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auditing international approach

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

What items should auditors consider when deciding whether to use computer-assisted audit programs?
Which of the following tests of controls require use of the computer?a. Observe the reconciliation of control totals with computer processing results.b. Design and process test data.c. Examine usage records for evidence of proper authorization for use of data files.d. Examine internal auditors'
Which of the following tests of controls do not require use of the computer?a. Compare computer output with source documentation.b. Test data.c. Integrated test facility.d. Parallel simulation.
Which of the following is a description of the integrated test facility?a. Simulated data and actual client data are processed with the client's computer program.b. Simulated data are processed on a static basis with the client's computer program.c. Auditors' criteria are added to the computer edit
Which of the following is not performed by computer-assisted audit programs?a. Scanning or examining computer records.b. Checking computations.c. Comparing data on different records.d. Assessing the sufficiency of the client's adjustment for inventory obsolescence.
Which of the following statements most likely represents a disadvantage for an entity that keeps microcomputer-prepared data files rather than manually prepared files?a. Attention is focused on the accuracy of the programming process rather than errors in individual transactions.b. It is usually
An auditor most likely would introduce test data into a computerized payroll system to test internal controls related to thea. Existence of unclaimed payroll checks held by supervisors.b. Early cashing of payroll checks by employees.c. Discovery of invalid employee I.D. numbers.d. Proper approval
Assume that an auditor estimates that 10,000 checks were issued during the accounting period. If a computer application control that performs a limit check for each check request is to be subjected to the auditor's test data approach, the sample should includea. Approximately 1,000 test items.b. A
The above flowchart depictsa. Program code checking.b. Parallel simulation.c. Test data.d. Controlled reprocessing. Trans- action file Client's program Auditor's program Master file Output Compare Output Exceptions report
The above flowchart depictsa. Program code checking.b. Parallel simulation.c. Test data.d. Controlled reprocessing.
Auditing by testing the input and output of a computer system instead of the computer program itself willa. Detect all program errors, regardless of the nature of the output.b. Not detect program errors that do not show up in the output sampled.c. Provide the auditor with the same type of
Which of the following is not among the errors that an auditor might include in test data when auditing a client's computer system?a. Numeric characters in alphanumeric fields.b. Differences in description of units of measure.c. Authorization code.d. Illogical entries in fields whose logic is
When an auditor tests a computerized accounting system, which of the following is true of the test data approacha. Test data must consist of all possible valid and invalid conditions.b. The program tested is different from the program used throughout the year by the client.c. Several transactions
A primary advantage of using computer-assisted audit programs to audit the financial statements of a client that uses a computer system is that the auditor maya. Consider increasing the use of substantive tests of controls in place of analytical procedures.b. Substantiate the accuracy of data
An auditor would least likely use computer software toa. Access client data files.b. Prepare spreadsheets.c. Access control riskd. Perform parallel simulations.
An auditor using audit software probably would be least interested in which of the following fields in a computerized perpetual inventory file?a. Economic order quantity.b. Warehouse location.c. Date of last purchased. Quantity sold.
Johnson, CPA, was engaged to audit the financial statements of Horizon Incorporated, which has its own computer installation. While obtaining an understanding of internal control, Johnson found that Horizon lacked proper segregation of the programming and operating functions. As a result, Johnson
Refer to Question 11-44 in Chapter 11. For each weakness noted in the question, indicate a general control or an application control that would overcome that weakness and how that control could be tested. Be specific in discussing the type of control (for example, an access control relating to
During an audit of a company that uses computers, Mr. Sure, the auditor, decided to process test data with some of the client's computer programs. The computer output matched his predesigned output. Later, however, Mr. Sure discovered that some of these computer programs were producing improper
Two auditors for the CPA firm of Alford \& Alford were engaged in a discussion about the best way to test the computer controls of their client, Mod-Comp., Inc. Jane Tester contended that the traditional test data method would be best because the client's computer system still used batch processing
Refer to Chapter 11 and review Figures 11.1 through 11.3. Then review Figure 12.6 in this chapter.Figure 12.6a. The auditor decided to use the following audit strategies.(1) A lower control risk approach for the batch processing system in Figure 11.1.(2) A lower control risk approach for the online
The auditors of Update Company were considering the use of a computer-assisted audit program to gather and document evidence from their client's computerized files. Most of the transactions, including accounts receivable and inventory, were processed by Update Company's computer system.One of the
The following is a list of tasks performed by auditors in gathering evidence to support their opinion. For each task, indicate whether a computer-assisted audit program could be used. Indicate the reasons for your answer.a. Selecting accounts receivable confirmations.b. Comparing subsidiary amounts
In many cases, the auditor uses the output of a computer-assisted audit program for the same purpose as if the output were obtained through manual means. For each of the following examples of computer-assisted audit program output, indicate the use that the auditor would make of the output in
An auditor accesses a magnetic disk file that contains the dollar amounts of all client inventory items by style number. The information on the disk is in no particular sequence. By use of a computer-assisted audit program, how can the auditor best ascertain that no consigned merchandise is
An auditor's client has a magnetic disk that contains the detail of its customers' insurance policies by policy number. Unknown to the auditor is the fact that many of the policies are for nonexistent customers. To prevent these nonexistent policies from being printed and tested by the auditors, a
In the past, the records to be evaluated in an audit have been printed reports, listings, documents, and written papers, all of which are visible output. However, in fully computerized systems that employ daily updating of transaction files, output and files are frequently in machine-readable
After determining that computer controls are valid, Hastings is reviewing the sales system of Rosco Corporation to determine how a computer-assisted audit program may be used to assist in performing tests of Rosco's sales records.Rosco sells crude oil from one central location. All orders are
How does the auditor evaluate the competency of audit evidence obtained from outside sources?
Describe the relationship between reliability of accounting data and internal control.
Differentiate between the competency of audit evidence gained through personal knowledge of the auditor and evidence obtained indirectly.
What is the difference between convincing and persuasive audit evidence?
How does the cost of obtaining evidence affect its sufficiency?
How does an auditor make an objective evaluation of audit evidence?
List and describe seven techniques for gathering audit evidence. State how each could be applied to the audit of inventory.
List the characteristics of audit evidence and give an example of each.
By what three means may an auditor evaluate the reasonableness of the amount of an accounting estimate?
Describe four guidelines that affect the use of analytical procedures as substantive tests.
What is the "business approach" to substantive testing
How does an auditor gain knowledge of his or her client's business operations?
How is ratio analysis used in an audit?
How does the auditor use regression analysis?
List six pairs of accounts on which audit work is often performed simultaneously.
What records does an auditor review to detect related party transactions?
Describe five transactions or events that may create substantial doubt as to the ability of an entity to continue as a going concern.
Explain the review process for audit working papers.
Differentiate among known, projected, and likely misstatements.
Describe nine matters about which the auditor should determine that the audit committee is informed.
Which of the following statements is generally correct about the competence of evidential matter?a. Competence of evidential matter refers to the amount of corroborative evidence obtained.b. The more effective the internal control, the more assurance it provides about the reliability of the
Although the validity of evidential matter is dependent on the circumstances under which it is obtained, there are three general presumptions that have some usefulness. The situations given below indicate the relative reliability a CPA has placed on two types of evidence obtained in different
In testing the existence assertion for an asset, an auditor ordinarily works from thea. Financial statements to the potentially unrecorded items.b. Potentially unrecorded items to the financial statements.c. Accounting records to the supporting evidence.d. Supporting evidence to the accounting
An auditor audits an accounting estimate by any of the following means excepta. Testing the process used by management to develop the estimate.b. Obtaining a confirmation from an independent source.c. Developing an independent expectation.d. Reviewing subsequent events or transactions.
When analytical procedures are used as substantive tests, some account relationships are more predictable than others. For which of the following accounts is the prior-year balance likely to be the best predictor of the current year balance?a. Accounts payable.c. Cash.b. Revenues.d. Inventory.
For audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent As a substantive test a. Yes b. Yes c. No d. No In the final review stage Yes No Yes No
Which of the following best describes the most important stage of an auditor's statistical analysis of significant ratios and trends?a. Computation of significant ratios and trends.b. Reconciliation of statistical data to the client's accounting ratios.c. Interpretation of significant variations
Which one of the following items is not a measure of a company's liquidity?a. Accounts receivable turnover.b. Acid test ratio.c. Debt-to-equity ratio.d. Operating cycle.e. Days' sales in inventory.
An auditor may use regression analysis to predict an account balance. In the regression equation \(E(Y)=B_{0}+B_{1} X, B_{1}\) represents thea. Account being audited.b. Fixed cost in the account being audited.c. Expected amount.d. Relationship between the account being audited and another account.
Audit work is often performed simultaneously on all the following pairs of accounts excepta. Cash and common stock.b. Inventories and cost of goods sold.c. Property and depreciation expense.d. Accrued income taxes and income tax expense.
An auditor searching for related party transactions should obtain an understanding of each subsidiary's relationship to the total entity becausea. This may permit the audit of intercompany account balances to be performed as of concurrent dates.b. Intercompany transactions may have been consummated
If related party transactions are detected, the auditor cannot complete the audit until he or shea. Sends confirmations to all parties.b. Determines what the comparable arm'slength transaction would have been.c. Understands the business purpose of the transaction.d. Notifies the SEC.
An auditor has a responsibility to evaluate the going concern status of an audit client for \(\mathrm{a}(\mathrm{an})\)a. Period of one year from the balance sheet date.b. Period of one year from the date of the auditor's report.c. Period of two years from the balance sheet date.d. Indefinite
All the following may indicate substantial doubt as to an entity's ability to continue as a going concern excepta. Work stoppages.b. Legal proceedings.c. Purchase of catastrophe insurance.d. Operating losses.
If an auditor has substantial doubt as to an entity's ability to continue as a going concern, he or she shoulda. Discontinue the audit.b. Consider management's plans for generating additional cash flow.c. Perform additional audit work on long term assets.d. Contact legal counsel.
Analytical procedures used in the overall review stage of an audit generally includea. Gathering evidence concerning account balances that have not changed from the prior year.b. Retesting control procedures that appeared to be ineffective during the assessment of control risk.c. Considering
In the course of an audit, the auditor will normally prepare a schedule of unadjusted differences for which the auditor did not propose adjustment when they were uncovered. What is the primary purpose served by this schedule?a. To point out to the responsible client officials the errors made by
In the audit of accounts receivable an auditor sends confirmations to all customers with balances of \(\$ 50,000\) or more and to a sample of 25 percent of the customers with balances of less than \(\$ 50,000\). Overstatement errors of \(\$ 12,000\) were found in the accounts of \(\$ 50,000\) or
An auditor would least likely initiate a discussion with a client's audit committee concerninga. The methods used to account for significant unusual transactions.b. The maximum dollar amount of misstatements that could exist without causing the financial statements to be materially misstated.c.
An auditor is considering whether the omission of a substantive procedure considered necessary at the time of an audit may impair the auditor's present ability to support the previously expressed opinion. The auditor need not apply the omitted procedure if thea. Financial statements and auditor's
For each description, match the term or terms that relates to the description. Each term may be used once, more than once, or not at all. Description 1. Sufficient competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable
In each of the following cases, rank the various items of evidence on a scale from most persuasive to least persuasive. Furnish support for your rankings.a. Evidence to support the cash account.(1) Bank reconciliation prepared by the client.(2) A written confirmation of the bank balance, sent
One of the audit clients of Brown and Brown, CPAs, is We-Fit Manufacturing Company, makers of shirts, sweaters, and other clothing items. The finished goods inventory consists of merchandise placed in hundreds of sealed boxes on the warehouse floor. The client's inventory count consists of a count
One of the clients of Cain, CPA, is a local financial institution. As part of the standard audit procedures, Cain sent notes receivable confirmations to 50 of the 2,000 customers.Although a return envelope was sent with the confirmations, most of the customers chose to bring the letter to the
Classify the following items of audit evidence from most reliable (1) to least reliable (17). Discuss the reasons for your classifications.a. Canceled payroll check.b. Copy of client sales invoice.c. Request for a travel advance.d. Client-prepared receiving report for merchandise.e. Client-prepared
Mary Smith, a new staff auditor, has been assigned to interview Mad Dog Clancy, controller, about variations between expected and book amounts noted in performing analytical procedures as substantive tests. The interview went as follows:Mary: Good morning, Mr. Clancy.MAD DOG: What's good about
You are the auditor of Star Manufacturing Company. A trial balance taken from the books of Star at year-end follows.Required:a. Which accounts should be confirmed with outside sources?b. Describe by whom they should be confirmed and the information that should be confirmed.c. Organize your answer
The purpose of all auditing procedures is to gather sufficient competent evidence to form an opinion regarding the financial statements taken as a whole.Required:a. In addition to the example below, identify and describe five techniques of gathering audit evidence to evaluate a client's inventory
Bill Kelting, audit senior from New York City, was assigned to be in charge of the Hogeye Ranch Company audit. Before this engagement the only cows Bill had seen were in pictures. However, Bill knew how to perform an audit. A large sample of sales was traced to sales barn receipts, and expenses
Analytical procedures are an important part of the audit process and consist of evaluations of financial information made by the study of plausible relationships among both financial and nonfinancial data. Analytical procedures are used to assist in planning other auditing procedures, as
Trend and Jones, CPAs, were planning their initial audit of Kargo Corporation, whose stock traded on the New York Stock Exchange. Although the partners had consulted with the predecessor auditor and had reviewed prior-year working papers, they still had a number of questions about the areas that
Joyce Cover, CPA, was engaged to audit the financial statements of Extensive, Inc., a first time audit client, for the year ended December 31, 19X6. The assessment of control risk was conducted during the late fall of 19X6 and, with the exception of accounts receivable and sales, control risk was
You are completing your audit of Carleson Motorcycle Manufacturing Company and evaluating the going concern status of the company. Competition from foreign motorcycle makers has been severe. The company incurred losses this year and last year. Management is projecting a loss for next year but a
You have completed your audit of Ethridge Construction Company for the year ended November \(30,19 \times 5\), and have scheduled a meeting with the company's audit committee for the next day. The company builds small apartment buildings in a three-state area and has been only marginally profitable
Presented below are two sets of financial ratios. The ratios in the first column were computed from EAZ Manufacturing's prior-year audited statements. In the second column are ratios computed from the current-year unaudited statements. The difference between the two years' ratios could be the
For each audit procedure, indicate (1) the assertion to which it relates, (2) the means of gathering audit evidence, and (3) the characteristic of the audit evidence gathered. The first audit procedure is shown as an example. Audit Procedure Assertion 1. Send letters to custom- Existence ers with
Describe the two types of sampling risks for substantive tests.
When sampling is used to test the hypothesis that the evidence supports the account balance, what are the two parts of the sampling objective?
In most audit sampling situations, what is the characteristic of primary interest?
What situations should the auditor consider when defining the population for a substantive test? ways could the sampling unit be defined for a substantive test?
In what three ways could the sampling unit be defined for a substantive test?
What three sampling techniques can the auditor use for a substantive test?
What five items must the auditor consider to determine the sample size when using statistical or non statistical sampling methods for a substantive test?
What is stratification, and how does it affect sample size for substantive tests?
What are the consequences of incorrectly rejecting a hypothesis that the evidence supports an account balance?
What is the relationship between tolerable misstatement and sample size?
Why does the sample size of a substantive test increase as the expected misstatement in the population increases?
Discuss three ways that a sample can be selected in substantive testing.
Describe two ways to calculate a projected misstatement in the population when non statistical sampling is used.
What three methods can be used to estimate the dollar amount of a population when classical statistical sampling is used?
In classical statistical sampling, what four items are used to obtain the optimum sample size for estimating the dollar amount of a population?
Why do ratio and difference estimation methods usually produce smaller sample sizes than the mean estimation method?

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