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auditing 12th

Questions and Answers of Auditing 12th

The following circumstances may involve violations of the Rules of Conduct:1. A CPA bases his fee on the outcome of a bankruptcy proceeding.2. A CPA discloses confidential information in a peer
The following actions by a CPA may involve violations of the Rules of Conduct:1. Agrees to be the committee chairperson for a local fund-raising activity.2. Serves as an executor and trustee of the
Gilbert and Bradley formed a corporation called Financial Services, Inc., each man taking 50 percent of the authorized common stock. Gilbert is a CPA and a member of the American Institute of CPAs.
The following situations involve Herb Standard, staff accountant with the regional CPA firm of Cash \& Green:1. The bookkeeper of Ethical Manufacturing Company resigned two months ago and has not yet
What is meant by common law?
Under common law, a CPA may be liable to a client.a. Explain the meaning and importance of the term privity of contract.b. How may an auditor breach a contract?c. What cause ordinarily underlies a
a. Who are the two classes of third parties that may sustain suits against auditors under common law?b. Under what circumstances may an auditor be held liable to third parties?
Indicate the significance of Ultramares, Rusch Factors, and the Rhode Island Hospital Trust cases on the auditor's liability for negligence.
Why is the auditor's liability under statutory law more extensive than under common law?
a. Who may bring suit under the 1933 Securities Act?b. What is the basis for such action?
Under what circumstances will a statement be presumed to be misleading?
What are the responsibilities of the plaintiff and the defendant in a 1933 Act suit?
a. Who may bring suit under the 1934 Securities Exchange Act?b. Is the basis for action the same as in a 1933 Act suit? Explain.
What are the conditions associated with liability under Rule \(10 \mathrm{~b}-5\) of the 1934 Act?
What are the responsibilities of the plaintiff and the defendant in a 1934 Act suit?
Enumerate the principal differences in legal liability between the two securities acts.
a. What was the basis for the Hochfelder case?b. What is the significance of the decision in the case?
a. What were the critical issues in (a) the Contine, ital Vending case and (b) the BarChris case?b. What action was taken by the profession as a result of each case?
Contrast the essence of the relative importance of prcfessional standards in legal cases between the AICPA, the SEC, and the courts.
Identify actions which the auditor may take to avoid litigation.
a. Distinguish between errors and irregularities.b. What is the auditor's basic responsibility for errors or irregularities?
a. What responsibility does the auditor have when he believes material errors or irregularities may exist?b. What are the possible effects of the foregoing on the auditor's standard report?
a. Define illegal acts.b. What is the auditor's basic responsibility for such acts?
a. Can an examination made in accordance with generally accepted auditing standards be relied upon to detect illegal acts? Why or why not?b. What are the possible effects of illegal acts on the
Watts and Williams, a firm of certified public acccountants, audited the accounts of Sampson Skins, Inc., a corporation that imports and deals in fine furs. Upon completion of the examination the
Jackson was a junior staff member of an accounting firm. He began the audit of the Bosco Corporation which manufactured and sold expensive watches. In the middle of the audit, he quit. The accounting
- Walter Young, doing business as Walter Young Fashions, engaged the CPA partnership of Small \& Brown to examine his financial statements: During the examination, Small \& Brown discovered certain
Donald Sharpe recently joined the CPA firm of Spark, Watts, and Wilcox. He quickly established a reputation for thoroughness and a steadfast dedication to following prescribed auditing procedures to
Keen, a CPA and sole practitioner, was retained by Arthur \& Son, a partnership, to audit the company books and prepare a report on the financial statements for submission to several prospective
Risk Capital Limited, a Delaware corporation, was considering the purchase of a substantial amount of the treasury stock held by Florida Sunshine Corporation, a closely held corporation. Initial
A number of situations that pertain to the auditor's liability under common and statutory law are described below. At the end of each case, a statement is made concerning one or more of the parties
The Dandy Container Corporation engaged the accounting firm of Adams and Adams to examine financial statements to be used in connection with a public offering of securities. The audit was completed
While examining the financial statements of Fesmore Industries, Inc., for the fiscal year ended October 31, 19X0. Dey \& Co., CPAs, discovered that J. Parker Dilmore, executive vice-president of
Barney \& Company, CPAs, has been engaged to perform an examination of the financial statements of Waldo, Inc., for several years. The terms of the engagement have been set out in an annual
Gordon \& Groton, CPAs, were the auditors of Bank \& Company, a brokerage firm and member of a national stock exchange. Gordon \& Groton examined and reported on the financial statements of Bank
In the audit of different clients, you encounter the following pertaining to illegal acts:1. You are unable to determine the amounts associated with certain events or if, in fact, an act is
The CPA firm of Martinson, Brinks \& Sutherland, a partnership, was the auditor for Masco Corporation, a medium-sized wholesaler. Masco leased warehouse facilities and sought financing for leasehold
Several years ago, Dale Holden organized Holden Family Restaurants. Holden started with one restaurant that catered to the family trade. Holden Family Restaurant became very popular because the
How extensive is the SEC's authority over the public sale of securities?
Identify the five divisions of the SEC.
Describe the responsibilities and primary functions of the Division of Corporation Finance.
Enumerate the principal duties of the Chief Accountant.
Identify and briefly describe the types of authoritative pronouncements issued by the SEC.
List the specific types of information included in Regulation S-K and Accounting Series Releases.
Briefly describe the SEC's rules concerning(a) qualifications of independent accountants and(b) accourtant's reports.
The registration of securities is designed to insure investors against loss. Do you agree or disagree? Why?
a. Describe the customary review that is made of a registration statement.b. Indicate the courses of action the SEC may take when an original filing is deficient.
Identify the steps in the registration process that occur after the registration statement is filed with the Commission.
a. What are the two basic objectives of the Securities Act of 1933?b. Distinguish between a registration statement and a prospectus.
Enumerate the basic information that is common to registraticns under the 1933 Act.
Describe the basic financial data required under the 1933 Act, including the time period covered, and whether the data must be audited.
Identify the major responsibilities of the accountant in a 1933 Act registration.
a. What is an S-1 Review?b. What specific steps are required in making an S-1 Review?
a. What procedures are generally required in a comfort letter engagement?b. What is included in a comfort letter?
Why does an accountant issue a letter of consent? What condition must be met in issuing this type of report?
a. Contrast the requirements for financial information of Form 10 of the Securities Exchange Act of 1934 with Form S-1 of the 1933 Act.b. What is meant by incorporation by reference?
Identify the principal data required in a Form \(10-\mathrm{K}\) filing and what data, if any, that must be audited.
Briefly explain the two major accounting requirements in filing quarterly reports under the 1934 Act.
a. What data are required in a Form \(8-\mathrm{K}\) filing?b. What information must be submitted in regard to auditor changes?
Distinguish between injunctive and administrative proceedings in enforcement of the securities acts.
a. What sanctions may be imposed under Rule 2(e)?b. What sanctions have been used under this rule?
There are five Divisions in the SEC. Listed below are activities that pertain to one of these divisions:1. Supervises field investigations of possible violations of the federal securities statutes.2.
Four types of accounting-related pronouncements are issued by the SEC:(1) Regulation S-X, Regulation S-K, Accounting Series Releases (ASRs), and Staff Accounting Bulletins (SABs). Listed below are
A number of steps are involved in the registration process under the 1933 Securities Act. Ten of these steps are listed below in random order:1. Data for registration are collected by company
Ensign Corporation is a manufacturing firm with ten domestic plants. Increased demand for the company's products and a near full capacity production have caused management to decide to build a new
The most common annual report required by the SEC is Form 10-K. Form 10 , another SEC report, is often used to register under the Securities Exchange Act of 1934. Item 2 of both Form
Below are events pertaining to a public client subject to SEC jurisdiction:1. There is a change in independent auditors that is not related to a disagreement over accounting principles.2. There is a
The Jerford Company is a well-known manufacturing company with several wholly owned subsidiaries. The company's stock is traded on the New York Stock Exchange, and the company files all appropriate
Contrast judgmental and statistical sampling.
Explain the applicability of statistical sampling to (a) the general standards and (b) the first field work standard.
How can statistical sampling be utilized in making a study of internal control?
Define precision and reliability statistically and indicate their meaning in auditing.
What factors should be considered by the auditor in specifying precision?
What are the underlying basic concepts of a random sample?
Differentiate among the four principal types of selection techniques.
Identify and distinguish between the two types of statistical sampling techniques.
Assume a population of checks numbered 4001 to 6000 . Indicate the first five numbers to be selected from the random number table in Figure 5-1, if the auditor uses the second set of four digits,
Identify the four steps of an attribute sampling plan.
What factors must be considered in identifying the population to be sampled?
Why are the attributes of interest important in a sampling plan?
How can the auditor estimate the expected popu!ation occurrence rate?
What factors are needed in determining the size of a sample?
Jsing the appropriate table, determine the sample size in each of the following situations: SAMPLING FOR ATTRIBUTES Expected Population Occurrence Rate (%) 32412 65743 2 Reliability Upper Precision
Indicate the effect (increase, decrease, or none) on sample size of the following change, assuming other factors are held constant: (a) increase reliability, (b) decrease upper precision limit, and
Using the appropriate table, determine the achieved upper precision limit based on actual sample results in each of the following cases: a. Sample Size 180 Number of Occurrences Reliability (%) 3 95
What factors should be considered by the auditor in analyzing occurrences found in the sample?
Distinguish between formulating statistical conclusions about the population and determining the acceptability of the population.
Distinguish between formulating statistical conclusions about the population and determining the reliability of the control being tested.
Identify and discuss the alternative courses of action for an auditor when his sample results indicate that a control cannot be relied upon.
a. Describe the circumstances where discovery sampling may be useful in auditing.b. What factors are necessary to determine sample size in discovery sampling?
The Doak Company uses prenumbered vouchers. During a given test period, voucher numbers 1000 to 8000 were used.Required:a. Select the first five vouchers to be included in a random sample in each of
This problem focuses on the determination of sample sizes.Required:a. Given the constraints of a 7 percent desired upper precision limit, and an estimated population occurrence rate of from 1 to 4
The use of statistical sampling techniques in an examination of financial statements does not eliminate judgmental decisions.Required:a. Identify and explain four areas where judgment may be
An audit of inventory records disclosed that the population comprises 20,000 items of inventory. Units within the items vary from 30 to 750 . The values of the units vary from \(20 otin\) to \(\$
In the development of an audit program it is determined that to achieve specified precision and confidence a sample of 436 items from a population of 10,000 is adequate on a statistical
Mavis Stores had two billing clerks during the year. Snow worked three months and White worked nine months. As the auditor for Mavis Stores, Jones, CPA, uses attributes sampling to test clerical
In the Leo Company, 18,000 checks were issued during a designated period of time. Concern exists within management that some of these checks may be forgeries. As part of your regular audit
The Tomlin Company's principal activity is buying milk from dairy farmers, processing the milk and delivering the milk to retail customers. You are engaged in auditing the sales transactions of the
In an attribute sampling plan for the Mid-East Sales Co., you examine 200 sales invoices. In your working papers, you make the following listing of possible exceptions to prescribed control
You are now conducting your third annual audit of the financial statement of Elite Corporation for the year ended December 31, 19X1. You decide to employ unrestricted random number statistical

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