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auditing a practical approach

Questions and Answers of Auditing A Practical Approach

Diane Smith, CPA, performed tests of controls and substantive tests of transactions for sales for the month of March in an audit of the financial statements for the year ended December 31, 2023.
Describe whether the auditor is more concerned about the occurrence or completeness objective related to cash receipts.
Explain the difference in the requirements for reporting on the effectiveness of internal controls over financial reporting for integrated audits versus financial statement–only audits.
Why are the financial statement audit findings relevant to the auditor’s opinion on the effectiveness of internal controls over financial reporting?
What four types of procedures are used by auditors to test whether internal controls are operating effectively?
What is the purpose of a control risk matrix?
What are the three ways auditors respond to fraud risks?
Describe the types of procedures that constitute risk assessment procedures.
At what two levels does the auditor assess the risk of material misstatement?
As part of planning the audit of JA Tire Manufacturing for the year ended December 31, 2023, you are assisting with the performance of risk assessment procedures. The manager has asked you to help
Jose Morales, CPA, has found ratio and trend analysis relatively useless as a tool in conducting audits. For several engagements, he computed the industry ratios for his clients and compared them
Explain the difference between known and likely misstatements. Assume the auditor tests a sample of $100,000 of inventory and finds misstatements totaling $5,000. What is the likely misstatement if
As part of the engagement team for the audit of JA Tire Manufacturing for the year ended December 31, 2023, you are responsible for auditing the sales and collection cycle. Visit
You are auditing payroll for the Morehead Technologies company for the year ended October 31, 2023. Included next are amounts from the client’s trial balance, along with comparative audited
Explain the five elements that are part of a strategic understanding of the client’s business.
What are the fundamental steps an auditor needs to consider when using audit data analytics (ADAs) as an audit evidence–gathering tool?
Define what is meant by a management assertion about financial statements. Describe how PCAOB assertions and assertions in international and AICPA auditing standards are similar and different.
Takema Yost & Co., a medium-sized CPA firm, was engaged to audit Stuart Supply Company. Several staff were involved in the audit, all of whom had attended the firm’s in-house training program
What are the auditor’s possible defenses against lawsuits filed under the Securities Exchange Act of 1934?
Barbara Whitley had great expectations about her future as she sat in her graduation ceremony in May 2022. She was about to receive her Master of Accounting degree, and in the next week she would
Visit the PCAOB’s website (www.pcaobus.org) and locate the PCAOB’s Settled Disciplinary Order against Glenn Alan Zubryd issued on September 29, 2021, to answer the following questions: a.
Explain the rule on contingent fees. Why is this rule necessary?
Identify the circumstances under which a CPA can disclose confidential information without client permission.
Explain the role of the audit committee in enhancing auditor independence.
Explain the conceptual framework for the Rules of Conduct and how it should be applied.
What is the purpose of the Principles of Professional Conduct? Identify the six principles.
Why is there a special need for professional conduct by CPAs? How does this differ from the need for special conduct in other professions?
Patel, CPA, has completed the audit of the financial statements of Bellamy Corporation as of and for the year ended December 31, 2023. Patel also audited and reported on the Bellamy financial
On February 17, 2024, a CPA completed all the evidence gathering procedures on the audit of the financial statements for the Buckheizer Technology Corporation for the year ended December 31, 2023.
What are the three conditions that require a departure from an unmodified opinion audit report? Give an example of each.
When should the auditor include an explanatory paragraph in an unmodified opinion audit report?
What are the most significant differences between the AICPA and the PCAOB standard unmodified opinion audit reports?
Johnson and Wiley, CPAs, acquires Fritz and Rufner, CPAs, as of January 1, 2025. Johnson and Wiley have audited the financial statements of Matthews Grocery for the last five years. Fritz and Rufner
The audit committee of the board of directors of WaterFun Corporation asked DDD LLP to audit WaterFun’s financial statements for the 2025 fiscal year. DDD requested permission to communicate with
Auditors use the audit risk model to identify areas of the financial statements that are most at risk for material misstatement. Once risks are identified, auditors can more effectively determine
An audit strategy provides the basis for developing an audit plan that details the nature, timing, and extent of audit procedures to be performed. Auditors spend considerable time developing the
Explain the importance of the risk assessment phase of a financial statement audit.
Auditors spend significant time gaining an understanding of their client and the industry in which it operates. It is important to know key terminology related to financial accounting, business
Gathering and documenting evidence is required to support the auditor’s opinion on the fair presentation of the client’s financial statements. It is important to recognize characteristics of
Audit procedures are used to gather evidence to support the auditor’s conclusions on the fair presentation of a company’s financial statements. Procedures can be performed manually or with
List some key elements that would be included in any audit documentation.
Explain the circumstances where a user auditor obtains a SOC 1, Type 2 report that would cause the user auditor to follow a primarily substantive approach for an assertion.
You have been with the firm of Visse and Watne, LLC for 2 years. You are now the senior on the audit of a private company audit that is new to the office, Murray and Heath Construction, LLC. You have
The focus of a SOC 1 report is on:a. Cybersecurity.b. The integrity of transaction processingc. Internal controls over financial reportingd. Determining if there is a significant deficiency or a
Assume that you receive a SOC 1, Type 2 report as a user auditor. How will this report assist your firm in its audit of the user entity?a. A SOC 1, Type 2 report will allow the user auditor to both
Consider the following list of internal controls. a. Software will not allow a sale to be processed to a customer that has exceeded its credit limit. b. Personnel responsible for running
An auditor uses an AI and machine learning application to read leases and to determine if a lease should be accounted for as a finance lease or an operating lease. In this case, the auditor is
The audit firm you work for is auditing the 2025 financial statements for a national clothing retailer. As part of the audit, ADA is being used to assess risk associated with accrued wages.
Your audit client owns several fast food restaurants. Below are excerpts from Section 4 of a SOC 1, Type 2 report. Control Objective 2: Controls provide reasonable assurance that payroll processed is
What are the five procedures used for tests of controls? Explain them and comment on the reliability of the evidence obtained from each.
As discussed in the chapter, the results of tests of controls should ultimately influence the auditor’s audit strategy.RequiredExplain the differences between an audit of internal controls as
FinSer Corporation offers its clients investment portfolio reporting services.RequiredDownload the FinSer’s SSAE 18 2019 SOC 1, Type 2 report (https://www.finser.com/images/pdf/2019_
Explain what the user auditor is looking for in a SOC 1, Type 2 report. Write no more than one paragraph for each section of the SOC 1, Type 2 report.
An unqualified independent service auditor's opinion in a SOC 1, Type 2 report states that: a. Management's description of the system that was designed and implemented through the period in
An important part of management's assertion in a SOC 1, Type 2 report is that the service organization's management asserts that: a. Its internal controls will prevent, or detect and correct,
When the user entity outsources key aspects of its accounting system to an outside service organization, the user auditor needs to obtain a SOC 1, Type 2 report to determine: a. If any
One of the benefits of AI and machine learning is that: a. The technology gives consistent results every time. b. The system is very good at understanding simple relationships. c. The
Assume that you are using AI and machine learning to review 100% of journal entries. Develop an example of the type of anomaly you might expect the AI program to identify. In your example, explain
When is it appropriate to use roll-forward procedures?
The financial statements contain many estimates for various income statement and balance sheet items. Because of their nature, accounting estimates are susceptible to being misstated before
Which of the following cash transfers results in a misstatement of cash at December 31, 2025? a. b. C. d. Cash Disbursement per Books 12/31/25 12/31/25 1/4/26 1/3/26 Cash Paid by the
The following client-prepared bank reconciliation is being examined by Kautz, CPA, during an audit of the financial statements of Cynthia Company.RequiredIndicate one or more auditing procedures that
All of the following are risk assessment procedures for the audit of accounting estimates except: a. Gain an understanding of what is required by the applicable financial reporting
In an evaluated receipts settlement system, an advance shipping notice is: a. An electronic contract outlining the general terms for ordering, shipping, and paying for goods. b. Similar to
Assume that your audit client is a manufacturer of cosmetics, and it makes 90% of its sales through an evaluated receipts settlement system. Explain the flow of a sales transaction from initiating
Explain the transactions in the purchasing process.
Consider the following internal controls associated with the purchasing process.a. Software compares the recording date on vouchers with the date on the underlying receiving report. b. Software
Consider the following internal controls associated with an evaluated receipts process. a. Software generates a daily report comparing the daily total in the cash disbursements journal with the
You were in the final stages of your audit of the financial statements of Ozine Corporation for the year ended December 31, 2025, when you were consulted by the corporation’s president, who
A common scheme that results in misappropriation of assets in the purchases process involves fictitious or phantom vendors. Identify a control that would prevent the fraud, or detect and correct the
Fabrication Holdings Inc. (FH) has been a client of KFP LLP for many years. You are an audit senior and have been assigned to the FH audit for the first time for the financial year-end June 30, 2025.
Andrews, CPA, has been engaged to audit the financial statements of Broadwall Corporation for the year ended December 31, 2025. During the year, Broadwall obtained a long-term loan from a local bank
Explain the process of “engagement wrap-up.” Why is it important?
You have learned about many activities that occur near the end of the audit as the auditors complete their documentation and draw conclusions about the fair presentation of the financial statements.
Allison Frakes is the senior on the audit of Gazelle Airways, a small public company. Along with the audit manager, Allison has determined that a critical audit matter (CAM) involves determining the
Mark Jackson is the partner on the audit team for a new client, Central Companies (CC). The client hired Mark’s firm in August 2025 in preparation for the December 31, 2025, audit. Mark’s firm is
A critical audit matter (CAM): a. Is any audit matter that results in a qualified opinion on the financial statements. b. Is any audit matter that is communicated to or required to be
Waveland South, a private company, is a new audit client for 2025. Waveland’s financial statements for 2024 were audited by the previous auditor. The previous auditor’s report was an unmodified
Billy’s Burger House, a private company, is a chain of fast-food restaurants that has experienced fast growth in the last decade. The restaurant chain has been successful because it focuses on the
Mitch Jackson and Rosie Punter are part of the audit team for Hexagon Industries, a large manufacturing, private company client. The client’s year-end was December 31, 2025, the end of fieldwork
Phillips & Craig LLP was hired by Richards Manufacturing, a public company, to perform an integrated audit of the December 31, 2025, financial statements and internal controls. Phillips &
Industrial Holdings Inc. (IH), a public company, has been a client of Walker LLP for several years. Walker has completed the integrated audit of IH for the year ended December 31, 2025. In February
Mark Jackson is the manager on the audit team for a new client, Central Companies (CC). CC is a home appliance and lighting retailer specializing in high-end kitchen equipment and specialty light
The two standard-setting bodies are the PCAOB for the audits of public companies and the ASB for the audits of private companies. Each organization has a standard format for the auditor’s report on
The following organizations impact the audit profession.1. AICPA2. ASB3. COSO4. FASB5. IIA6. IAASB7. NASBA8. PCAOB9. SEC10. State Board of AccountancyRequiredMatch the organization with the proper
Describe the relationship between the SEC and the PCAOB.
Who would request an operational (performance) audit? Why?
Ron Stotez established his business, Stotez Shoes, in 1985. Since then, he has run his business as a sole proprietor. Ron keeps records, and his wife helps him prepare basic accounting records. As

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