audit assistant has been assigned to review performance indicators in the purchasing department of Kentucky Kapers, a manufacturing audit client. The assistant reports to you that he has obtained
Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. During 2011, Fellowes and Associates gained a new client, Health
The following procedures are used for EGO Company: •EGO's purchasing manager approves all purchases above $250. This allows the administrative staff to use the petty cash system to purchase minor
ABC is a company that purchases ski equipment from a European manufacturer and then sells the equipment to stores in eastern Canada. The company's records include pre-numbered shipping and purchasing
Jintian Clothing Ltd. manufactures sportswear and sells it to large department stores in western Canada. The company records sales in a sales journal. When a customer orders merchandise, a sales
Required For each of the following controls: (a) Identify whether it is preventive or detective, and (b) Indicate whether it relates to the control objective of authorization. 1. The computerized
Farmco is in the agricultural industry and has five branches located in Saskatchewan. Farmco's year end is June 30. Farmco is well established and has been profitable for many years. It is privately
Alabama Industries manufactures and wholesales small tools. It sells the tools to a large group of regular customers and makes most sales by telephone to this group. Additionally, it receives orders
You are testing the controls over bank accounts for your audit client, Manitoba Ltd. You note that the responsibility for bank reconciliations has changed due to a corporate reorganization halfway
Ontario Drapers supplies custom-fitted curtains and blinds to retail customers. It has recently expanded to offer a wide variety of home decorating products through its six stores across the
Arne Adams, the audit senior, is reviewing the working papers written by the audit assistant on the audit of Quebec Creepers, a garden nursery and retailer of garden accessories. Arne reads the
The sales transactions at Alberta Park, a new audit client, are handled by a software application that is not supported by very detailed documentation. The audit partner requests that the team
Securimax Limited (Securimax) has been an audit client of KFP Partners (KFP) for the past 15 years. Securimax is based in Waterloo, Ontario, where it manufactures high-tech armour-plated personnel
Securimax Limited (Securimax) has been an audit client of KFP Partners (KFP) for the past 15 years. Securimax is based in Waterloo, Ontario, where it manufactures high-tech armour-plated personnel
Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. During 2011, Fellowes and Associates gained a new client, Health
Explain the differences between an audit of internal controls as required by section 404 of the U.S. Sarbanes-Oxley Act 2002 and the testing of internal controls for the purposes of expressing an
Answer the following questions based on the information presented for Cloud 9 in Appendix B of this book and in the current and earlier chapters. You should also consider your answers to the case
Explain how the nature of a substantive test could affect decisions about when and how much substantive testing is performed. How do these decisions relate to the overall risk assessment for the item
Provide an example of (1) an error and (2) a judgemental misstatement that could affect the balance of property, plant, and equipment.
What are substantive procedures designed to obtain evidence about? What are the main types of substantive procedures?
What are analytical procedures? Describe how they can be used as substantive tests in an audit.
What conditions must be satisfied before we can regard evidence from analytical procedures as persuasive rather than corroborative or minimal? Why are these conditions important?
Why is it important to consider the quality of the data used in analytical procedures? How important to this question are client controls over financial data?
Vouching transactions and balances back to supporting documentation would ordinarily provide evidence about which assertions? Which assertions would vouching be least likely to provide evidence about?
Explain the differences between key items testing and representative sampling using audit risk tables. How would software to select each type of sample be used?
Explain the two main types of CAATs. What are the advantages of using software to interrogate and examine client data files? Does using CAATs remove the need to test client control systems?
Which accounts and/or clients are more suitable for interim substantive testing?
Carla has been asked to join the team responsible for designing the audit program for a new client, Gaskin Industries Ltd. (Gaskin), a manufacturing and wholesaling firm. Gaskin recently went public
Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. During 2011, Fellowes and Associates gained a new client, Health
Analysis is a substantive audit procedure that auditors use when they are performing financial statement audits. Required (a) Distinguish between analysis and analytical procedures. (b) Identify the
North West Paper Ltd. (North West) provides cardboard, paper, and plastic packaging materials to a large number of manufacturers and distributors in all provinces. The cardboard and paper division is
Mathieu has the task of reviewing the evidence from analytical procedures conducted by the audit juniors on the audit of Soleil Services Ltd. The audit juniors have reported the results of these
Marty has to audit the sales transactions of Okawa Ltd., which supplies tools to the mining industry. Okawa Ltd. carries a large number of different makes and models of standard mining tools. It also
Connie is the recently appointed engagement partner of the audit of Camel Ltd. She has just taken over the audit from Kar-Ming Leo, who rotated off the audit after a seven-year period as the
1. Sales transaction included in the year ended December 31, 2012, but evidence from the cut-off procedure suggests that the sale should be dated January 2, 2013 ($1,250,000). 2. Warranty expenses in
Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. During 2011, Fellowes and Associates gained a new client, Health
Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. During 2011, Fellowes and Associates gained a new client, Health
Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. During 2011, Fellowes and Associates gained a new client, Health
Answer the following questions based on the information presented for Cloud 9 in Appendix B and in the current and earlier chapters. You should also consider your answers to the case study questions
Explain why an audit team cannot use the same combination of audit procedures for every audit.
Explain why completeness is a more critical assertion for payables than for cash, receivables, inventory, or PPE. What procedures are primarily designed to address the completeness assertion for
Explain the relationship between the timing of substantive procedures and the risk assessment of the significant account in question. What options does an auditor have for performing some of the
How can an auditor use results from procedures performed during the control risk assessment phase to affect the nature of substantive testing?
Explain the difference between the audit of the processes impacting cash and the substantive testing of the cash balance. How is audit testing for each affected by the outcome of controls testing?
How would an auditor test the cut-off of inventory movements at year end?
Explain the difference between year-end and cyclical inventory counts. What conditions should exist at a client that conducts cyclical inventory counts?
What are subsequent receipts tests? Why do they provide useful evidence about accounts receivable valuations?
Explain the relationship between the repairs and maintenance expense account and the PPE asset account. Why is the auditor interested in examining debits to both accounts when auditing PPE? Explain
Why is an auditor interested in PPE that is not currently being used or that could become idle in the near future? Why would an auditor review directors' board minutes to gather information about
Julie is designing the audit program for cash for her client Onslow Services Ltd. (Onslow). Onslow is a property management services company. It deals with six major clients and several smaller
Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. In 2011, Fellowes and Associates gained a new client, Health Care
Your client is a medium-sized company and is a leader in its small industry of producing replica vehicles of classic automobiles. Customers are either very wealthy individuals or from the
The CGA firm that you work for has audited AAA Manufacturing for several years, although this is your first year to be assigned to the audit. In familiarizing yourself with the client, you note that
The auditor determines that each of the following objectives will be part of your audit of Farmington Inc:1. Establish that the client has rights to the recorded inventories.2. Establish the accuracy
The test of controls for purchases, cash disbursements, and accounts payable include the following audit procedures.1. Vouch a sample of receiving reports to related purchase orders.2. Select a
You are a CA employed at B & B, Chartered Accountants. On November 20, 2012, the partner in your firm sends you the following e-mail: Our firm has been reappointed auditors of Floral Impressions Ltd.
Albert Enterprises (Albert) is a large importer of goods from China. Albert deals with thousands of suppliers in China and sells the goods to discount stores in Canada. The discount stores include
Victoria is overseeing the accounts receivable ledger. Her main focus is the posting of entries for sales and sales returns to the control account and the individual accounts receivable accounts.
Metalinc Ltd. is a mining company based in eastern Canada. Metalinc has 10 open-cut mines, most of which primarily extract iron ore. When the iron ore is extracted, a small amount of other minerals
Brompton Hardware runs a network of small hardware retail outlets across the province. All sales are made for cash or on credit card and processed through electronic tills. A wide range of goods is
The accounts payable clerk at Hyde Ltd. has been away sick for most of the last three months. During this time, the remaining staff in the accounts department has tried to cover for his absence, as
Securimax Limited (Securimax) has been an audit client of KFP Partners (KFP) for the past 15 years. Securimax is based in Waterloo, Ontario, where it manufactures high-tech armour-plated personnel
Fabrication Holdings Ltd. (FH) has been a client of KFP Partners for many years. You are an audit senior and have been assigned to the FH audit for the first time for the financial year ending
Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. In 2011, Fellowes and Associates gained a new client, Health Care
Management applies accounting standards in the preparation of financial statements, and auditors assess the fair application of those accounting standards. The current trend is to use fair value for
Answer the following questions based on the information presented for Cloud 9 in Appendix B of this book and in the current and earlier chapters. You should also consider your answers to the case
How do the key differences between balance sheet accounts and income statement accounts affect the nature, timing, and extent of substantive testing of each?
Explain the process of "roll forward." When is it used?
What are the most important assertions for sales revenue? Compare these with the most important assertions for other revenue. Are they different? Explain.
Explain the techniques clients might deliberately use to violate the cut-off assertion because of pressure to meet sales targets. How might an auditor detect these actions?
Why is substantive testing of the processes impacting sales revenue usually kept to a minimum? How does the auditor gain sufficient assurance about these processes?
Auditors often use client budgets for revenue and expenses as part of their substantive testing. Explain how and why this is done.
Do analytical procedures use only financial data based on transactions and balances for the current period? Explain using examples.
Which assertions are violated if a client includes labor expense related to manufacturing processes as a general expense rather than in cost of sales?
Discuss the usefulness of examining subsequent payments as an evidence-gathering technique. If an auditor was to use this technique, what would they be looking for?
What is the purpose of examining the records of employees who left the client during the year? Where should the auditor obtain the information about departed employees?
Pedro is the engagement partner on the audit of Lynch Brothers, a public company selling small kitchen appliances. The appliances are made in China and imported and sold to retail outlets by Lynch
Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. During 2011, Fellows and Associates gained a new client, Health
Bazaar Company buys computers, parts, and related equipment and resells them at a markup to a loyal base of corporate customers. Competition is growing, but the market is favorable, and Bazaar offers
Search.com is an Internet-based dating agency. Its business model is that anyone can search its website and review for free the profiles of people looking for friends or partners, but if anyone wants
Andre is seeking your advice on the selection of substantive procedures for the audit of his client, Rock Ltd. (Rock). Rock is a specialist outdoor clothing and equipment retailer and has experienced
Chemo Ltd. (Chemo) is developing a new drug for arthritis. The expenditure does not meet the requirements for deferral as an asset and must be expensed in the current period. The amounts involved are
Chris Cho is a veterinary surgeon, specializing in pigs. His customers are pig farmers, large and small, throughout the province. To support his practice, he also operates All Creatures Veterinary
The human resources department at Harold Logistics is responsible for selecting and appointing employees, approving pay rates and promotions, and processing employee terminations. The payroll
Securimax Ltd. (Securimax) has been an audit client of KFP Partners (KFP) for the past 15 years. Securimax is based in Waterloo, Ontario, where it manufactures high-tech armour-plated personnel
Securimax Ltd. (Securimax) has been an audit client of KFP Partners (KFP) for the past 15 years. Securimax is based in Waterloo, Ontario, where it manufactures high-tech armour-plated personnel
Fellowes and Associates Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. During 2011, Fellowes and Associates gained a new client, Health
What is the process of "engagement wrap-up"? Why is it important?
What matters does an auditor communicate at the end of an audit to those charged with governance? Why are these matters important?
What is the accounting assumption of "going concern"? Why is it of interest to auditors?
What procedures must the auditor perform to search for contingent liabilities?
Explain the difference between the two types of subsequent events. Discuss the auditor's responsibility for detecting subsequent events (a) prior to the completion of field work, (b) prior to signing
What options does an auditor have when material errors are found? Do these options vary for current-year misstatements and prior-year misstatements?
Why do audit reports contain paragraphs outlining (1) management's responsibility for the financial statements and (2) the auditor's responsibility for the financial statements? What is contained
What is "modified wording" in an audit report? What are the different types of modified wording and when are they used?
Explain the difference between limitation of scope and disagreement with those charged with governance.
CAS 260 stresses the importance of communication with "those charged with governance." Who are these people and why is it important that the auditor communicate with them (and not others)?
Lucy Huang has just finished her first audit assignment. She is now assisting her audit manager, Tom Lucas, in wrapping up the engagement. He has asked Lucy to make a list of all un cleared review

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