Auditing The Art and Science of Assurance Engagements 13th Canadian edition Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Joanne C. Jones - Solutions

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The following long-term debt documentation (indexed K-1) was prepared by client personnel and audited by AA, an audit assistant, during the calendar year 2011 audit of American Widgets, Inc., a continuing audit client. The engagement supervisor is thoroughly reviewing the working papers.Overall
Consider the situation outlined at the beginning of the chapter in the Professional Judgment in Context feature. The situation described concerns the aggressive growth strategy pursued by former CEO Dave Jones of Rayovac Corporation, which was renamed Spectrum Brands after the company purchased a
Moehrle, S. R. (2002). Do Firms Use Restructuring Charge Reversals to Meet Earnings Targets? The Accounting Review 77(2):397-413. i. What is the issue being addressed in the paper? ii. Why is this issue important to practicing auditors? iii. What are the findings of the paper? iv. What are the
Why should the auditor exercise heightened professional skepticism concerning accounting estimates? What are the major factors that might affect the amounts that are primarily accounting estimates?
Describe the alleged fraud that Dell, Inc. top executives committed that related to inaccurate financial statement disclosures and management representations?
According to the UK's Financial Reporting Council (FRC), what are the five key drivers of audit quality?
List three examples of Type I subsequent events, and list three examples of Type II subsequent events?
What are some factors outside the control of auditors that are likely to make a positive contribution to audit quality?
A high-quality audit is one performed: a. In accordance with the engagement contract signed by both the auditor and the client, and one in which all audit procedures are performed efficiently. b. In accordance with generally accepted auditing standards (GAAS) to provide reasonable assurance that
Refer to the Biltrite financial statements in the Biltrite Practice Case (Exhibits BR.3 and BR.4 in the introduction to the Biltrite case). Required a. Calculate the Altman Z-score for Biltrite for 2009 using the model for public and private service and manufacturing companies. What does this
An alfalfa co-op has an agreement with its farmers to purchase alfalfa at a price that is currently 5% above the existing market price. In addition, the co-op has agreed to pay the farmers interest at 2% for each month delivery is delayed beyond December 31, 2011. Management expects that at least
Milton Green, CPA, is auditing the financial statements of Taylor Corporation for the year ended December 31, 2011. Green plans to sign the auditor's report on March 10, 2012. He is concerned about events and transactions occurring after December 31, 2011, that may affect the 2011 financial
The auditor is auditing financial statements for the year ended December 31, 2011, and is completing the audit in early March 2012. The following situations have come to the auditor's attention: 1. On February 12, 2012, the client agreed to an out-of-court settlement of a property damage suit
Consistent quality in the performance of an audit is one of the major concerns of all public accounting firms. However, internal inspections by audit firms themselves, along with external inspections by peer review teams and the PCAOB, point out that although good audit policies and procedures are
Cole & Cole, CPAs, are auditing the financial statements of Consolidated Industries Co. for the year ended December 31, 2011. On February 20, 2012, Cole asked the client to draft an inquiry letter to J. J. Young, Consolidated's outside attorney, to corroborate the information furnished to Cole by
The text talks about the case of Dell receiving payments from Intel in return for a pledge by Dell that they would not use computer chips from a major Intel competitor (AMD). The payments were large, covering between 10% and 76% of operating income over the 2002-2006 period. The SEC complaint is
What are client continuance decisions, and why are these decisions important to the ability of an audit firm to ensure audit quality?
What is audit firm portfolio management? Describe the process by which clients move into and out of an audit firm's portfolio of clients.
What are some of the risk factors that an audit firm should consider when making the client continuance decision?
Epps, K. K. & Messier Jr., W. F. (2007). Engagement Quality Reviews: A Comparison of Audit Firm Practices. Auditing: A Journal of Practice & Theory 26(2):167-181. i. What is the issue being addressed in the paper? ii. Why is this issue important to practicing auditors? iii. What are the findings of
How would the auditor's opinion differ if the financial statements of a company that was a foreign private issuer were prepared in conformity with IFRS and filed with the SEC rather than prepared in conformity with U.S. GAAP? What other differences exist in the standard audit reports issued in
Compare audits, reviews, and compilations in terms of: a. The types of procedures performed. Consider the following types of procedures in your response: • Assessing control risk. • Performing substantive tests of transactions and balances. • Performing analytical procedures. • Making
Describe the nature of the audit opinion in the auditors' reports on: a. Prospective financial information b. Pro forma financial information c. Compliance engagements d. Agreed-upon procedures engagements e. XBRL
What types of audit opinions are not accepted by the SEC? How do the SEC's requirements affect the conflicts that may arise between the client and the auditor? Discuss potential ethical implications of such conflicts.
Use the Internet to locate the financial statements (and associated audit report) of one company reporting using U.S. accounting standards and another company reporting using international accounting standards. Required a. Describe key differences between the two audit reports. b. Articulate how
You are a senior auditor working for Rittenberg & Schwieger, CPAs. Your staff assistant has drafted the following audit report of a publicly traded U.S. company. You believe the scope limitation is significant enough to qualify the opinion, but not to disclaim an opinion. To Joseph Halberg,
You are in charge of the audit of the financial statements of Parat, Inc. and consolidated subsidiaries covering the two years ended December 31, 2012. Another public accounting firm is auditing Nuam, Inc., a major subsidiary that accounts for total assets, revenue, and net income of 30%, 26%, and
The following auditor's report was drafted by a staff accountant of Turner & Turner, CPAs, at the completion of the audit of the financial statements of Lyon Computers, Inc. (a nonpublic company) for the year ended March 31, 2012. It was submitted to the engagement partner, who reviewed matters
On February 28, 2012, Stu & Dent, LLP completed the audit of Shylo Ranch, Inc. (a nonpublic company) for the year ended December 31, 2011. A recent fire destroyed the accounting records concerning the cost of Shylo's livestock. These were the only records destroyed. The auditors are unable to
Russ Major, CPA, drafted the following report on October 25, 2011 at the completion of the engagement to compile the financial statements of Ajax Company for the year ended September 30, 2011. Ajax is a nonpublic entity in which Major's child has a material direct financial interest. Ajax decided
You have been assigned to perform a review of a client's inventory containing electric motors, parts for motors, and raw materials used in making the motors. Required a. What inquiries and analytical procedures should you perform? b. What will you do if these procedures do not support the client's
A staff auditor of Erwachen & Diamond, CPAs, has prepared the following draft of an audit report on cash-basis financial statements: Accountant's Report to the Shareholders of Halon Company: We have audited the accompanying balance sheets and the related statement of income as of December 31,
Young & Young, CPAs, completed an examination of the financial statements of XYZ Company, Inc., for the year ended June 30, 2012 and issued a standard unqualified auditor's report dated August 15, 2012. At the time of the engagement, the board of directors of XYZ requested a special report
Krishnan, J., Raghunandan, K., & Yang, J. S. (2007). Were Former Andersen Clients Treated More Leniently Than Other Clients? Evidence from Going-Concern Modified Audit Opinions. Accounting Horizons 21(4):423-435. i. What is the issue being addressed in the paper? ii. Why is this issue important to
What are some of the defensive approaches used by auditors that might cause concern to investors about audit quality? Why would investors be concerned?
What are the main elements of any audit firm's programs to assure auditor independence?
Describe the liability issues and uncertainties for large U.S. CPA firms that are affiliates of international organizations?
1. Which one of the elements is necessary to hold a CPA liable to a client for negligently conducting an audit? a. Acted with scienter. b. Was a fiduciary of the client. c. Failed to exercise due care. d. Executed an engagement letter? 2. Which of the following penalties is usually imposed against
Brandon, D. M. & Mueller, J. M. (2006). The Influence of Client Importance on Juror Evaluations of Auditor Liability. Behavioral Research in Accounting 18:1-18. i. What is the issue being addressed in the paper? ii. Why is this issue important to practicing auditors? iii. What are the findings of
The auditor performs a statistical test of inventory and has done enough work such that the upper misstatement limit and most likely misstatement are determined. When determining whether or not the account has material misstatements, does the auditor consider (a) the known errors or (b) the most
When is an asset impaired? Explain and give an example of an asset that requires frequent impairment testing.
What do the two investor letters in the opening Professional Judgment in Context feature say about materiality and what auditors should know about what investors need?
What is sustainability? What is the difference between sustainability reporting and sustainability assurance?
What frameworks exist to assist companies in producing sustainability reports? What frameworks exist to assist third parties in providing reliable assurance over sustainability disclosures?
Is it unethical for a company to provide a sustainability report, but provide no assurance on the reliability of the information contained therein?
1. Which of the following would an auditor most likely use in making preliminary judgments about materiality? a. The anticipated sample size of the planned substantive tests. b. The entity's unaudited annual financial statements. c. The results of the internal control questionnaire. d. The
It was noted that virtually all items in a company's financial statement are subject to some "fair value" comparison and that a company ought to have a systematic process by which to gather information regarding accounting estimates, impairments, and lower of cost or market adjustments. Required a.
Operating leases are not normally shown on a balance sheet. However, Ford Motor Co. has an account entitled net investment in operating leases. Explain what this account represents and whether it is subject to fair value estimates?
The auditor must interact with the audit committee on a regular basis and is hired or fired by the audit committee. Yet, the auditor is supposed to evaluate the audit committee and determine whether it is carrying out its functions properly. Required a. What are the primary factors the auditor
During the audit of Pall Corp., KPMG found a material misstatement related to the client's estimate of income tax expense and the accrued liability. The misstatement had accumulated over a number of years and was found during the auditor's preliminary work. The client was notably upset and
ASC 820 Fair Value Measurements and Disclosures (previously SFAS 157) provides guidance for auditors and managers to make judgments regarding fair value. Required a. Identify the three levels of fair value evidence and the nature of audit evidence to be gathered for each level. b. Ford Motor
A common theme throughout this text is that the auditor should carefully document the reasoning process regarding the assessment of an account balance or an internal control deficiency. Required An auditor has documented the reasoning process and it is going to be reviewed by a partner who is not
Panzero Bread is a major retailer of specialty sandwich items and baked goods. The following information represents the company's financial position as of 12/31/10 andThe auditor of Panzero Bread identifies the company as possessing high audit risk and has set the posting thresholds for individual
Seong-Yeon, C., R. C. Hagerman, N. Sandeep, and E. R. Patterson. (2003). Measuring Stockholder Materiality. Accounting Horizons 17:63-76. i. What is the issue being addressed in the paper? ii. Why is this issue important to practicing auditors? iii. What are the findings of the paper? iv. What are
It will never happen here-our data will not be disclosed!" Unfortunately, it can happen, and it has. Every month there are new stories about data that has been compromised or stolen. For example, in May 2011 the big news item was Sony-the company shut down internet services in many countries,
List and explain the five key elements of the definition of auditing.
Which audit professionals could conduct the audit of a company that manufactures automobiles? Provide examples of the types of assurance or nonassurance engagements they could conduct for this company.
Explain the causes of information risk and how users can reduce the risk.
Explain the difference between an attest and direct report engagement.
Explain how and why the auditor makes information trustworthy and credible.
Describe and explain the differences and similarities between a financial statement, compliance, and operational audits.
Describe and explain the difference and similarities among the various types of auditors.
What are the major differences in the scope of the audit responsibilities for public accountants, auditors from offices of auditors general, Canada Revenue Agency auditors, and internal auditors?
Describe the different types of assurance engagements that an internal auditor, government auditor, forensic auditor, and public accountant could provide for a hospital.
Using a law firm as an example, describe the different assurance and nonassurance services that a public accounting firm could provide to the firm, with examples.
Consumers Union is a nonprofit organization that provides information and counsel on consumer goods and services. A major part of its function is the testing of different brands of consumer products that are purchased on the open market and then the reporting of the results of the tests in Consumer
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 a
In conducting audits of financial statements, it would be a serious breach of responsibility if the auditor did not thoroughly understand accounting. However, many competent accountants do not have a thorough understanding of the auditing process. What causes these differences?
Five university students majoring in accounting are discussing alternative career plans. Abdullah plans to become a CRA auditor because his primary interest is income taxes. He believes the background in tax auditing will provide him with better exposure to income taxes than will any other
Projections indicated that there would be record numbers of homeless people 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
Denise Garrido was 2013 Miss Universe Canada for only 24 hours. She was dethroned after an independent audit of the judges' scores discovered a typo in the top five entries. It turned out that Riza Santos was the actual winner and Garrido was the third runner-up. The Miss Universe Canada pageant is
Joy 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,
Explain why auditor independence is so important in conducting a financial statement audit.
Explain why an auditor who is not independent may not exercise the appropriate degree of professional skepticism.
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 financial
Explain how fair value accounting may increase information risk. How does fair value accounting increase risk for a financial statement auditor?
Access the Auditing and Assurance Standards Board (AASB) of Canada website at www.frascanada.ca/auditing-and-assurance- standards-board/index.aspx . REQUIRED a. Explain what the board does and describe its mandate.
What type of public accounting firm would you prefer to work for-a large or a small firm? One consideration would be the types of clients and services offered by the firm. The large public accounting firms tend to offer a full range of assurance and nonassurance services and have a wide variety of
How do structures of small and large public accounting firms differ?
What are the different ways that quality control is established and enforced for public accounting firms in Canada?
Why is it important that PAs have high-quality financial statement audits?
How does the organizational hierarchy of public accounting firms contribute to audit quality?
Explain how the CPA Handbook is organized
What is the purpose of the financial statement audit?
What are the objectives of the financial statement auditor when performing the audit?
What are the advantages and disadvantages of practising as a large public accounting firm rather than a small one?
Explain how appropriate competence and capabilities contribute to a PA's qualifications to conduct a financial statement audit. What are the various ways in which PAs fulfill these responsibilities?
What are the objectives and purpose of the financial statement audit?
What is meant by "audit quality," and what factors influence it?
The following comments summarize the beliefs of some practitioners about quality control and practice inspection: The Canadian quality control and practice inspection authorities are quasi-governmental regulators of the profession. There are two effects of such regulation: • It gives a
Mobile Home Manufacturing Company is audited by the public accounting firm Rossi and Montgomery. Mobile Home has decided to issue shares to the public and wants Rossi and Montgomery to perform all the audit work necessary to satisfy the requirements for filing with the Ontario Securities Commission
According to the CPAB, an audit firm culture that maintains the appropriate balance between commercialism (managing the economic business of the firm) and professionalism (sustainable high-quality audits) is the key to maintaining high-quality audits. REQUIRED a. Why do you think the relationship
Daiyu Cheng, a recently qualified PA, has been assigned by her firm, Liu & Liu LLP, to serve as the senior auditor in charge of the fieldwork on a new audit engagement. The client is Demonte Credit Union (Demonte), a medium- sized credit union that is heavily involved as a mortgage lender in the
Although the CPA Canada Handbook standards provide general guidance, the application of these standards is dependent upon particular circumstances. In practice, a professional accountant may encounter situations where CPA Canada Handbook standards do not exist or may not apply. Since there is no
What role does the CPA Canada Handbook have in the professional activities of public accountants in Canada?
What is the difference between the American and Canadian standard setting processes?
Access the CPA Canada's Audit Quality Blog at https://www .cpacanada.ca/en/connecting-and-news/blogs/audit-quality-blog . a. Explain the purpose of the Audit Quality Blog.
Access the Canadian Public Accountability Board (CPAB) website at www.cpab-ccrc.ca/en/Pages/default.aspx .a. Whom does CPAB identify as its key stakeholders? Explain the role of each of these stakeholders in relation to audit quality.b. Access CPAB's and CPA Canada's Enhancing Audit Quality
Due to regulatory requirements of certain jurisdictions in which some of the Big Four firms' clients are located, each firm prepares a transparency report. Access one of the Big Four firms' transparency reports on its website. a. How does the firm describe audit quality? b. What type of quality
What are some major factors that contribute to the growing cost of auditor litigation?

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Auditing The Art and Science of Assurance Engagements 13th Canadian edition Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Joanne C. Jones - Solutions

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