Auditing A Risk Based Approach 12th Edition Karla M Johnstone-Zehms, Audrey A. Gramling, Larry E. Rittenberg - Solutions

An entity uses internal control procedures in order to mitigate the risks to which the entity is exposed. Listed below are two internal control procedures which are applicable to an entity’s sales and receivables system.Match each internal control procedure with the risk mitigated from the list
Accounting systems have control objectives and control procedures to mitigate the risks that the control objective is not met.For each of the following, select whether they are a control objective, risk, or control procedure.Organisations sell goods or services to customers with poor credit
Two types of computer-assisted audit techniques (CAAT) are test data and audit software.For each of the procedures listed below, select the type of CAAT which would be used to perform that procedure.Select all sales ledger accounts showing a credit balance for review Input of inventory (stock)
ISA 230 ‘Audit documentation states:‘The objective of the auditor is to prepare documentation that provides:(a) A sufficient and appropriate record of the basis for the auditor’s report; and(b) Evidence that the audit was planned and performed in accordance with ISAs (UK and Ireland) and
Hung Lo Ltd is a wholesaler of furniture (such as chairs, tables and cupboards). Hung Lo buys the furniture from six major manufacturers and sells them to over 600 different customers ranging from large retail chain stores to smaller owner-controlled businesses. All financial accounts transaction
You are the auditor of Whizzipop plc a manufacturer of soft drinks. The draft consolidated financial statements for the year ended 30 September 2X18 show revenue of $125 million (2X17 – $114 million), profit before taxation of $12.4 million (2X17 – $10.9 million) and total assets of $110
Decide whether or not these statements are true or falseAuditors owe a duty of care to potential investors in their client True/FalseAuditors may reduce the consequences of a negligence claim against them by operating as a limited liability partnership True/FalseIn order to prove a successful claim
Bogle McRum is a firm of Chartered Certified Accountants is currently engaged in finalising the audit of Bugle plc, a publicly listed company. The audit partner Hugo Sponge is reviewing the audit file for the year ended 31 October 201X. At the front of the file is a memo from the audit manager
Bogle McRum is a firm of Chartered Certified Accountants is currently engaged in finalising the audit of Bugle plc, a publicly listed company. The audit partner Hugo Sponge is reviewing the audit file for the year ended 31 October 201X. At the front of the file is a memo from the audit manager
The external auditor may seek to place reliance on internal controls in order to restrict substantive testing.In each of the following circumstances, select whether the external auditor is likely to place reliance or place no reliance on internal controls.A company with an independent internal
List the main characteristics of good audit evidence.State the main ways in which auditors can gather the evidence they need and provide an example of each method
You are the audit senior of Wellington Ltd for the year end 31 December 201X, in charge of trade receivables. You are about to start your yearend work and have been given the following extracts by your audit manager for you to consider as part of your planning and analytical review
Explain the differences between• An accrual• A provision• A contingent liabilityExplain the audit objectives, including the assertions to be validated, in the audit of provisions and how an auditor might approach the process of evidence gathering.
You are an audit manager with the audit firm of Spottit & Hope. One of your clients, Bolington Limited, has recently asked your firm to perform a limited review of the financial statements.During your review, you discovered a cash payment of $50,000. You have asked the company for details of this
Whizzipop has several subsidiaries, some of which are audited by firms other than yours. The financial statements of one such subsidiary company, Twizzle Ltd, for the year ended 30 September 2X18, are audited by another firm. Profit before taxation of $0.4 million and total assets of $34.1 million
State whether each of these statements are true or falseAuditors have no responsibility for validating comparative figures providing the audit report for the previous financial period has not been modified True/FalseAuditors must check that the opening balances have been brought forward correctly
Bludger Ltd’s auditors were appointed after the end of the financial year and discovered that the company had also changed banks shortly after the year end. The directors refused permission for the auditors to contact the previous bankers for confirmation of the year end bank balance without
Management representations are a source of audit evidence. These representations may be oral or written, and may be obtained either on an informal or formal basis. The auditors will include information obtained in this manner in their audit working papers where it forms part of the total audit
List the basic assumptions under which an entity would be considered to be a going concern
At the completion stage of an audit there are a number of final review procedures which must be carried out prior to signing the audit report. In not more than 500 words explain these procedures and the reasons for them.
In order to prove a successful claim for negligence against an audit firm there has to be a duty of care which was breached by the audit firm with the result that a loss was incurred. Auditors Woody & Co were amazed to receive a negligence claim from one of their client’s bankers Gurney plc who
Discuss the difference between a review engagement and a statutory year-end audit.
The Chairman’s Report of Pudding plc states that investment property rental forms a major part of revenue. However, a note to the financial statements shows that property rental represents only 1•6% of total revenue for the year. The audit senior is satisfied that the revenue figures are
You are a member of the audit team for the audit of Learnersinnit plc, a private provider of high quality educational services. The team have just completed the interim audit for the current year. You performed the work on the salaries system where you have noted the following issues:The company
State whether the following are true or falseEmphasis of matter reports are not a modification of opinion but merely draw attention to some disclosure in the financial statements True/FalseNegative assurance is given in all non audit engagements True/FalseFailure of auditors to obtain sufficient,
The auditing profession is facing unique technical challenges. These can be summarised briefly as:• The rise of Internet based retailers and service providers with diversified international operations.• The siting of key aspects of Internet based retailing operations in low tax jurisdictions
and international travel agents. Travel agents that wish to be able to make bookings on credit must complete an account application form with at least three references. The auditor’s tests provide sufficient appropriate audit evidence that credit is granted only after rigorous credit checks.
How does the result of controls testing affect auditing of the processes affecting cash and the substantive testing of the cash balance?
Explain how subsequent receipts tests provide useful evidence about debtors’ valuations.
Tello Enterprises (Tello) is a large importer of goods from China. Tello deals with thousands of suppliers in China and sells the goods to discount stores in Australia. The discount stores include some of the major department store retailers, franchise ‘Lo-Cost’ chains and independent
When would a client be more likely to (i) overstate or (ii) understate expenses?
IdealProtect Limited (IdealProtect) has been an audit client of Celestia & Associates (C&A) for the past 15 years. IdealProtect is based in Toowoomba, where it manufactures high-tech armour-plated personnel carriers. IdealProtect often has to go through a competitive market tender process to win
What are the auditor’s responsibilities for ‘going concern’?
Tia is discussing with Rory and Leigh the risks they identified and how this information will be used in the audit risk model. Tia comments, ‘The audit risk model provides us with a guide for our audit strategy based on our assessments of inherent risk and control risk, and Felix’s decision on
Crest Outfitters is a relatively young company, started in 2010 out of the garage of Peter Crest. Peter is a photographer and travels for 10 months of the year around the world capturing images for publications such as National Geographic and various other agencies. Peter was frustrated with the
Now that the Crest Outfitters executives have decided to obtain reasonable assurance on their financial report, Ben (the CFO) advises that they should obtain formal tenders from a range of audit firms.For the Crest Outfitters tender, Felix will put forward the following staff members for the
After testing internal controls, Leigh and Rory have come to the conclusion that most of Crest Outfitters’ controls are operating as designed, though they did encounter some issues around the end of the financial year when staff not from the warehouse and logistics area helped pack orders due to
A junior employee must prepare a bank reconciliation and submit it to the manager. Is this a prevent or detect control? Explain.
What is the difference between observation and inspection of physical evidence?
The form completed by casual employees to claim overtime requires a signature from the supervisor before payroll will process the claim. Is this a prevent or detect control? Explain.
What is the premise underlying the use of benchmarking? Why is it helpful to the auditor?
Explain the purpose of substantive testing, and give examples of the main types of substantive tests.
Why would an auditor use observation to gather evidence? What are the strengths and weaknesses of this type of test?
What does ‘nature’ mean in the context of the nature, timing and extent of substantive testing?
Explain ‘roll-forward’ procedures. When are they appropriate?
Tia has called a team meeting to discuss how the testing over Crest Outfitters’ web sales went and to talk about gathering substantive evidence on the remainder of the financial statements. This week the team will focus on asset and liability accounts. Based on the analysis of the financial
Ella has been asked to join the team responsible for designing the audit program for a new client, Carnation Corp Ltd (Carnation), a manufacturing and wholesaling firm. Carnation recently went ‘public’ and is now listed on the Australian Securities Exchange. Ella has worked for the audit firm
Michael Rutherford suggests the following audit procedure should be included in the audit program to gather evidence on the cut-off assertion for the revenue account: Select a sample of sales from the sales journal and agree the dates on the invoices to the dates on the delivery documents signed by
Michael Rutherford has another suggestion for the audit program for the revenue account. This time he suggests: Select a sample of sales from the sales journal and agree the details in the journal to the sales invoices, delivery dockets and customer orders.RequiredExplain which assertion for the
Luke Green and Michael Rutherford are discussing the audit program for the revenue account. Luke and Michael disagree about whether they should use procedure A or B below to test the occurrence assertion for the revenue account:A. Select a sample of sales from the sales journal and agree the
Liam has the task of designing the audit program for the payroll area. There have been no recent changes to the payroll system, or its interface with the general ledger. Among other tests, Liam is considering using the following analytical procedures to gather evidence:1. Compare payroll tax
Reliable Paper Ltd provides cardboard, paper and plastic packaging materials to a large number of manufacturers and distributors in all states. The cardboard and paper division is a well-established business, but Reliable Paper Ltd has been providing plastic products only since its takeover of
Nicholas has the task of reviewing the evidence from analytical procedures conducted by the audit assistants on the audit of Tumbleweed Holdings. The audit assistants have reported the results of these analytical procedures.1. Comparison of depreciation expense with the closing balance of each
What does interim testing mean? Give some examples of substantive tests that can be done before the end of the year.
Explain why gathering evidence about the occurrence assertion for a set of transactions could also provide evidence for the completeness assertion for a balance sheet account. Provide an example.
Explain why provisions are difficult to audit by control testing.
Donna Angelo is designing the audit program for cash for her client, Northerly Aspect Ltd (Northerly Aspect). Northerly Aspect is a property management services company. It deals with six major clients and several smaller clients, each with a number of properties for rent in the central business
Hematite NL is a mining company based in Western Australia. Hematite has 10 open-cut mines, most of which primarily extract iron ore. When the iron ore is extracted a small amount of other minerals is produced as a by-product. Iron ore is sold on forward contracts to companies in other countries.
Just Start Tools runs a network of small hardware retail outlets across the state. All sales are made for cash or on credit card and processed through electronic tills. A wide range of goods are stocked by the stores, meaning that the business deals with a large number of suppliers. All goods are
IdealProtect Limited (IdealProtect) has been an audit client of Celestia & Associates (C&A) for the past 15 years. IdealProtect is based in Toowoomba, where it manufactures high-tech armour-plated personnel carriers. IdealProtect often has to go through a competitive market tender process to win
Pedestrian Ltd (Pedestrian) has been a client of Violet Partners for many years. You are an audit senior and have been assigned to the Pedestrian audit for the first time for the financial year end 30 June 2020. During March 2020 you are completing the risk assessment for PPE, which is one of
Nicola is managing the performance of audit procedures on the trade receivables transaction file. Her main focus is the posting of entries for sales and sales returns to the control account and the individual debtors’ accounts. The members of her team have each been given specific tasks which are
In preparation to test other items on the income statement, Rory reminds Leigh to remember her introductory accounting. ‘An account balance is the result of the transactions that have been posted to that account’, he says. ‘Assets and liabilities are permanent accounts and revenues and
What is an unrecorded liability? Why would an auditor search for them?
Thomas is the engagement partner on the audit of Tidmouth Enterprises, a listed company selling small kitchen appliances. The appliances are made in China and imported and sold to retail outlets by Tidmouth Enterprises. Tidmouth Enterprises has a small internal audit team that was established after
Sodor Connections (Sodor) 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 to post their profile or a message or make contact with another person they must pay
Henry is seeking your advice on the selection of substantive procedures for the audit of his client, Clash Ltd. Clash Ltd is a specialist outdoor clothing and equipment retailer and has experienced reasonable growth over the past three years, although this growth has come substantially from the
Pharma Duplicitous Ltd is developing a new drug for diabetes. The expenditure does not meet the requirements for deferral as an asset and must be expensed in the current period. The amounts involved are material: the trial balance shows salaries for chemists $6 million, depreciation of laboratory
Toby Crimson is a veterinary surgeon, specialising in poultry. His customers are poultry farmers, large and small, throughout the state. To support his practice, he also operates Feathers First Veterinary Supplies Pty Ltd (Feathers First), which supplies drugs and other supplies to poultry farmers.
IdealProtect Limited (IdealProtect) has been an audit client of Celestia & Associates (C&A) for the past 15 years. IdealProtect is based in Toowoomba, where it manufactures high-tech armour-plated personnel carriers. IdealProtect often has to go through a competitive market tender process to win
What is the difference between current-year misstatements and prior-year misstatements?
List the steps involved in forming a conclusion on the audit.
What are key audit matters? How do these affect the format of the audit report?
What are the auditor’s responsibilities under the Corporations Act to report breaches of the Act? Who does the auditor report to?
Greg Brown is reviewing the results of the review of subsequent cash receipts. There are several receipts listed from customers that were considered doubtful at the end of the year (30 June). Greg is also reviewing evidence that shows that another customer that had a large balance at year-end was
Paul Smitten is the partner in charge of the audit for a new client, Umbrella Holdings (UH). The client engaged Paul’s audit firm in November 2019, in preparation for the 2020 audit. From 30 January 2020 onwards, UH has consistently paid its suppliers late, well in excess of the suppliers’
Apricot Industries is a new audit client for the 2020–21 financial year. Apricot’s financial report for the 2019–20 year, the last with the previous auditor, was prepared on the assumption of a going concern. The auditor’s report included a discussion of the going concern issue. The issue
It is August 2021 and the first audit for Apricot Industries with your audit firm for the 2020–21 year is almost complete. Prior to reaching your final conclusions, you are reviewing the working papers for the year ended 30 June 2021. The material bank loan with Statewide Bank was extended in
Fender Ltd has placed deposits with an overseas supplier totalling $350 000 for the manufacture of specially branded goods on 18 May 2020. On 5 June 2020 the supplier closed due to civil unrest in the country. Expert opinion obtained on 31 July 2020 stated that it was unlikely that the deposit
Alyssum Ltd has been a client of Geoff & Aleida Partners for many years. You are an audit senior and have been assigned to the Alyssum audit for the first time for the financial year end 30 June 2020.Alyssum’s financial report for the year ended 30 June 2020 shows land and buildings at fair value
Meg Lithgow is the engagement partner of the audit of Champion Securities, an investment company. Most of Champion’s assets and liabilities are financial and their valuation is critical to the assessment of the company’s solvency and profitability. Meg has employed two outside experts to value
Lucas Upton has had difficulties throughout the audit of Fascia Catering. The company is a long-standing client of the audit firm and there have been no problems in the past. However, four months into the start of the financial year the company’s computer systems failed. Subsequent diagnostic
Elijah Brown is reviewing the results of the subsequent events audit procedures. Elijah is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will be whether the
Oliver and Charlotte are discussing the audit plan for a large manufacturing company. The company has two main manufacturing plants plus several warehouse and distribution centres (one in each state). The company has a large investment in trade receivables and there are additional concerns this
Melbourne Metal Fabricators (MMF) is a company that makes steel components for the construction industry. It specialises in extreme precision manufacturing where tolerances are measured in distances of less than one millimetre. Its products are used in revolving restaurants, automatic doors and
Canterlot Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2020 year Canterlot gained a new client, Cloudsdale Medical Group (CMG), which owns 100 per cent of the following entities:• Everfree Forest Hospital, a private
Canterlot Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2020 year, Canterlot gained a new client, Cloudsdale Medical Group (CMG), which owns 100 per cent of the following entities:• Everfree Forest Hospital, a private
Canterlot Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2020 year, Canterlot gained a new client, Cloudsdale Medical Group (CMG), which owns 100 per cent of the following entities:• Everfree Forest Hospital, a private
Canterlot Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2020 year, Canterlot gained a new client, Cloudsdale Medical Group (CMG), which owns 100 per cent of the following entities:• Everfree Forest Hospital, a private
Canterlot Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2020 year, Canterlot gained a new client, Cloudsdale Medical Group (CMG), which owns 100 per cent of the following entities:• Everfree Forest Hospital, a private
Canterlot Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2020 year, Canterlot gained a new client, Cloudsdale Medical Group (CMG), which owns 100 per cent of the following entities:• Everfree Forest Hospital, a private
Canterlot Chartered Accountants is a successful mid-tier accounting firm with a large range of clients across Australia. During the 2020 year, Canterlot gained a new client, Cloudsdale Medical Group (CMG), which owns 100 per cent of the following entities:• Everfree Forest Hospital, a private
What are some sources of inherent risk in mergers and acquisitions?
Which of the following are affected by the quality of an organization’s internal controls?a. Reliability of financial data. b. Ability of management to make informed business decisions.c. Ability of the organization to remain in business. d. All of the above. e. Only a and c.
The three laws most relevant to auditor liability include common law, contract law, and statutory law.(T/F)
Which of the following controls is related to the payment of inventory purchases?a. Cycle counts b. A disclosure committee c. A three-way match d. Both a and c.
In terms of planning analytical procedures, assume that the client has introduced a new product with a low price point and significant customer demand. The auditor would expect inventory turnover to increase and days’ sales in inventory to also increase. (T/F)
Auditors can use confirmations with the client’s banker as a substantive procedure to obtain evidence on the completeness of debt. (T/F)
Objective criteria for evaluating the quality of the client’s accounting policies is not available; assessing the quality, not just the acceptability, of the significant accounting policies is a matter of professional judgment. (T/F)
The purpose of internal control is to provide absolute assurance that an organization will achieve its objective of reliable financial reporting.(T/F)

Auditing A Risk Based Approach 12th Edition Karla M Johnstone-Zehms, Audrey A. Gramling, Larry E. Rittenberg - Solutions

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