Auditing Assurance Services And Forensics A Comprehensive Approach 1st Edition Felix I. Lessambo - Solutions

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Visit the website of a catalog retailer similar to EarthWear Clothiers, and determine how it processes purchase transactions and recognizes expenses. Note that you may have to examine the entity’s annual report and 10-K.
Visit the GAO’s home page (www.gao.gov) and search for a recently completed audit. Prepare a summary of the GAO audit, including background on the issue and the GAO’s primary findings and recommendations.
Yin Company has gross fixed assets of $6,000,000 and accumulated depreciation of $2,000,000. Sales over the last 12 months totaled$12,000,000.– Compute Yin Company fixed asset turnover ratio is:(a) $4,000,000(b) $6,000,000(c) 3.0(d) 6.0
– At the end of FY 2018, Mignon Corporation financial statements show an ending inventory of $100,000.– The COGS as reported in the Income Statement: $300,000 Task: compute Mignon Corporation Days’ sale-to-inventory in FY 2018(a) 3.0(b) 122(c) 212(d) 0.3
Wally, Inc. had $20,000 of average receivables during FY 2018 and collected $40,000 of receivables during the same fiscal year.Task: Compute Wally Inc. account receivable turnover ratio in FY 2018(a) 0.5 (b) 2 (c) $60,000 (d) $20,000
Doxa Inc. has a net profit of $150,000 in 2018, and an average capital employed of $3,000,000.Task: compute Doxa Inc. ROCE in FY 2018(a) 20%(b) 5%(c) $2,850,000(d) $3,150,000
Allison LLC generates $400,000 of business each year and shows operating profit of $100,000 before any taxes or interest expenses are accounted for.Task: Compute Allison LLC Return-on-Sales ratio(a) $300,000(b) 25%(c) 2.5%(d) 250%
Which of the following factors does not contribute to corporate governance failure?(a) Unfettered Deregulation(b) Excessive Compensation(c) Ineffective Boards of Directors(d) Lack of Continuous Training(e) None
Which factor is not included in the triangle of fraud?(a) The pressure or incentive(b) The above-the-law attitude(c) The opportunity(d) The rationalization of fraudulent behavior
The following corporate governance shortcomings were found in the Enron scandal, except?(a) Non-executive directors lacked independence to perform their duties (b) Conflicts of interest involving members of the firm's internal audit committee (c) Lord Wake ham who sat on the audit committee had a
Which one of the below assertions concerning Section 802 of the SOX Act is inaccurate?(a) Section 802 requires auditors to maintain all audit or review work-papers for a period of five years(b) Accountant who knowingly and willfully violates this record keeping requirement faces a maximum prison
Which one of the below assertions concerning Section 1107 of the SOX Act is inaccurate?(a) Section 1107 makes it a crime to retaliate against whistleblowers(b) Any confirmed act of retaliation on the part of an auditing firm is susceptible of 20 years of imprisonment(c) Any confirmed act of
One of the primary differences between a Financial Statement auditor and a Forensic Accountant lies on this factor?(a) Financial statement auditors are likely to follow leads suggested by immaterial items whereas Forensic Accountants often must restrict their efforts in searching for material
Forensic Accounting is defined as:(a) The practice of applying defined financial ratios to investigate a company’s financial health(b) The use of law enforcement to subpoena financial records to determine unlawful actions(c) The application of investigative and analytical skills for the purpose
If your actions are the result of misleading, intentional actions or inaction (including misleading statements and the omission of relevant information) to gain an advantage, then you have committed:(a) Perjury(b) Contempt(c) Treason(d) Fraud
Which of the following does a forensic accountant investigate?(a) Purchases of Businesses(b) Valuation of divorce assets(c) Calculation of lost profits(d) All of the above
Forensic accounting can be broken into how many categories?(a) Two: Investigative and Litigation(b) Two: Internal and External(c) Three: Investigative, External, Preventative(d) Three: Internal, Litigation, Certifed
Which of the following assertions is inaccurate concerning significant unusual transactions?(a) Significant unusual transactions can create complex accounting and financial statement disclosure issues that could pose increased risks of material misstatement(b) A significant unusual transaction does
The basic procedures in auditing significant unusual transactions include:(a) Reading the underlying documentation relating to significant unusual transactions and evaluating whether the terms and other information about the transaction are consistent with explanations from inquiries and other
All the following assertions are correct concerning the auditing of subsequent events, except:(a) The auditor should perform audit procedures designed to obtain sufficient appropriate audit evidence that all subsequent events that require adjustment of, or disclosure in, the financial statements
Which one of the below assertions is accurate concerning subsequent period?(a) The subsequent period is considered to extend to the date of the auditor’s report(b) The subsequent period must be approved by the firm management(c) Its duration depends upon the practical requirements of each audit
Which of the below assertion is accurate concerning the auditor’s report on condensed financial statements?(a) The auditor report must indicate that the auditor has audited and expressed an opinion on the complete financial statements(b) The auditor report must indicate the date of the
In performing the audit procedures on supplemental information, the auditor should consider the below, except:(a) Obtain an understanding of the purpose of the supplemental information and the criteria management used to prepare the supplemental information, including relevant regulatory
Which of the following is accurate concerning the objective of the auditor of the financial statements, when engaged to perform audit procedures and report on supplemental information that accompanies audited financial statements,(a) To obtain sufficient appropriate audit evidence to express an
Which of the following assertions is incorrect concerning fraud?(a) Fraud is a broad legal concept(b) Auditors do make legal determinations of whether fraud has occurred(c) The auditor’s interest relates to acts that result in a material misstatement of the financial statements(d) The primary
Which of the following assertions concerning fraudulent financial reporting is inaccurate?(a) The two types of misstatements relevant to the auditor’s consideration of fraud are (i) misstatements arising from fraudulent financial reporting and (ii) misstatements arising from misappropriation of
Which of the following assertions concerning misappropriation of asset is inaccurate?(a) Misstatements arising from misappropriation of assets involve the theft of an entity’s assets(b) Misappropriation of assets can be accomplished in various ways, including embezzling receipts, stealing assets,
Which of the following assertion is inaccurate concerning management override of control?(a) Management is in a better position to perpetrate fraud because of its ability to directly or indirectly manipulate accounting records and prepare fraudulent financial statements(b) Management can easily
In auditing the account receivables, the auditor will request the confirmation of accounts receivable during an audit unless one of the following is true:(a) Accounts receivable are immaterial to the financial statements(b) The use of confirmations would be ineffective(c) The auditor’s combined
The objectives of the inventory audit include the below, except:(a) Inventories included in the balance sheet physically exist(b) Inventories represent items held for sale or use in the normal course of business(c) Inventory quantities include all products, materials, and supplies on hand(d)
Key areas when testing tangible noncurrent assets include the following, except:(a) Confirmation of ownership(b) Inspection of noncurrent assets(c) Valuation by the form management (d) Potential impairment.
In auditing long-term debts, the auditor’s objectives include the below, except:(a) Determine whether all debts, loans are properly recorded(b) Determine whether proper authorization for issues of notes or bonds(c) Determine whether adequate controls over payment of interest and principal(d)
The objectives of the auditor in auditing the shareholders’ equity accounts include the below, except:(a) To determine, where appropriate, that transactions have been entered in accordance with resolutions of the board of directors(b) To determine whether the owners’ equity account transactions
Frazier LLC is an audit firm. In 2017, Frazier audited the financial statements of Charlie Corp. (FY 2017). At the closing of the audit, two issues remained pending: (i) Charlie Corp. has changed its inventory method in the midst of the fiscal year, and (ii) the management of Charlie Corp. refused
Soriano LLP is an audit firm based in Connecticut. Soriano has been hired to perform external audit for Rigoll Inc. At the closing of the audit, Soriano LLP found that there is a material inconsistency in the MD&A attached to the audited financial statements. The financial statements do not contain
When the auditor includes an emphasis-of-matter paragraph in the auditor’s report, the auditor should do the following, except:(a) Include it immediately after the opinion paragraph in the auditor’s report(b) Use the heading “Emphasis of Matter” or other appropriate heading(c) Include in
(a) The auditor can only add an “Emphasis of Matter Paragraph” if:(b) The matter has been appropriately presented or disclosed in the financial statements(c) In the auditor’s professional judgment, the matter is fundamental to users’ understanding of the financial statements(d) The auditor
The following are circumstances when the auditor may consider it necessary to include an emphasis-of-matter paragraph, except:(a) An uncertainty relating to the future outcome of unusually important litigation or regulatory action(b) A major catastrophe that has had, or continues to have, a
If the auditor considers it necessary to communicate a matter other than those that are presented or disclosed in the financial statements, the auditor should:(a) The auditor should do so in a paragraph in his/her report with the heading “Other Matter” or other appropriate heading(b) The
The content of the other-matter paragraph does not include the following information, except:(a) Information required to be presented and disclosed in the financial statements(b) Information that the auditor is prohibited from providing by law, regulation, or other professional standards(c)
The auditor’s evaluation about the entity’s ability to continue as a going concern for a reasonable period of time, not to exceed one year beyond the date of the financial statements being audited is based on:(a) The auditor’s knowledge of relevant conditions and events that exist at or have
The following are factors that an auditor should consider in reaching the conclusion as to the ability of an entity to continue as a going concern, except:(a) Negative trends (b) Default on loan or similar agreements (c) Substantial dependence on the success of a particular project (d) Legal
In the group audit, the group engagement team should obtain an understanding of the following, except:(a) Whether all component auditors understand and are committed to comply with the ethical requirements that are relevant to the group audit and, in particular, are independent(b) All component
In a group audit, when the group engagement partner decides to make reference to the audit of a component auditor in the auditor’s report on the group fnancial statements, the report on the group fnancial statements should clearly indicate the following, except:(a) That the component was not
In assessing materiality, the group engagement team should determine the following, except:(a) The performance materiality for the group fnancial statements as a whole when establishing the overall group audit strategy(b) Determine the materiality to be applied to particular classes of
The following factors may affect the group engagement team’s involvement in the work of a component auditor, except:(a) The significance of the component(b) The identified significant risks of material misstatement of the group financial statements(c) The seniority of the group engagement team
The involvement of the group engagement partner in the work of a component auditor can take different forms, except:(a) Meeting with the component auditor to obtain an understanding of the component and its environment(b) Reviewing the component auditor’s overall audit strategy and audit plan(c)
Which of the below is included in the auditor’s objectives in his communication with the audit committee:(a) Communicate to the audit committee the responsibilities of the auditor in relation to the audit and establish an understanding of the terms of the audit engagement with the audit
The scope of the communication between the auditor and the audit committee includes:(a) Appointment and retention(b) Understanding the terms of the audit(c) Obtaining information(d) Communicating the audit strategy(e) All of the above
In communication the result of the audit to the audit committee, the auditor shall cover the following matters with the exception of:(a) Signifcant accounting policies and practices(b) Critical accounting policies and practices(c) Critical accounting estimates(d) The overall audit expenses(e)
Which of the below assertion is inaccurate concerning the auditor attitude when facing disagreement with the management:(a) The auditor shall communicate the issues to the audit committee whether the disagreement has been resolved or not(b) The auditor shall communicate the issues to the audit
Which of the below assertion is inaccurate concerning the form and documentation of communications:(a) Unless otherwise stated, the auditor communication to the audit committee can either be oral or in writing(b) The auditor communication to the audit committee must always be in writing(c) The
When evaluating the reasonableness of the accounting estimates as provided by the management of the client, the auditor shall perform the following except:(a) The auditor should evaluate, based on the audit evidence, whether the accounting estimates in the financial statements are either reasonable
– Doxa Company is a US North-East regional frm in the business of selling red widgets – Doxa Company has historically experienced a warranty expense of 0.2% of sales – In FY 2017, it sold $500,000 of red widgets, and recorded a debit of $10,000 to the warranty expense account and $10,000 to
In which of the following situations the auditor is likely to audit accounting estimates:(a) Allowance for doubtful accounts (b) Reserve for obsolete inventory (c) Changes in the useful life of depreciable assets (d) Changes in the salvage values of depreciable assets (e) All the above
Which of the following statement(s) is/are accurate:(a) Related party transactions should be assessed in the context of the company’s overall governance structure(b) The definition of related parties varies across regulatory bodies.(c) Related party transactions are very often significant
Which of the following is not required under Auditing Standard 18(related Party transaction)?(a) Management is expected to be the initial source of the auditor’s information identifying related parties and transactions(b) Management is expected to be the initial source of the auditor’s
The 10 AICPA Auditing Standards are organized under the below standards, except:(a) The general standards(b) The field standards(c) The documentation standards(d) The reporting standards
Which of the following assertions concerning the interpretive publications is inaccurate:(a) Interpretive publications consist of auditing Interpretations of the SASs, appendixes to the SASs, auditing guidance included in AICPA Audit and Accounting Guides, and AICPA auditing Statements of Position
In establishing the overall audit strategy, the auditor should take into account the following:(a) The reporting objectives of the engagement and the nature of the communications required by PCAOB standards(b) The factors that are significant in directing the activities of the engagement team(c)
An auditor can accept an assurance engagement only where the practitioner’s preliminary knowledge of the engagement circumstances indicates that:(a) Relevant ethical requirements, such as independence and professional competence will be satisfed(b) The subject matter is appropriate(c) The
Which of the following, is not an element of an assurance engagement?(a) A three-party relationship involving a practitioner, a responsible party, and intended users(b) An oral or written assurance report, at the convenience of the auditor, in the form appropriate to a reasonable assurance
Which of the following characteristics exhibit “Suitable criteria” under the assurance engagement?(a) Relevance;(b) Completeness;(c) Reliability;(d) Neutrality(e) Understandability(f) All of the above
John Aristote LP is an audit frm based in Dublin (Ohio). In 2017, the frm was hired to compile the fnancial statements of Reggie Inc., a nonpublic entity based within the same state. Reggie Inc. fnancial statements omitted substantially all disclosures required by the GAAP. In its compilation
The auditor can perform an agreed-upon procedure attest engagement provided that:(a) The auditor is independent(b) The auditor and the specified parties agree upon the procedures performed or to be performed by the practitioner(c) The specific subject matter to which the procedures are to be
In an agreed-upon procedure, the auditor is responsible for all the below, except:(a) To carry out the procedures and report the findings in accordance with the general, fieldwork, and reporting standards(b) Assumes the risk that misapplication of the procedures may result in inappropriate findings
In agreed-upon procedure, the specified parties are responsible for all, except:(a) Assume the risk that such procedures might be insufficient for their purposes(b) Assume the risk that they might misunderstand or otherwise inappropriately use findings properly reported by the practitioner(c) Are
The following assertions are true, concerning the agreed-upon procedure engagement, except:(a) The subject matter of an agreed-upon procedures engagement may take many different forms and may be at a point in time or covering a period of time(b) The auditor should not agree to perform procedures
The following are the attributes of an independent auditor, except:(a) To be independent an auditor must be without bias with respect to the client since otherwise, he would lack that impartiality necessary for the dependability of his findings(b) Independence does not imply the attitude of a
Which of the following assertions is inaccurate may challenge the auditor’s independence in fact or/and the perceived independence?(a) An independent auditor auditing a company in which he was also a director may be biased(b) An auditor with a substantial financial interest in a company may be
When the covered member’s former employer is one of the sponsors of a governmental public employee retirement system, the covered member may continue to participate in the same governmental plan if:(a) The covered member neither participates on nor is in a position to influence the attest
An immediate family member’s employment by an attest client would impair independence, unless:(a) The immediate family member does not have primary responsibility for significant accounting functions that support material components of the financial statements(b) The immediate family member does
If a covered person is the beneficiary of a trust that has a financial interest in a restricted entity, the independence of a member firm ordinarily would be impaired if:(a) The indirect financial interest in the restricted entity is material to the covered person(b) The trust was created by the
Which one of the following assertions is inaccurate concerning the auditor responsibility in obtaining sufficient appropriate audit evidence about whether the opening balances contain misstatements that materially affect the current period’s financial statements?(a) The auditor shall determine
Which of the following is accurate concerning the auditor responsibilities in the performance of preliminary engagement activities?(a) The auditor team leader must conduct the quality control for an engagement(b) The Auditor team leader must evaluate compliance with relevant ethical requirements(c)
Which one of the below is not a component of the internal control over financial reporting?(a) The management overrides (b) The control environment (c) The company’s risk assessment process (d) The monitoring of controls Question4 Obtaining an understanding of the control environment includes
Which is of the following is accurate concerning the engagement partner and, as applicable, other engagement team members performing supervisory activities?(a) Inform engagement team members of their responsibilities(b) Direct engagement team members to bring significant accounting and auditing
Which of the following assertions is inaccurate concerning audit evidence?(a) Audit evidence consists of all the information, whether obtained from audit procedures or other sources(b) Audit evidence consists of information used by the auditor in arriving at the conclusions on which his opinion is
Audit procedures can be classified into the following categories, except:(a) Risk assessment procedures (b) Tests of controls (c) Substantive procedures (d) Substantive analytical procedures (e) Confirmation
Which of the below assertions is inaccurate concerning analytical procedures?(a) Analytical procedures involve evaluations of financial information through analysis of plausible relationships among both financial and nonfinancial data(b) Analytical procedures include investigation of fluctuations
The main assertions in the financial statements relating to inventory, for which audit procedures should be designed and performed are:(a) Existence(b) Ownership(c) Completeness(d) Valuation
When the auditor attends an inventory count as a part of the inspection procedure, the auditor is required to:(a) Evaluate management’s instructions and procedures for recording and controlling the results of the entity’s physical inventory counting(b) Observe the performance of
Which of the following assertion is accurate concerning audit risk?(a) Audit risk refers to the risk that the auditor expresses an inappropriate audit opinion (b) Audit risk is a function of the risk of material misstatement and detection risk (c) Audit risk includes risk of material misstatement
Which of the following assertion is inaccurate concerning the risks of material misstatement?(a) Risks of material misstatement can arise from a variety of sources, including external factors (b) Risks of material misstatement never occur from the nature or the activities of a company (c) Risks of
Which of the following Assertion is inaccurate concerning the auditor’s inquiry regarding fraud?(a) Inquiries of management concerning its knowledge of fraud, alleged fraud, or suspected fraud affecting the company (b) Inquiries of the audit committee, or its equivalent as to the fraud risks
Which one of the following is not included in fraud risk factors?(a) An incentive or pressure to perpetrate fraud (b) An opportunity to carry out the fraud (c) An attitude or rationalization that justifies the fraudulent action.(d) A commingling of the function of the CEO and Chairman of the board
Which one of the below assertions is incorrect concerning fraud risk factors?(a) Fraud risk factors do not necessarily indicate the existence of fraud (b) Fraud risk factors often are present in circumstances in which fraud exists (c) Fraud risk factors may be unintentional (d) The auditor’s
Which of the below assertions concerning audit sampling is inaccurate?(a) Audit sampling is the application of an audit procedure to less than 100% of the items within an account balance or class of transactions (b) In order to have statistical relevance, a sampling approach should be determined
Which of the following assertions is inaccurate concerning sampling risk?(a) The auditor’s conclusion based on a sample may be different from the conclusion if the entire population were subjected to the same audit procedure (b) Sampling risk includes drawing an incorrect inference from the
Which of the following assertions is true when determining sampling size in attribute sampling?(a) The Population size is not a major factor (b) A failure rate is not to be expected (c) The sampling risk is often too high (d) Tolerable failure rate is predetermined
Non-sampling risk occurs in the following situations, except:(a) The auditor has chosen the right sample but has applied the wrong audit procedure(b) The auditor has applied the appropriate procedure but he did not properly understand the evidence(c) The auditor sampling method was faulty(d) The
Which one of the below assertions is inaccurate concerning statistical sampling?(a) Statistical sampling involves additional costs of training auditors (b) Statistical sampling requires designing individual samples to meet the statistical requirements, and selecting the items to be examined (c)
Docile LLC is an audit firm based in Tarrytown, NY. Docile has accepted a new engagement to perform audit services for Danger T, Inc.The auditor professional responsibilities is to:(a) The client only(b) The state of New York(c) The public(d) The client, the public, and the shareholders
Management’s responsibility for the entity’s compliance with compliance requirements includes the following:(a) Identifying the entity’s government programs and understanding and complying with the compliance requirements(b) Establishing and maintaining effective controls that provide
The following are types of assurance services with the exception of:(a) Training engagement(b) Due diligence engagement(c) Compliance engagement(d) Financial engagement
The following are types of assurance services with the exception of:(a) Legal counsel engagement(b) Facilitation engagement(c) Advice engagement(d) System security engagement
An accountant’s objective of a review of the financial statements of a non-issuer (nonpublic company) is to provide what type of assurance?(a) Absolute assurance(b) Limited assurance(c) No assurance(d) Reasonable assurance
The PCAOB auditing and related professional practice standards include the following, except:(a) Auditing standards(b) Attestation standards(c) Ethics and independence standards and rules(d) Quality control standards(e) All the above
The PCAOB main responsibilities include the following, except:(a) Registration of accounting firms (including non-US firms) that audit public companies (including non-US issuers) trading in US securities markets(b) Inspections of registered public accounting firms(c) Providing a letter grade to
In conducting its inspections, the PCAOB shall perform these below-mentioned except:(a) Inspect and review selected audit and review engagements of the firm(b) Assess the qualification of the partners(c) Evaluate the sufficiency of the quality control system of the firm(d) Perform such other

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Auditing Assurance Services And Forensics A Comprehensive Approach 1st Edition Felix I. Lessambo - Solutions

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