Auditing An International Approach 7th edition Wally J. Smieliauskas, Kathryn Bewley - Solutions

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You have been engaged to audit the financial statements of Broadwall Corporation for the year ended December 31, 2023. During the year, Broadwall obtained a long-term loan from a local bank pursuant to a financing agreement, which provided the following: 1. The loan is to be secured by the
What role does the PCAOB play in connection with monitoring and regulating public accounting firms?
If fraud is discovered, to whom within the company should the auditor communicate that information?
What are the documentation retention requirements for nonpublic and public clients?
What is a control activity?
Materiality is ultimately a matter of professional judgment. However, during the planning process auditors make a calculation of preliminary materiality based on a benchmark or rule of thumb.Required: FastFix is an online retail company that sells a variety of products including groceries,
What four environmental conditions that increase user demand for relevant and reliable information?
What type of risk creates a demand for independent and objective audit services to decision makers like investors and creditors?a. Compile a company’s financial forecast based on management’s assumptions without expressing any form of assurance. b. Prepare a written report containing a
An auditor’s purpose in auditing the information contained in the pension footnote most likely is to obtain evidence concerning management’s assertion about.a. Rights and obligations. b. Existence. c. Presentation and disclosure. d. Valuation or allocation.
Which of the following would best be described as an attest engagement?a. An engagement to implement an ERP system. b. An engagement to develop a more efficient payroll process. c. An engagement to assess the effectiveness of an internal control system. d. An engagement to assist the
An auditor seeks to test the accuracy of the amount recorded as revenue on a contract with a customer under ASC 606. Which PCAOB assertion is most likely being tested? a. Rights and obligations. b. Valuation or allocation. c. Presentation and disclosure. d. Completeness.
What does it mean for an auditor to be independent in fact? What does it mean for an auditor to be independent in appearance?
Define generally accepted auditing standards (GAAS). What is the purpose of GAAS?
What qualitative factors can impact materiality?
In testing the goodwill at an audit client in the retail industry, an auditor may seek to determine whether the account balance had been impaired. Such impairment procedures would be designed to test which financial statement assertion? a. Existence. b. Completeness. c. Presentation
In testing inventory at an audit client in the retail industry, you note that some of the inventory is contracted to be held on consignment. As a result, which financial statement assertion is now relevant?a. Rights and obligations. b. Completeness. c. Existence or occurrence. d.
Miguel is a first year staff at Anderson, Olds, and Watershed, CPAS. He has been working on the accounts receivable substantive testing at FastFix, which has an audit time budget of five hours. Through no fault of his own, the accounts receivable testing has been much more difficult than
Beyond public accounting firms, there are a number of other opportunities to work as an audit professional. Three common examples would be working as an internal auditor, a governmental auditor, or a regulatory auditor. Required: For each of the following scenarios, please indicate
What are some of the ways discussed that an auditor can respond to significant risks, including high potential for fraud?
What is the primary difference between a material misstatement due to fraud and one due to error?
What is an entity-level control and why is it important to the evaluation of internal controls?
Why should auditors understand their clients’ performance measures when assessing inherent risk?
What is the auditor’s responsibility regarding fraud risk?
What is a transaction-level-control?
What is a physical security control? Why is it important in an internal control system?
What are the three different ways an auditor can document their understanding of a client’s internal control system?
What are the four methods used to perform tests of control?
What is meant by an internal control deficiency?
What is a significant deficiency?
What is the nature of communications about internal control that an audit team would provide to an entity’s management, board of directors, or audit committee?
When assessing control risk on a preliminary basis during a financial statement audit, a key objective of evaluating the design of an internal control system is toa. Determine that the company’s employees are executing the control activities in accordance with the operating manuals at the
Which of the following methods would be the most effective technique for an auditor to perform when testing the operating effectiveness of an internal control activity?a. Inquiry of appropriate personnel. b. Reading over the company’s code of conduct. c. Reperformance of the control
When performing confirmation of cash balances with a bank, the auditor is primarily gathering evidence related to which financial statement assertion?a. Existence.b. Completeness.c. Valuation. d. Presentation and Disclosure.
Which of the following controls is not an example of a monitoring control that is used to fulfill the monitoring component of the COSO framework?a. Audit committee inquiries of internal and external auditors. b. Three-Way match of purchase order, receiving report and vendor invoice. c.
Both management and auditors have responsibilities related to the audit client’s internal control system. What is an example of management’s responsibility related to internal control system?a. Management must assess financial reporting risk. b. Management must establish an appropriate
Which of the following items is not one of the five components of an internal control system, according to the COSO framework?a. Control environment. b. Risk assessment. c. Information and communication. d. Control activities. e. Completeness and accuracy.
Which of the following is an example of a limitation of an internal control system?a. Collusion among employees. b. Human error. c. Management override of controls. d. None of these items are limitations. e. All of the above are limitations.
According to the COSO Framework, internal control is a process that is designed to achieve objectives in three different categories. Which of the following responses is not one of the categories identified in the COSO Framework?a. Effective and efficient operations. b. Compliance with laws and
State whether PA is associated with the financial information in the following independent situations.a. PA compiles financial statements and prepares the corporate tax return for Appaloosa Inc.b. PA advised Brumby Inc. on a sinking-fund amortization policy for its real estate investments; Brumby
Is the FASB’s 2008 GAAP hierarchy a fairness of presentation framework?
CAS 700 notes a distinction between a fairness of presentation reporting framework and a compliance reporting framework. From the assurance framework perspective, what suitable criteria seem to be used for each framework?
PA is the senior in charge of the November 30, 20X1, audit of Baint’s Paints Inc., a manufacturer of various latex and oil-based paints. Baint’s plant is located on the banks of a river and was constructed on this site in the 1930s because the river provided a ready supply of water for
Your client, the Neighbourhood Paper Company (NPC), has a fiscal year-end of December 31. NPC needs to borrow money from the bank and believes current value financial statements that report the appreciated value of its assets would be helpful. A loan is needed for working capital.NPC owns two
Which of these is known as the financial analysis that expresses balance sheet accounts as percentages of total assets?a. Horizontal analysis.b. Vertical analysis.c. Net worth analysis.d. Expenditure analysis.
Where has experience shown that most accounting errors requiring adjustment can be found?a. Systematic processing of large volumes of day-to-day ordinary transactions.b. Payroll fraudsters’ mistakes in using unissued SINs.c. Petty cash embezzlements.d. Non-routine, non-systematic journal entries.
Records from which of the following sources could be used to find the owner of an office building?a. Ministry of Industry and Trade export/import licence files.b. Transport Canada records.c. City and county tax assessor-collector files.d. Securities commission filings.
Which of these is an invalid SIN?a. 462 003 335.b. 473 097 787.c. 506 985 529.d. 700 051 135.
Why must care be taken with evidence of fraudulent activity?
What are the CICA materiality guidelines for reporting errors, irregularities, and illegal acts?
What can an auditor find using horizontal analysis, vertical analysis, net worth analysis, and expenditure analysis?
Where could you find information about real estate valuation, aircraft ownership, names of licensed doctors, assumed (fictitious) business names, and liens on personal property?
Make a two-column list of management styles that show fraud prevention characteristics in one column and, opposite each item, the management style that might lead to fraud.
Why is the order of strength of commitment to fraud matters as follows: (1) Government auditors, (2) External auditors, (3) Internal auditors?
How does the requirement for design of audit procedures in public sector audit work differ from external auditors’ work on financial statement audits (not involving governmental auditing)? Consider errors, irregularities, and illegal acts.
Compare and contrast the economy, efficiency, and effectiveness measures of performance. Which of these is the hardest to audit? Explain.
Explain the difference between compliance and VFM audits.
What is a comprehensive audit?
Identify the 12 attributes of effectiveness.
What factors should governmental auditors consider in determining whether they are independent?
What general auditing services do governmental auditors provide?
What general auditing services do internal auditors provide?
What is operational auditing, and why can it be called a type of consulting service?
Why do you think special attention is paid to compliance auditing for government-type audits when independent PAs may perform compliance procedures in all types of audits anyway?
What precautions should Canadian auditors take when reporting on foreign GAAP financial statements that will be distributed in the United States?
Why do you think a Canadian-style report on foreign GAAP financial statements is similar to a report on another appropriate disclosed basis of accounting (AADBA) financial statements?
What is the auditor’s responsibility for information reported in MD&A in the audit of a public company?
What are the similarities and differences between examination reports on forecasts and audit reports on historical financial statements? on compilation reports on forecasts? on compilation reports on historical financial statements?
How are prospective financial statements defined?
Distinguish between attest and direct reporting criteria.
What are the key wording differences to look for in analyzing an assurance report?
Do you think Ontario’s Bill 198 appropriately limits PA legal liability to protect the public interest? Discuss the pros and cons within a principles-based umbrella framework such as critical thinking.
Use the critical thinking framework to help resolve the confidentiality versus misleading financial statements conflict discussed in this chapter.
PA is the audit intermediate on the current year’s audit of Bluroot Inc., a publicly traded sugar importer and refiner. During the audit of Bluroot’s cash records and bank account reconciliations, PA notes numerous instances where a large dollar amount was deposited into one of the company’s
The auditor's report below was drafted by Smith, a staff accountant at the firm of Wong & Wilson, PAs, at the completion of the audit of the financial statements of PPC Ltd., a publicly held company, for the year ended March 31, 20X3. The report was submitted to the engagement partner, who
This is an exercise designed to reveal some facts of reasoning and decision making. The “fraud involvement procedure” is fictional.A team of accountants and psychologists has developed a procedure to test for management involvement in fraudulent activities. The procedure consists of developing
Major Manufacturing Company is a large diversified international corporation whose shares trade on the New York Stock Exchange. The U.S. Department of Justice and the SEC have investigated the Global Oil Well Equipment Company, a subsidiary of Major. The agencies allege that Global has engaged in
Farr and Madison, PAs, audited Glamour Inc. Their audit was deficient in several respects:1. Farr and Madison failed to properly audit certain receivables, which later proved to be fictitious.2. With respect to other receivables, although they made a cursory check, they did not detect many accounts
A public company subject to the periodic reporting requirements of the Exchange Act (1934) must file an annual report with the SEC known asa. Form 10-K.b. Form 10-Q.c. Form 8-K.d. Form S-3.
Able Corporation plans to sell $10 million worth of common shares to investors. The company can do so without filing an S-1 registration statement under the Securities Act (1933) if Able sells the sharesa. To an investment banker who then sells them to investors in its national retail network.b. To
The SEC document that governs accounting in financial statements filed with the SEC isa. Regulation D.b. Form 8-K.c. Form S-18.d. Regulation S-X.
Good Gold Company sold $20 million worth of preferred shares. The company should have registered the offering under the Securities Act of 1933 if it were sold toa. 150 accredited investors.b. One insurance company.c. 30 investors all resident in one state.d. Diverse customers of a brokerage firm.
Which of these laws does the U.S. SEC not administer?a. Securities Act of 1933.b. Securities and Exchange Act of 1934.c. Internal Control Act of 1937.d. Foreign Corrupt Practices Act of 1977.
What proportion of lawsuits against PAs relate to compilation and review (unaudited financial statements) practice?
Define and explain privity, primary beneficiary, and foreseeable beneficiary in terms of the degree of negligence on the part of a PA that would trigger the PA’s liability.
What must the plaintiff prove in a common law action seeking recovery of damages from an independent auditor of financial statements? What must the defendant accountant do in such a court action?
Identify a 90% RR for each of the following values:1. What is the estimated net economic effect of BP’s Gulf of Mexico oil spill?2. How does BP’s oil spill compare to those of other companies?3. What was the financial impact to Exxon due to its Alaskan oil spill?4. How many public companies are
1. How much was GAP’s merchandise inventory valued at the lower of cost or market in the audited 2010 consolidated balance sheet?2. Best Buy recognizes revenue from gift cards when (i) the gift card is redeemed by the customer or (ii) the likelihood of the gift card being redeemed by the customer
1. What was the average market risk premium of Canada in 2011?2. What was the gross domestic product (GDP) growth in Canada in the third quarter of 2011 over the previous quarter?3. How much was RIM’s (Research in Motion Limited) second-quarter revenue of fiscal 2012? (The company’s second
Demonstrate with the Petroni and Beasley study data given in the text that AccR can be much bigger in practice than AudR.
Explain the dilemma represented to the profession by the Petroni and Beasley study.
Assume that an auditor assesses a well-calibrated RR of 25-35,000 and uses the uniform distribution to model the AccR over the RR. The auditor judges that acceptable AccR is 0.2 in this situation.a. Give a numerical example of a materiality that results in a nirvana accounting estimate situation
CAS 540, paragraph 13 (d) ( ii) A93–A94, indicates that auditors can normally narrow a reasonable range until it is less than a materiality wide.Describe under what conditions the reasonable range is not likely to be reduced to materiality.Is this condition likely to be common?
How does CAS 540 define reasonable quantitatively? What are the problems with this definition?
Which part of the estimation uncertainty concept deals with audit risk? Explain.
If an audit client made an investment of $1 million and there was a 99% probability the project cash flows would be zero,a. The $1 million investment should be recorded as an asset in the balance sheet.b. The $1 million investment should not be recorded in the balance sheet.c. Audit risk is
The part of information risk due to incorrectly predicting future events, especially in accounting estimates, is known asa. Audit risk.b. Future-oriented risk.c. Likely projected misstatement risk.d. Accounting risk.
If the auditor concludes the allowance for doubtful accounts should be between $130,000 and $160,000, this is known asa. The auditor’s range of reasonableness.b. Too large of a range and it must be redefined.c. Management’s point estimate.d. Auditor’s point estimate.
If the auditor concludes the allowance for doubtful accounts should be between $130,000 and $160,000 and management’s recorded amount is $110,000, what amount would be treated as a misstatement?a. $50,000 (the maximum difference).b. $0 (no misstatement; after all, it is an estimate).c. $20,000
What type of risk can be viewed as a qualitative characteristic and corrected by audit training, supervision, and quality control procedures?a. Business risk.b. Accounting risk.c. Control risk.d. Inherent risk.
The amount of the allowance for bad debts included in the financial statements is an example ofa. Management bias.b. Auditor’s point estimate.c. Management’s point estimate.d. Outcome of an accounting estimate.

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Auditing An International Approach 7th edition Wally J. Smieliauskas, Kathryn Bewley - Solutions

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