Questions and Answers of Auditing A Practical Approach

Hardeep Rahman is an audit senior with a national audit firm. Hardeep has been on the audit engagement of a private company, Grey & Sons Construction Ltd. Grey & Sons has been a client of the audit
Alex Wong, CPA, is a sole practitioner. He is having lunch with one of his long-time clients, Hudson Hughes. Hudson is very excited because he just hired a new bookkeeper, Laura Ling. This name seems
The auditor of a consumer goods business is working on a client’s allowance for doubtful accounts. The auditor asks management what has changed with respect to accounts receivable over the prior
Explain why Tania Fellowes should have reservations about accepting the TLCL engagement to provide an opinion with respect to the laser machines. Make appropriate reference to fundamental ethical
a. Identify and explain the potential type of threat to Fellowes and Associates’ independence in situations(1) and (2) above.b. What action should Fellowes and Associates take to eliminate the
An auditor will perform all of the following to gain an understanding of the entity, except:a. make inquiries of both financial and non-financial staff who may be able to identify the risk of
When gaining an understanding of the client’s operations, the auditor:a. will note the number of operations the client has.b. will consider if the client is geographically dispersed.c. will note
An example of an opportunity that increases the risk of fraud is:a. the client operates in a highly competitive industry.b. the client has a history of making losses.c. there is a high volume of
Which of the following statements is true with respect to estimation uncertainty?a. It is an accounting concept relating to precision and so it has no impact on an audit.b. Complexity, subjectivity,
What are mitigating factors in the context of the going concern assessment? Give some examples of mitigating factors for a client that has experienced a loss during the current year.
Why does the auditor assess the impact of estimates on an audit?What information should the auditor obtain to perform the risk assessment with respect to accounting estimates?
Sisters Inc. beauty salon is a 100 percent subsidiary of Benefit Beauty Supply Inc., a beauty supply company.As a result of this relationship, there were several transactions between the two entities
Francine, a CPA, is planning the audit of Richmond Contractors, a construction company that reports under ASPE. Francine notes the following with respect to Richmond:• Richmond records revenue
Farm Fresh Foods Inc. (FFF) is a new food distribution company that has been profitable since the second month of operations. It has arranged with Smith LLP, an accounting firm, to conduct an
Inherent risk is:a. the risk the auditor will issue an inappropriate opinion.b. the risk the financial statements are materially misstated without any consideration of controls.c. the only risk the
Common uses of analytical procedures include:a. risk identification during the risk assessment phase.b. estimation of account balances during the risk response phase.c. overall assessment of the
What factors should be considered to determine if an item is qualitatively material?
You are the audit senior of Rhino & Co. and you are planning the audit of Kaine Construction Co. for the year ended March 31, 2023. Kaine specializes in building houses and provides a five-year
Li Chen has calculated profitability ratios using data extracted from his client’s pre-audit trial balance.He also has the values for the same ratios for the preceding two years (using audited
Featherbed Surf & Leisure Holidays Ltd. (Featherbed) is a resort company based on Vancouver Island. Its operations include boating, surfing, fishing, and other leisure activities; a backpackers’
Based on the background information, what are the major inherent risks for the financial statements and at the account level in the Securimax audit? Consider both industry and entity risks in your
Discuss the factors to consider when determining preliminary materiality for Securimax.Securimax Limited has been an audit client of KFP Partners for the past 15 years. Securimax is based in
Identify the audit risks associated with the installation of the new IT system for patient revenue for Gardens Nursing Home.Fellowes and Associates Chartered Professional Accountants is a successful
Comment on the audit strategy likely to be adopted for the audit of patient revenue for Gardens Nursing Home.Fellowes and Associates Chartered Professional Accountants is a successful mid-tier
AutoCare Ltd. (ACL) is a federally incorporated public company formed in 2014 to manufacture and sell specialty auto products such as paint protection and rust proofing. By 2020, ACL’s board of
The assertion of cut-off:a. reflects that all assets and liabilities that should have been recorded are recorded.b. ensures that events have been recorded in the correct accounts.c. is an assertion
An external confirmation sent to a customer:a. provides strong evidence for the accuracy, valuation, and allocation assertion when the customer agrees with the balance owing.b. requests information
What external parties could an auditor send a confirmation to?
Is it possible for Fellowes and Associates to use only accounts receivable confirmations as audit evidence and adhere to the mandatory requirements in CAS 230? Explain.Fellowes and Associates
W&S Partners will need the assistance of auditors in China and the United States and may need derivatives experts to complete the Cloud 9 audit.The other auditors will be asked to provide evidence
Why do auditors use sampling? In what circumstances would the auditor decide to not use sampling, but rather test 100 percent of the population?
Explain how analytical procedures could be used for substantive testing. Give an example.
a. Identify the key account balance at risk because of the remuneration of the sales team at Shady Oaks. Identify and explain the key assertion at risk.b. Identify the key account balance and key
For each of the test results for Gardens Nursing Home:a. Identify whether this is a test of controls or a substantive test of detail.b. Determine the key assertion addressed by the test procedure.c.
Internal control is a system that is not:a. designed to provide reasonable assurance about the achievement of the entity’s objectives with regard to reliability of financial reporting,
ITGCs are important because they:a. promote the reliability of electronic audit evidence.b. affect the effectiveness of both application controls and IT-dependent manual controls.c. prevent
Documenting internal controls:a. is always handled through the use of checklists and preformatted questionnaires.b. is not done for smaller clients because of the risk of management override.c. can
Powersys is an electricity distribution company based in a large capital city. Its business is to manage the electricity assets, including poles, wires, and other equipment, that are used to deliver
Carmel Harrison runs Emerald Spa, a business providing women-only hairdressing, beauty, relaxation massage, and counselling services in a small tourist town. Ninety percent of the clients using the
The following errors due to sloppy paperwork and poor controls were found during an audit. 1. A customer’s order was shipped without credit approval. 2. Some sales made in January were recorded as
Within a client’s IT system, supplier information is contained in a supplier master file (SMF). Each supplier has a unique supplier code. If the purchasing clerk attempts to place an order from a
Select two components of internal control. Explain how the roles of the internal and external auditors would differ when assessing these components in relation to the new manufacturing costing
In relation to the new manufacturing costing system, describe two automated application controls that you would expect to find.Securimax Limited has been an audit client of KFP Partners for the past
For each of the accounts for Shady Oaks (payroll expense and accounts payable in items 1 and 2 above)identified to be a significant risk:a. Determine the relevant assertions.b. Describe a practical
a. Identify the relevant assertions at risk for payables in relation to payments made prior to receipt of goods.b. For the control procedures (1) to (5) above for payables:i. Identify the key
Arne Eklund, the audit senior, is reviewing the working papers written by the audit assistant on the audit of Quebec Creepers, a nursery and retailer of garden accessories. Arne reads the following
Armstrong, Aldrin & Collins Professional Corporation (AAC) operates a public accounting practice that is located in Woodstock, Ontario. AAC’s common shares are owned equally by its three
Concerns have been raised over building an Alberta pipeline. Amid the international environmental movement, the pipeline has emerged as a significant environmental concern. Assume you are a member of
Substantive procedures:a. are done only if control testing is not done.b. are designed to detect material misstatements at the assertion level.c. eliminate all risk of material misstatement in the
Tracing is:a. not a useful audit procedure.b. tracking source documents back to the underlying accounting records.c. the main audit procedure used to gather evidence on the existence assertion.d. not
Analytical procedures:a. are only done during the risk assessment phase of the audit.b. are substantive procedures and cannot be used at any other stage of the audit.c. are used at the risk
An auditor performs an analytical procedure and calculates an expected interest expense for the client using the average debt outstanding, the weighted average interest rate, and the payment
In the risk response stage, when an auditor tests management’s estimates, the auditor should assess all of the following, except:a. the controls.b. the model selected.c. the data used.d. the
What is an audit program? What should be included in the audit plan?
Differentiate between tests of details of balances and tests of details of transactions.
List three procedures an auditor should perform in the risk response stage with respect to estimates.
Ann Marcus, CPA, is performing an audit for one of her clients, Artistcraft Ltd., a glass factory, for its December 31, 2023, year end. The audit program requires a substantive analytical procedure
a. Identify two key account balances likely to be affected by the above information.b. For each account balance identified in part (a), identify and explain the key assertions most at risk.c. For
Your audit manager has requested that you use substantive analytical procedures to calculate Shady Oaks’estimated revenue for patients staying in the centre, excluding medical procedures and
To record depreciation relating to the new machines purchased by Shady Oaks Centre, management has estimated residual values and the expected life.Required Discuss the procedures that may be
The following items are documented in the audit working papers: 1. A sales transaction included in the year ended December 31, 2023, but evidence from the cut-off procedure suggests that the sale
Answer the following questions based on the information presented for Cloud 9 in Appendix A and in the current and earlier chapters. You should also consider your answers to the case study questions
Economic conditions and financial markets were significantly affected by the coronavirus that swept around the world in 2020. A decade earlier, a similar phenomenon was caused by the global financial
Describe why audit assertions are important in the determination of audit risk.
Define substantive procedures.
Are there any audits where the auditor would perform no substantive audit procedures? Explain your answer.
Name the four different types of substantive procedures discussed.
Describe the relationship between the amount of substantive testing to be performed and the timing of the testing.
When is the timing of substantive procedures most flexible? When are substantive procedures performed in these circumstances?
Name two common sampling techniques.
How do the control environment and results of control testing influence the timing of the substantive audit procedures?
Why is it important to test the reliability of the underlying data used in analytical procedures?
What is persuasive audit evidence? Give an example.
When does an analytical procedure provide corroborative audit evidence?
When does an analytical procedure provide minimal audit evidence?
What is a misstatement?
What is the difference between an error and a judgemental misstatement?
What is an audit program?
What three assertions are most at risk when auditing the sales and receivables cycle?
Define the audit objective of accuracy with respect to sales.
What does the completeness assertion over presentation and disclosure objective for sales and receivables mean?
List and briefly describe the five steps involved in processing credit sales.
What is the most significant risk over cash receipts?
What are three controls an entity should enforce to reduce the risk of fraud over sales adjustment transactions?
List four inherent risks over the sales and receivable cycle.
What is a dual-purpose test?
What are three possible tests of controls over the operating effectiveness of cash receipts?
What income statement accounts impact accounts receivable? Why?
If tests of controls subsequently lead to a revised assessment of control risk, how will this impact the audit?
Explain how the assessment of the assertions for credit sales, cash receipts, and sales adjustments affects the assessment of the assertions over accounts receivable.
What is the purpose of vouching recorded accounts receivable to supporting transactions?
What is the purpose of sales cut-off testing?
What are four reasons why accounts receivable confirmations may not provide reliable evidence?
In a credit sales organization, the best place to assign credit approval is in:(a) accounts receivable.(b) the sales department.(c) the cashier area where receipts will eventually be sent.(d) a
Controls over approving credit relate to:(a) the existence or occurrence assertion.(b) the completeness assertion.(c) the accuracy or valuation and allocation assertion.(d) the rights and obligations
To enhance controls in the credit sales area, the warehouse should be instructed not to release goods until:(a) a faxed copy of the sales requisition is received.(b) a completed sales invoice is
An example of a programmed application control is:(i) numerical sequence (continuity) of documents is assured.(ii) unreasonable quantities, amounts, and dates are queried.(iii) only orders for goods
In most audits, the auditor is concerned about sales adjustment transactions because of:(a) the sheer number and value of these transactions.(b) the lack of proper authorization for these
In relation to materiality, the following statement is most accurate:(a) accounts receivable produced by credit sales transactions are material to the balance sheet for all businesses except those
Control risk assessments for accounts receivable assertions depend on the related control risk assessments for the class of transactions. The classes of transactions that do not relate to the

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