Auditing An Assertions Approach 7th Edition G. William Glezen, Donald H. Taylor - Solutions

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What are the fundamental economic determinants of audit committee independence?Discuss the effect of each one.
To what extent can the composition of the audit committee, particularly with regard to the presence of outside directors, influence the reliability of financial reporting? Discuss the empirical findings regarding this relationship.
Discuss the main responsibilities of the audit committee towards independent auditors. What are the effects of audit committee on the external auditors’ performance and effectiveness?
What are the objectives of international standards on auditing?
To what extent do the globalization of financial markets and multiple listings reinforce the application of international standards on auditing?
Discuss the role and objectives of the International Federation of Accountants (IFAC) in harmonizing auditing standards.
What are the steps taken by the International Auditing and Assurance Standards Board(IAASB) in strengthening public confidence in the global auditing profession and serving the public interest?
What are the references used with regard to international standards on auditing and international practice statements?
Explain the fundamental differences between audits of financial statements and related services.
Discuss briefly the notions of review, agreed-upon procedures and compilation in the context of audit of related services.
Discuss the fundamental ethical principles governing the auditor’s professional responsibilities, using the IFAC Code of Ethics for Professional Accountants as a basis of your discussion.
Describe the features and objectives of International Standards on assurance engagements.
Explain briefly the concepts of ‘reasonable assurance’ and ‘inherent limitations’ in (a) an assurance engagement and (b) an audit of financial statements.
Discuss the role and importance of IAS and IFRS in developing international auditing standards.
Explain briefly the positions of EU and US regulators with regard to the auditing of financial statements of corporations subject to multiple listings.
Financial reporting, auditing and corporate governance.‘The effective functioning of capital markets is essential to our economic well-being. In my opinion, a sound financial reporting infrastructure must be built on four pillars: (1) accounting standards that are consistent, comprehensive, and
Foreign listings. Despite onerous listing requirements and high costs, some large companies seek listing of their stocks in foreign financial markets. This signifies the management belief that the benefits accruing from being listed outweigh the inconveniences and costs.Companies, however, may
Towards greater convergence in the EU. ‘There has been increasing support for a single set of global accounting standards in the European Union. The European Commission supports the drive for better communication and transparent information. However, its attempts go beyond the adoption of just
Accounting standards and the interests of the users of financial statements. Three solutions have been proposed for resolving the problems associated with filing financial statements across national borders: (a) mutual recognition (also known as reciprocity),(b) reconciliation and (c) use of
What actions undertaken by the European Union apply to statutory auditing?
Discuss the points raised in the context of the European directives (particularly in the new Eighth Directive) concerning the statutory audit.
What is the European Commission’s strategy on statutory auditing?
Following recent corporate financial failures around the world, what are the EU policy priorities on the statutory audit?
Why are some measures directed at auditors of public interest entities (listed corporations, banks and insurance companies) in the EU? What are those measures?
What are the reasons for and benefits of the European Commission’s recommendation on auditor independence?
How does the EU Directive (2005) respond to corporate scandals (such as Parmalat and Ahold) in the EU?
What level of uniformity would be achieved by the European Commission’s directive on auditor independence?
What are the detailed provisions of the European Commission directive on auditor independence?
Would the European Commission directive on auditor independence prohibit the provision of any additional service to the audit client?
What is the position of the EU Commission with regard to public oversight of the audit profession?
Would small and medium-sized firms be able to comply with the European Commission directive on auditor independence?
What does the European Commission’s directive require in terms of international standards on auditing?
Why does the approved EU directive (2005) remove nationality restrictions on ownership and management of audit firms?DISCUSSION QUESTIONS
Discuss the European Commission’s directive (2005) on statutory audit with regard to the following topics:(a) Independence and ethics;(b) Public oversight of the audit profession.
Europe and the US have different financial, legal, historical and cultural traditions. They are not identical and their regulatory action may spill over into the other’s jurisdiction.Discuss the new measures in the EU directive (2005) on the audit of company accounts in terms of the relationship
Discuss the European Commission’s proposals with regard to the following topics:(a) Permission or prohibition of non-audit services undertaken by statutory auditor or audit firm for audit client;(b) A common standard report for all EU statutory audits;(c) Mandatory rotation of audit firms.
The new EU directive requires the establishment of an audit committee within publicly listed companies. Discuss the objectives and benefits of such requirements. What would be the rules on the membership and work of that committee?
According to the information published by the European Federation of Accountants (FEE, 2005), the membership of this professional body consists of forty-four professional institutes of accountants from thirty-two countries. FEE member bodies are present in all twenty-five member states of the EU
There are several areas of conflict between the EU Commission and audit profession similar to those that may exist in the US. Discuss briefly the positions of the EU Commission and auditors of the European companies, particularly with regard to the following topics.(a) Ownership and management of
Some of the elements of the theoretical framework of auditing are shown in Figure 1.3. For each of these elements, describe the effect on an audit if the element were not true.1. The data to be audited can be verified.2. Short-term conflicts may exist between managers who prepare data and auditors
Answer the following questions.a. What is the purpose of the second and third general attestation standards shown in Figure 2.8?b. In Figure 2.9, why is there no attestation standard of fieldwork referring to internal control?c. In Figure 2.10, why are there no attestation standards of reporting
Define auditing, attest, and assurance services. Provide two examples of each type of service.
Which of the following is not a condition that potentially increases the entity's business risk?a. The entity's information system is not adequate to handle its volume of sales transactions.b. The entity's competitors have introduced major changes to their pro- duction processes, whereas the client
Prior to beginning the fieldwork on a new audit engagement in which a CPA does not possess expertise in the industry in which the client operates, the CPA shoulda. Reduce audit risk by lowering the preliminary levels of materiality.b. Gather more evidence about the client's internal control to
Which of the following, if material, would be fraud?a. Mistakes in the application of accounting principles.b. Clerical mistakes in the accounting data underlying the financial statements.c. Management appropriation of entity assets for personal use.\d. Misinterpretations of facts that existed when
The auditing standards used to guide the conduct of the audit area. Implicitly referred to in the opening paragraph of the auditor's standard report.b. Explicitly referred to in the opening paragraph of the auditor's standard report.c. Implicitly referred to in the scope paragraph of the auditor's
How might the three categories of management assertions provide a powerful tool for the financial statement auditor?
What is negative assurance within the context of an auditor's report? How does it differ from positive assurance?
What body establishes standards fora. All audits and for reviews of interim financial information and preparation of unaudited financial statements of public companies?b. Reviews and compilations of financial statements of nonpublic companies?c. Prospective financial statements?
What is the general reporting format on financial statements prepared in accordance with a comprehensive basis of accounting other than generally accepted accounting principles?
Define a financial forecast.
How does a financial projection differ from a financial forecast?
What is the CPA's purpose in examining a financial forecast or projection?
Describe the reporting format for reports on examinations of financial forecasts and projections. What type of assurance is given?
When reporting on an examination of prospective financial statements, what is the CPA's responsibility should he or she determine thata. The forecast departs from AICPA guidelines?b. One or more significant assumptions are not reasonable?c. There is a significant scope limitation?d. Other
Define a review of the financial statements of a nonpublic entity.
Describe the reporting format for a review of the financial statements of a nonpublic entity. What type of assurance is expressed?
When performing a review of the financial statements of a nonpublic entity, what is the CPA's reporting obligation if he or she determines that the statements are materially affected by (a) a departure from generally accepted accounting principles and (b) an inconsistency in the application of
What procedures would a CPA perform in a review of interim financial information of a public company?
Describe the reporting format for a report on a review of interim financial information of a public company. What type of assurance is given?
List the five topics that may be covered in a letter for underwriters.
What are agreed-upon procedures?
When is a CPA associated with financial statements?
Define a compilation of financial statements.
Describe the reporting format for a report on a compilation. What type of assurance is given?
Under what conditions may a CPA compile financial statements that omit substantially all disclosures required by generally accepted accounting principles? How would this affect the form of his or her report?
How do the following matters affect a CPA's reporting responsibilities in performing a compilation?a. A departure from generally accepted accounting principles.b. Inconsistent application of accounting principles.c. Lack of independence.
Describe the compilation of a financial forecast or projection and the form of report that may be issued.
What is a CPA's reporting responsibility when associated with unaudited financial statements of a public company?
Define accompanying information in an auditing context and give an example. What is a CPA's responsibility for this information?
What levels of service may a CPA provide on pro forma financial information?
Statements on Standards for Accounting and Review Services (SSARS) require an accountant to report when the accountant hasa. Typed client-prepared financial statements, without modification, as an accommodation to the client.b. Provided a client with a financial statement format that does not
An auditor's report would be designated a special report when it is issued in connection witha. Interim financial information of a publicly held company that is subject to a limited review.b. Compliance with aspects of regulatory requirements related to audited financial statements.c. Application
An auditor's report on financial statements prepared on the cash receipts and disbursements basis of accounting should include all of the following excepta. A reference to the note to the financial statements that describes the cash receipts and disbursements basis of accounting.b. A statement that
When an auditor reports on financial statements prepared on an entity's income tax basis, the auditor's report shoulda. Disclaim an opinion on whether the statements were examined in accordance with generally accepted auditing standards.b. Not express an opinion on whether the statements are
Helpful Company, a nonprofit entity, prepared its financial statements on an accounting basis prescribed by a regulatory agency solely for filing with that agency. Greer audited the financial statements in accordance with generally accepted auditing standards and concluded that the financial
Which of the following statements concerning prospective financial statements is correct?a. Only a financial forecast would normally be appropriate for limited use.b. Only a financial projection would normally be appropriate for general use.c. Any type of prospective financial statements would
An examination of a financial forecast is a professional service that involvesa. Compiling or assembling a financial forecast that is based on management's assumptions.b. Limiting the distribution of the accountant's report to management and the board of directors.c. Assuming responsibility to
When an accountant examines a financial forecast that fails to disclose several significant assumptions used to prepare the forecast, the accountant should describe the assumptions in the accountant's report and issue a(an)a. "Except for" qualified opinion.b. Disclaimer of opinion.c. Unqualified
Accepting an engagement to examine an entity's financial projection most likely would be appropriate if the projection were to be distributed toa. All employees who work for the entity.b. Potential stockholders who request a prospectus or a registration statement.c. A bank with which the entity is
An accountant's compilation report on a financial forecast should include a statement that thea. Compilation does not include evaluation of the support of the assumptions underlying the forecast.b. Hypothetical assumptions used in the forecast are reasonable.c. Range of assumptions selected is one
The objective of a review of interim financial information of a public entity is to provide an accountant with a basis for reporting whethera. Material modifications should be made to conform with generally accepted accounting principles.b. A reasonable basis exists for expressing an updated
An accountant's standard report on a review of the financial statements of a nonpublic entity should state that the accountanta. Does not express an opinion or any form of limited assurance on the financial statements.b. Is not aware of any material modifications that should be made to the
Baker, CPA, was engaged to review the financial statements of Hall Company, a nonpublic entity. Evidence came to Baker's attention that indicated substantial doubt as to Hall's ability to continue as a going concern. The principal conditions and events that caused the substantial doubt have been
Which of the following statements is correct concerning letters for underwriters, commonly referred to as comfort letters?a. Letters for underwriters are required by the Securities Act of 1933 for the initial public sale of registered securities.b. Letters for underwriters typically give negative
Which of the following statements is correct concerning both an engagement to compile and an engagement to review a nonpublic entity's financial statements?a. The accountant does not contemplate obtaining and documenting an understanding of internal control.b. The accountant must be independent in
Which of the following procedures is ordinarily performed by an accountant in a compilation engagement of a nonpublic entity?a. Reading the financial statements to consider whether they are free of obvious mistakes in the application of accounting principles.b. Obtaining written representations
An accountant may compile a nonpublic entity's financial statements that omit all of the disclosures required by GAAP only if the omission is I. Clearly indicated in the accountant's report.II. Not undertaken with the intention of misleading the financial statement users.a. I only,b. II only.c.
Which of the following statements should be included in an accountant's standard report based on the compilation of a nonpublic entity's financial statements?a. A compilation consists principally of inquiries of company personnel and analytical procedures applied to financial data.b. A compilation
When an independent CPA assists in preparing the financial statements of a publicly held entity, but has not audited or reviewed them, the CPA should issue a disclaimer of opinion. In such situations, the CPA has no responsibility to apply any procedures beyonda. Documenting that internal control
Jordan \& Stone, CPAs, audited the financial statements of Tech Co., a nonpublic entity, for the year ended December 31, 19X1, and expressed an unqualified opinion. For the year ended December 31, 19X2, Tech issued comparative financial statements. Jordan \& Stone reviewed Tech's 19X2 financial
You have been engaged by the trustees of Roger Trust to audit the trust as of December 31, 19XX. The audit is for the purpose of assuring the trustees and beneficiaries that trust assets, distributions, and income and expenses have been accounted for in accordance with the terms of the trust
Steam Clean, Inc., produces unique washing machines under a license agreement with Tom Nessinger, who invented the unique process. Nessinger has engaged you to audit the sales of Steam Clean, Inc., which are the basis for royalty payments to him. (He is to be paid $\$ 10$ for each washing machine
The auditors' report below was drafted by a staff accountant of Baker and Baker, CPAs, at the completion of the audit of the comparative financial statements of Ocean Shore Partnership for the years ended December 31, 19X1 and 19X0. Ocean Shore prepares its financial statements on the income tax
Sam Sheppard, CPA, has been asked by the management of his client, Indian Togs, Inc., to examine the financial forecast of the company for the coming year.a. What is a financial forecast, and how does it differ from a financial projection?b. What is the objective of Sheppard's examination of the
Your client, Byrd and Byrd, Inc., a regional trucking company, has prepared a financial forecast for the coming year and has asked you to examine it and issue a report to accompany it. Management's assumptions, on which the forecast is based, are as follows.1. Inflation will average 2 percent next
John Wilguess, CPA, has been engaged to review the financial statements of Lucky Oil Company, a nonpublic company, for the year ended June 30, 19X4. The previous year's financial statements of Lucky Oil Company were compiled by another CPA. Wilguess has no experience with this company or the oil
In connection with a review of the December 31, 19X5, financial statements of Quick Profits Real Estate, a nonpublic company, Hilton and Hilton, CPAs, noted that certain parcels of land were recorded at appraised value that exceeded cost by $\$ 1,200,000$. Management of the company refused to
The following report was drafted by a staff assistant at the completion of the review engagement of GLM Company, a continuing client, for the year ended September 30, 19X8. The financial statements for the year ended September $30,19 X 7$, which were also reviewed, contained a departure from
John Alvis, CPA, has completed his review of the interim financial information of Wilson and Love, a public company, for the six months ended June 30, 19X5.a. Discuss the form of report that Alvis may issue.b. What should be the date of the report and to whom should it be addressed?c. Discuss the

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Auditing An Assertions Approach 7th Edition G. William Glezen, Donald H. Taylor - Solutions

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