Auditing A Risk Based Approach to Conducting a Quality Audit 10th edition Karla Johnstone, Audrey Gramling, Larry E. Rittenberg - Solutions

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What types of disciplinary action may be taken if a member has violated the AICPA Code of Professional Conduct?
Newspaper headlines frequently highlight instances where business professionals, politicians, and others are accused of engaging in unethical behavior. In response, there have been numerous attempts to reduce their occurrence. For example some have argued for universities to include more courses in
Identify some of the most important ways that the profession and society encourage CPAs to conduct themselves at a high level.
What are the three categories of members under the AICPA Code of Professional Conduct?
How did the Sarbanes-Oxley Act of 2002 increase criminal liability for auditors?
The following independent scenarios describe auditor behavior on an audit engagement. 1. Chad Lewis is the lead audit partner on the audit engagement of a publicly traded company. Chad followed auditing standards on the audit engagement and issued an unmodified opinion. It was subsequently
Identify the three broad categories of management assertions.
Identify the management assertion and presentation and disclosure-related audit objective for the specific presentation and disclosure-related audit objective: Read the fixed asset footnote disclosure to determine that the types of fixed assets, depreciation methods, and useful lives are clearly
The following independent scenarios describe auditor decisions made during an audit engagement. 1. Chen Li worked on the audit of American Healthcare Associations (AHA), which operates hospitals and outpatient centers in Texas and Oklahoma. Chen was assigned responsibility to audit the allowance
What are the five elements of an effective professional judgment process?
Describe two of the more common judgment traps and biases.
Describe the liquidity activity ratios and explain why these ratios are useful to auditors.
Explain the purposes and benefits of audit engagement management software.
The following audit procedures were performed in the audit of inventory to satisfy specific balance-related audit objectives as discussed in Chapter 6. The audit procedures assume that the auditor has obtained the inventory count sheets that list the client's inventory. The general balance-related
Use AICPA (www.aicpa.org) and PCAOB (pcaobus.org) auditing standards to answer the following questions about audit evidence and audit documentation. Required a. According to PCAOB Auditing Standard 3 on audit documentation, the complete audit documentation must be assembled by 45 days after the
In recent years the global economy experienced recession levels unprecedented since the Great Depression, and the instability of the Euro continues to cause volatility in stock and bond markets. Why might it be important for you to consider current economic events as part of planning an audit?
The minutes of the board of directors of the Tetonic Metals Company for the year ended December 31, 2016, were provided to you.Meeting of March 5, 2016The meeting of the board of directors of Tetonic Metals was called to order by James Cook, the chairman of the board, at 8:30 am. The following
Target and Kohl's are chains of stores that cater to customers who desire name-brand goods at lower prices. The Securities and Exchange Commission (SEC) Form 10-K filing rules require management of U.S. public companies to include background information about the business, as well as the most
Following are statements of earnings and financial position for Wexler Industries.Required a. Use professional judgment in deciding on the preliminary judgment about materiality for earnings, current assets, current liabilities, and total assets. Your conclusions should be stated in terms of
How should the auditor consider risks related to revenue recognition when assessing the risk of material misstatement due to fraud?
What types of inquiries should the auditor make when considering the risk of material misstatement due to fraud?
What constitutes a significant risk?
Describe examples of characteristics of transactions and balances that might cause an auditor to determine that a risk of material misstatement is a significant risk.
Describe which two factors of the audit risk model relate to the risk of material misstatement at the assertion level.
Provide two examples of factors that might increase the risk of material misstatement at the overall financial statement level.
This problem requires you to access PCAOB Auditing Standard No. 12, Identifying and Assessing Risks of Material Misstatements (pcaobus.org). Use this standard to answer each of the questions below. For each answer, document the paragraph(s) in AS No. 12 supporting your answer. Required a. What
Moranda and Sills, LLP, has served for over 10 years as the auditor of the financial statements of Highland Bank and Trust. The firm is conducting its audit planning for the current fiscal year and is in the process of performing risk assessment procedures. Based on inquiries and other information
Assume that you are concerned that your client has recorded revenues that did not occur. What audit objective would you assess as having a high risk of material misstatement?
Describe the types of procedures auditors perform as part of their risk assessment procedures.
In addition to inquiring of individuals among management who are involved in financial reporting positions, such as the CFO and controller, which additional individuals should you consider making inquiries of as part of your risk assessment procedures? Be sure to describe how those individuals
Auditing standards require that the engagement team members engage in discussion about the risk of material misstatement. Describe the nature of this required discussion and who should be involved.
Auditing standards require that the engagement team members engage in discussion about the susceptibility of the financial statements to the risk of fraud. How does this discussion relate to the required discussion about the risk of material misstatement?
Why is it important to distinguish the auditor's assessment of the risk of material misstatement due to fraud from the assessment of the risk of material misstatement due to error?
Describe the types of overall responses by auditors to address fraud risk.
What do auditing standards require the auditor to consider when assessing the risk of material misstatements in revenue?
Describe the types of information that should be included in the auditor's working papers as evidence of the auditor's fraud assessment procedures.
The chapter vignette "Asset Misappropriation Collusion at Koss Corporation" on page 314 highlights the fraud at Koss Corporation, where the principal accounting officer, Sujata ("Sue") Sachdeva, embezzled approximately $31 million over 5 years to fund her lavish lifestyle. This was a material
This problem requires you to access PCAOB Auditing Standards (pcaobus.org) to answer each of the following questions. You can access those standards by viewing content found under the link "Standards." For each answer, document the paragraph(s) in the relevant standard supporting your answer.
Identify risks for extensive IT-based accounting systems.
Identify the traditionally segregated duties in IT systems.
An audit client is creating an online, Web-based sales ordering system for customers to purchase products using personal credit cards for payment. Identify three risks related to an online sales system that management should consider. For each risk, identify an internal control that could be
The following are internal controls related to various cycles. 1. Sales invoices are matched with shipping documents by the computer system and an exception report is generated. 2. Receiving reports are prenumbered and accounted for on a daily basis. 3. Sales invoices are independently verified
A growing number of organizations have been the target of hacking attacks, or cyberattacks, in recent years. High-profile examples in the U.S. include Target Corp., Home Depot Inc., the Internal Revenue Service, and other government agencies such as the Office of Personnel Management. Companies and
How does the auditor use information obtained from the control risk assessment and testing of controls to plan audit procedures?
If the auditor assesses control risk as high for a transaction-related audit objective, what does that imply for detection risk and the level of substantive testing?
Explain how control risk assessment differs for an integrated audit versus a financial statement-only audit.
The information technology (IT) department at Jacobsons, Inc., consists of eight employees, including the IT Manager, Melinda Cullen. Cullen is responsible for the day-to-day oversight of the IT function and reports to Jacobsons' chief operating officer (COO). The COO is a senior vice president
Explain the relationship between the occurrence transaction-related audit objective and the existence and completeness balance-related audit objectives.
Indicate the four phases of the audit process. In which phase does the auditor perform tests of controls?
Define attributes sampling. For which types of tests do auditors use attributes sampling?
What are the three main phases of audit sampling? Are these phases the same for statistical and nonstatistical sampling methods?
Annie Zhao is using attributes sampling in testing controls over sales transactions. She is testing five attributes related to sales invoices using an ARO of 5% (confidence level of 95%), and zero expected deviations for each attribute based on prior experience with the client. Annie has determined
Why do CPA firms sometimes use a combination of positive and negative confirmations on the same audit?
Under what circumstances would an auditor choose to confirm information such as the right of return or special sales terms in addition to the customer balance?
Because revenue recognition is presumed to be a fraud risk in most audits, generally the double-entry nature of accounting means the existence of accounts receivable is also at risk. In recent years, several high-profile incidents of improper revenue recognition attracted the attention of the
Assume you performed sampling for an accounts receivable population with a recorded population amount of $2,000,000. Tolerable misstatement is set at $100,000 for the test, and there are no individually significant accounts greater than $100,000. Several different sampling results for this
What is the relationship between ARIA for tests of details of balances and ARO for tests of controls?
Describe two major changes a client may make to its supply-chain management system and discuss how those changes might increase or decrease the risk of material misstatement in specific accounts.
Identify two types of substantive analytical procedures an auditor may perform in testing purchases.
Data analytics is a powerful tool in fraud detection and is often used to search for signs of fraud in the purchasing function. To learn more about data analytics as a fraud detection tool in purchasing, visit the Fraud Magazine Web site (www.fraud-magazine.com) and search for the January 2013
Explain how expense account analysis relates to the tests of controls and substantive tests of transactions that the auditor has already completed for the acquisition and payment cycle.
This problem requires you to research the disclosure requirements for fixed assets using the FASB Codification at www.fasb.org. Access to the FASB Codification requires that your educational institution be enrolled in the FASB academic access program, or provides access to the codification through
Describe factors the auditor should consider in developing an expectation for depreciation while performing a substantive analytical procedure for depreciation expense.
List three audit procedures that are primarily for the detection of fraud and state the type of fraud the procedure is meant to uncover.
Explain the relationship between the acquisition and payment cycle and the inventory and warehousing cycle in the audit of a manufacturing company. List several audit procedures in the acquisition and payment cycle that support your explanation.
The table below is an excerpt from Apple Inc.'s Statement of f Shareholders' Equity for its fiscal year ended September 27, 2014:a. How would the auditor verify the balances as of September 28, 2013? b. What would the auditor do to evaluate the amount shown as Net Income? c. What sources of
The Check Clearing for the 21st Century Act (Check 21 Act) allows recipients of paper checks to create a digital image of the original check, eliminating the need for further handling of the actual check. The Federal Reserve Board has created a consumer guide, Consumer Guide to Check 21 and
Access AICPA Auditing Standard AU-C 450, Evaluation of Misstatements Identified during the Audit (www.aicpa.org), to answer the following questions: a. Describe the three types of misstatements that can be identified by the auditor. What factors may suggest that the misstatement is not an isolated
Describe the five Trust Services principles.
Describe the key difference between a type 1 and type 2 SOC 1 report.
What type of report might a service organization use as a marketing tool to provide potential customers information about the internal controls related to security at the service organization?
With the rapid growth of cloud computing, many organizations are contracting with third-party service providers to process and store all kinds of data off site. In doing so, entities are now dependent on the effectiveness of controls provided by external software providers and data centers that are
What are the major differences between a compilation engagement and a preparation engagement?
McIver's Swimwear Distributors is a relatively small, privately held swimwear distribution company that operates in the Midwest and handles several product lines, including footwear, clothing, and swim team supplies. It sells directly to swimwear shops and does not sell to the big retailers. It has
Refer to the Focus on Fraud feature "The Great Salad Oil Swindle of 1963" and answer the following questions. a. How did management perpetrate the fraud? b. What was management's incentive to perpetrate the fraud? c. Is this fraud primarily a case of asset misappropriation or fraudulent financial
List some common incentives for managers to commit fraudulent financial reporting.
Refer to the Focus on Fraud feature "The Crucial Role of Professional Skepticism." a. What is professional skepticism? b. Why is professional skepticism helpful for detecting fraud? c. What are the key behaviors needed to successfully exercise professional skepticism during the performance of the
Obtain a copy of the report by the Global Public Policy Committee, "Enhancing Auditor Professional Skepticism" (November 2013) at www.thecaq.org/docs/research/skepticismreport.pdf. Answer the following questions. a. Explain the professional skepticism continuum and articulate how it relates to the
The development of the PCAOB was one of the most significant components of the Sarbanes-Oxley Act of 2002. Go to the PCAOB's web site, www.pcaobus.org and answer the following questions. a. Identify the responsibilities of the PCAOB as described in the web site. How does the inspection process
Sports Life World is a catalog retailer emphasizing outdoor gear, with a focus on fishing and hunting equipment and clothing. It prints an annual catalog containing over 200 pages of products, as well as approximately six special sale catalogs during the year. Products range from fishing lures
Companies can improve internal control effectiveness by implementing effective ongoing monitoring of their internal control processes. Identify ongoing monitoring procedures that an organization might use in assessing its controls over revenue recognition in each of the following situations:a. A
Refer to the Focus on Fraud feature "The Importance of Internal Control for Safeguarding Assets at Chesapeake Petroleum and Supply, Inc." whichdescribes the embezzlement at Chesapeake Petroleum and Supply. a. Why is internal control important to an organization? b. How does internal control help an
Refer to the Focus on Fraud feature "Moss Adams and the Meridian Mortgage Funds Fraud." a. Describe why Moss Adams was sued by the trustee for the bankrupt Meridian Mortgage. b. What is the trustee going to have to prove in order for the courts to hold Moss Adams liable for damages?
KPMG LLP served as the external auditor for some of the largest subprime mortgage lenders in the U.S. leading up to and during the housing market crisis of the mid to late-2000s. The audits of two of their largest lending clients, New Century Financial Corporation and Countrywide, ultimately led
A report available at the web site of the Center for Audit Quality (CAQ) on professional skepticism discusses whether professional skepticism and professional judgment are the same thing. At the CAQ web site obtain a copy of the report entitled "Enhancing Auditor Professional Skepticism"
The AICPA's Professional Ethics Executive Committee (PEEC) adopted a revised Code in January 2014, with an effective date of December 15, 2014. Additionally, the Code includes two conceptual frameworks with a delayed effective date of December 15, 2015. PEEC reformatted the Code to become more
List the preconditions for an audit.
Refer to the Focus on Fraud feature "Controls to Address Fraud Risk." When assessing control design effectiveness, what types of controls would an auditor expect a client to have in place to address fraud risk? Why are these controls important?
In a financial statement audit, what controls will an auditor test?
Auditors who adhere to the professional auditing standards are viewed as conducting a quality audit. A lack of adherence to the professional auditing standards heightens the risk that the auditor will provide an unqualified audit opinion on financial statements that are materially misstated. This
Refer to 5-90, which features details on the Ernst & Young-UK audits of Thornton Precision Components from 2004-2006. Use the ethical decision making framework presented in Chapter 4 to analyze the judgments made by the E&Y-UK audit partner responsible for the 2004-2006 audits of TPC.
Refer to the Focus on Fraud feature "Common Types of Earnings Management Techniques." Why might it be difficult for auditors to disallow companies' preferences to decrease existing reserves? Explain the role of professional skepticism in the context of evaluating management's explanations for their
Assume that you are auditing a nonpublic U.S. client. You have obtained evidence that appears to be inconsistent with other evidence documented in the audit work papers. Refer to the Standards Appendix to this book and identify the appropriate standard that will help you address this issue. What
At the PCAOB web site obtain a copy of the settled Disciplinary Order in the matter of Acquavella, Chiarelli, Shuster, Berkower & Co., LLP that was released by the PCAOB on November 21, 2013 (PCAOB Release No. 105-2013-010). The Order notes: "Throughout the relevant time period, ACSB failed to put
Refer to the Focus on Fraud feature "Lack of Oversight as a Control Weakness Leads to Embezzlement" and the Focus on Fraud feature "The City of Dixon, Illinois, Sues Its Auditor for $50 Million Related to the Rita Crundwell Embezzlement." The situation described in these features relates to the
You are helping to plan the audit for a client that is a U.S. public company. Your senior has indicated that it is important that planned audit procedures be modified to address assessed fraud risks. The senior also indicated that in responding to fraud risks, the auditor should perform audit
Refer to the Standards Appendix to the text. Identify the PCAOB, AICPA, and IAASB guidance that relates to audit sampling. Review the definitions of sampling risk and compare across the three standards-setting bodies. Describe similarities and differences in the definitions, if any.
Refer to Exhibit 9.4 and to the Focus on Fraud features "Channel Stuffing at Arthro Care-The Importance of Professional Skepticism" and "The Importance of Professional Skepticism in Auditing Revenue at Tvia." What methods have been used to fraudulently inflate revenue? How can auditors use
What factors influence the reliability of data used in conducting planning analytical procedures in the revenue cycle?
What is the effect on the substantive tests of accounts receivable when the risk of material misstatement is assessed as low rather than high because a client has effective internal controls? Provide specific examples.

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Auditing A Risk Based Approach to Conducting a Quality Audit 10th edition Karla Johnstone, Audrey Gramling, Larry E. Rittenberg - Solutions

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