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business
auditing 12th

Questions and Answers of Auditing 12th

What is meant by the verifiability of data in auditing?
How does the auditor's relationship with management differ, if at all, from his relationship with the board of directors an istockholder.
Contrast accounting and auditing as to(a) methodology and(b) purpose
a. What representations are made by the auditor in the auditor's standard report?b. What circumstances justify the issuance of an unqualified opinion?
Identify the three types of opinions that may appear in a nonstandard audit report and indicate the circumstances when each opinion is appropriate.
Explain both the meaning and misconceptions of present fairly" as used in the auditor's report.
Explain the meaning in the scope paragraph of the terms (1) GAAS, (2) tests of the accounting records, and (3) procedures we considered necessary in the circumstances.
What are the three groupings or categories of GAAS?
a. What are the essential characteristics of a profession?b. Give two examples of each characteristic that enables public accounting to be a profession.
Identify the three types of organizations that comprise the public accounting profession.
What is the major objective of the(a) AICPA,(b) state boards of accountancy, and(c) SEC?
a. What are the AICPA's most authoritative pronouncements in auditing?b. Who is authorized to issue these pronouncements?c. What authority is attached to these pronouncements?
Identify the categories of CPA practice units in the public accounting profession.
What types of services, other than auditing, is a CPA qualified to render?
Audits may be classified as (1) financial statement audits, (2) internal audits, (3) compliance audits, and (4) operational audits. The following are a list of items that are related to one of the
The president of your company (a multidivision company) has been discussing his company's internal operations with several colleagues in the business community. He has discovered that most of them
G. Johnson, a local real estate broker, is a member of the board of directors of Pennset Corporation. At a recent Board meeting, called to discuss financial plans, Mr. Johnson discovered two planned
The following two statements are representative of attitudes and opinions sometimes encountered by CPAs in their professional practices:1. Today's audit consists of test checking. This is dangerous
Listed below in alphabetical order are the steps that are included in preparing, auditing, and distributing financial statements:1. Analyze events and transactions.2. Determine fairness of statements
The auditor's standard report contains the words generally accepted auditing standards, auditing procedures, and generally accepted accounting principles.Required:a. Indicate the paragraphs of the
An auditor may issue four types of opinions: (1) unqualified, (2) qualified, (3) adverse, and (4) disclaimer (no opinion). Listed below are unrelated circumstances pertaining to different types of
The auditor's standard report contains standardized wording. Listed below are a number of incorrect sentences, clauses, and phrases pertaining to the standard report. Assume that the report pertains
There are ten GAAS. Listed below are statements that relate to these standards:1. The auditor is careful in doing the audit and in writing the audit report.2. A more experienced auditor supervises
The Auditing Standards Board (ASB) is one of the standing committees of the American Institute of Certified Public Accountants (AICPA). ASB is authorized to speak for the AICPA on auditing matters
Public accounting is generally recognized as a profession. In response to a homework assignment on the characteristics of public accounting that make it a profession, a student gave the following
The public accounting profession consists of five professional and governmental organizations: (1) the AICPA, (2) state associations of CPAs, (3) the FASB, (4) state boards of accountancy, and (5)
The following audit report was issued at the turn of this centuryt:New York March 12, 1903 To the Stockholders of the United States Steel Corporation:We have examined the books of the U.S. Steel
The following audit report was issued at the turn of this centuryt:New York March 12, 1903 To the Stockholders of the United States Steel Corporation:We have examined the books of the U.S. Steel
On completion of all field work on September 23, \(19 \times 1\), the following report was rendered by Timothy Ross to the directors of The Rancho Corporation:To the Directors of The Rancho
For many years, the financial and accounting community has recognized the importance of the use of audit committees and has endorsed their formation.At this time, the use of audit committees has
What is the nature of the general standards?
What factors are involved in the first general standard?
What factors are important in determining whether an auditor is independent(a) in fact and(b) in appearance?
What are the functions and potential advantages of audit committees?
a. What is involved in the standard of due professional care?b. How does this standard pertain to other categories of GAAS?
What attributes are necessary to act as a prudent practitioner?
What are the responsibilities of the AICPA Quality Control Review Division?
Identify the nine elements of quality control and give the primary objective of each.
What procedures should be used by a firm in determining whether to accept a new client?
What are the principal responsibilities of(a) the successor and(b) the predecessor auditor pertaining to communication between the two parties?
Indicate the importance and content of an engagement letter.
What are the the common(a) objectives and(b) membership requirements of the SEC and Private Companies Practice Sections?
What sanctions may be imposed on firms that do not meet the quality control standards under the Division for CPA Firms?
Explain the objectives of voluntary peer reviews and the criteria used in such reviews.
Identify the three phases of the auditing process and indicate the time frame when each is performed.
What steps are involved in audit planning?
What information is useful in audit planning?
What procedures may be used to acquire the essential information in planning?
a. Describe the nature and content of an audit program.b. What purposes are served by an audit program?
What considerations are involved in audit supervision?
Four GAAS are included in this chapter. Listed below are items pertaining to these standards:1. Being unbiased during the audit.2. Preparing an audit program.3. Taking continuing professional
Nine elements of quality control are identified in this chapter. Listed below are specific policies and procedures pertaining to quality control:1. Keeping records of professional staff who have
A CPA has been asked to audit the financial statements of a company for the first time. All preliminary verbal discussions and inquiries have been completed between the CPA, the company, the
Assume the following engagement letter was sent by a CPA:Mr. John Smith, Controller \(X Y Z\) Corporation 1 Main Street Urbun, Illinois 61555 Dear Mr. Smith:This letter is to express our
The AICPA Division for CPA Firms provides for an SEC Practice Section and a Private Companies Practice Section.Required:a. Identify the similarities and differences in objectives between the two
The AICPA has a voluntary quality control review program.Required:a. What are the requirements for acceptance and continuation in this program?b. What are the objectives and standards of compliance
Johnson, Inc., a closely held company, wishes to engage Norr, CPA, to examine its annual financial statements. Johnson was generally pleased with the services provided by its prior CPA, Diggs, but
The audit process may be divided into three categories: planning the audit, executing the audit program, and reporting the findings. Within these categories, the following specific steps must be
The first standard of field work includes adequate planning of the work.Required:a. What is the objective of audit pianning?b. What information about the client is essential in planning?c. Identify
In late spring of \(19 X 4\), you are advised of a new assignment as in-charge accountant of your CPA firm's recurring annual audit of a major client, the Lancer Company. You are given the engagement
In Figure 2-4, six phases or steps of an audit are identified in a time matrix.Required:a. Indicate in tabular form the time dimensions of each step assuming a company has a fiscal year that ends on
Coleson is practicing on his own and has audited the books of the Koltron Company for many years. This year, as a result of a press of duties, he is able to spend only enough time to read the
Sunny Energy Applications Co. sells solar-powered swimming pool heaters. Sunny contracts 100 percent of the work to other companies. As a new company. Sunny's balance sheet has total assets of \(\$
Identify the two categories of evidential matter and indicate their relative importance to the third standard of field work.
a. What types of management assertions are made in financial statements?b. Indicate the relationship of each type of assertion to audit evidence.
What is the purpose of the third standard of field work?
What factors are relevant in determining the sufficiency of corroborating information?
What presumption underlies the validity of underlying accounting data?
What factors affect the competency of corroborating information?
What are the three presumptions concerning the competency of evidential matter?
a. An auditor is expected to have an absolute basis for the expression of an opinion. Do you agree? Why or why not?b. What types of considerations are relevant concerning the basis for the auditor's
Identify the types of corroborating information that can be obtained by the auditor during an examination.
a. What are the objectives of a management representation letter?b. Indicate the relationship of this form of evidence to generally accepted auditing standards.
What factors affect the reliability of documentary evidence?
Identify the two general classes of auditing procedures that are applicable to the third standard of field work and indicate the primary purpose(s) of each.
a. Enumerate the procedures that may be used in making an analytical review.b. When may analytical review procedures be performed?
Identify the types of procedures that may be performed in making tests of transactions and balances.
a. What approach should the auditor take in evaluating evidence?b. What restraints should be exercised in the evaluating process?
What effects will the failure to meet the third standard of field work have on the auditor and the auditor's standard report.
Define the term audit working papers and indicate their principal functions in auditing.
What is the relationship between auditing working papers and(a) the general standards, and(b) the field work standards?
Enumerate the principal types of audit working papers.
Distinguish between(a) schedules and analyses and(b) adjusting and reclassifying entries.
Indicate the nature of the permanent working paper file and identify four types of data that would ordinarily be included in such a file
Who owns and who should maintain custody of working papers?
The third GAAS of field work requires that the auditor obtain sufficient competent evidential matter to afford a reasonable basis for an opinion regarding the financial statements under examination.
In his examination of financial statements, the CPA is concerned with the examination and accumulation of accounting evidence.Required:a. What is the objective of the CPA's examination and
During the course of an examination, the auditor examines a wide variety of documentation. Listed below are some forms of documentary evidence and the source from which they are obtained:1. Bank
A major written understanding between a CPA and his client, in connection with an examination of financial statements, is a client (management) representation letter.\section*{Required:}a. What are
The concept of materiality is important to the CPA in the examination of financial statements and expression of opinion upon these statements.\section*{Required:}Discuss the following:a. How are
In his examination of financial statements, an auditor must judge the validity of the audit evidence he obtains.Required:a. In the course of his examination, the auditor asks many questions of client
A variety of specific audit procedures for obtaining audit evidence are listed below:1. Inspected and counted securities on hand.2. Confirmed inventories stored in public warehouses.3. Obtained
In meeting the third standard of field work, the auditor may perform(a) substantive tests of transactions,(b) substantive tests of balances, and(c) analytical review procedures. Below are listed
Auditors frequently refer to the terms "standards" and "procedures." Standards deal with measures of the quality of the auditor's performance. Standards specifically refer to the ten GAAS. Procedures
An important part of every examination of financial statements is the preparation of audit working papers.Requireda. Discuss the relationship of audit working papers to the standards of field work.b.
The preparation of working papers is an integral part of a CPA's examination of financial statements. On a recurring engagement, a CPA reviews his audit programs and working papers from his prior
The accountant for the Rayan Co. is preparing financial statements for the year ended December 31. Your review of the accounting records discloses the need for the following adjusting and
During your work on the audit of the Jamaica Can Company, you discover the differences described below and note them in the working papers:1. To verify the client accrual for wages payable, you took
As a staff assistant on the Portage Developers Corp. audit, you have been asked by your supervisor, Mary Reed, to prepare a cash summary or lead schedule for the working papers for the December 31,
The following schedule was prepared by staff accountant C.B. Sure on completing the verification of a December 31 client-prepared reconciliation of the City Bank General Account in the audit of Bold,

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