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auditing international approach
Auditing An International Approach 7th edition Wally J. Smieliauskas, Kathryn Bewley - Solutions
An approximation of a monetary amount in the absence of a precise means of measurement is the definition ofa. An accounting estimate.b. Management’s point estimate.c. Auditor’s point estimate.d. Estimation uncertainty.
An EOM paragraph is required whena. The auditor is issuing a qualified opinion.b. The information is not presented or disclosed in the financial statements.c. There is material uncertainty regarding the going-concern assumption.d. The auditor is issuing a denial of opinion.
If there is little or no doubt (less than 20%) about the validity of the going-concern assumption, the auditing standards state an opinion would be a(n)a. Qualified opinion with a scope limitation.b. Denial of opinion.c. Adverse opinion.d. Unqualified opinion.
The going-concern concept is best described as follows:a. The entity is performing well and is expected to increase sales in the future years.b. The entity is expected to be in existence in 20 years.c. The entity is expected to claim bankruptcy in the near future.d. The entity is expected to
a. Tolerable deviation rate = 0.05. Expected population deviation rate = 0. Acceptable risk of assessing control risk too low = 0.01, 0.05, 0.10.b. Acceptable risk of assessing control risk too low = 0.10. Expected population deviation rate = 0.01. Tolerable deviation rate = 0.10, 0.08, 0.05, 0.03,
Give some examples of periodic comparisons a company’s management can perform. How do they control the accuracy of its financial records?
Explain how there can be situations when auditors must test a particular control to comply with GAAS.
Why does the auditor evaluate the auditee’s internal controls?
Explain management’s responsibilities regarding its organization’s internal control.
What do auditors do if they find strong controls in an accounting system?
What is the main purpose of documenting controls in an accounting system?
What styles of accounting system documentation are available for auditors to choose from? What willthe choice depend on?
Why must auditors document their understanding of internal control?
What are specific application control procedures? Why are they different in different accounting processes?
What are general control activities? Give examples.
What are the two types of control activities that make up controls over financial reporting at the accounting process level?
Why are the controls over financial reporting the most important part of the internal control framework from the auditor’s perspective?
How do auditors use their understanding of the auditee’s internal control framework?
What is the impact on audit work when auditors find management’s controls are very deficient overall?
Why are the financial statement closing process and final adjusting entries always high risk, even if controls over the information system and general ledger accounts were found to be strong?
Give two reasons controls would be tested.
What are the three phases of an internal control evaluation? What do auditors do in each of these phases?
What is the impact of the auditor’s knowledge of control effectiveness on substantive audit work?
Why do control procedures affect management’s financial statement assertions?
Explain the importance of general controls over an accounting process.
List the control objectives and the misstatement risk that each objective relates to.
List four duties that should be segregated within an information system. Why does this improve internal control?
Match the six control objectives to the five principal assertions.
What internal control documentation needs to be included in the audit files?
What is an internal control system narrative, and what is it used for in an audit?
Why do many organizations document their internal control system?
What role can internal auditors play in internal control system documentation?
What is a substantive audit approach, and how does it differ from a combined audit approach? Give examples of situations when each type would be used in an audit engagement.
Identify the three main components in the flow of transactions.
What are the main purposes of control activities in an information system?
How can management meet its responsibility to reduce internal control risks? How can this also assist auditors?
Explain how overstatements in the revenues and cash receipts transactions affect the assertions of the accounts receivable balance.
What is a dual-purpose test?
What findings are auditors required to communicate to management? to those charged with governance (audit committee or board of directors)?
What action should an auditor take if he or she suspects the financial statements are materially misstated?
Accounting risk is not relevant to which of the following?a. Gathering evidence.b. Dealing with the application of an appropriate financial reporting framework.c. Dealing with the estimation of the amount to record after all facts are known.d. Accounting deficiency report reservations.
What options does the CRA have for disciplining PAs?
Do auditors need to report suspicious activities to the police? Explain.
Which of these events is an auditor not required to communicate to a company’s audit committee or board of directors?a. Management’s significant accounting policies.b. Management’s judgments about accounting estimates used in the financial statements.c. Immaterial errors in processing
For which of the following reports is an expression of negative assurance not permitted?a. A review report on unaudited financial statements.b. An audit report on financial statements prepared on a comprehensive basis of accounting other than GAAP.c. A report based on applying selected procedures
When a company’s financial statements in a review or compilation engagement contain a known material departure from GAAP, what should the accountant’s report do?a. Make no mention of the departure in a compilation report because it contains an explicit disclaimer of opinion.b. Express the
When an accountant is not independent, which report can nevertheless be given?a. Compilation report.b. Standard unqualified audit report.c. Examination report on a forecast.d. Review report on unaudited financial statements.
To which statements are the official CPA Recommendations for Compilation and Review Services applicable?a. Audited financial statements of public companies.b. Unaudited financial statements of some companies.c. Unaudited financial statements of all companies.d. Audited financial statements of
Which effective auditee internal control procedure prevents discrepancies between the cost accounting for labour cost and the payroll paid?a. Reconciliation of totals on production job time tickets with job reports by the employees responsible for the specific jobs.b. Verification of agreement of
Analytical procedures applied to management’s production cost reports provide evidence for which assertion(s)?a. Existence, completeness, and valuation.b. Ownership.c. Physical inspection of quantities.d. Presentation.
In testing an automated payroll system, an auditor would be least likely to use test data to test controls related to which of the following?a. Missing employee numbers.b. Proper signature approval of overtime by supervisors.c. Time tickets with invalid job numbers.d. Agreement of hours per clock
To minimize the opportunities for fraud, unclaimed payroll payments should be handled by which of the following procedures?a. Deposited in a safe deposit box.b. Held by the payroll custodian.c. Deposited in a special bank account.d. Held by the controller.
Which of the following is the best way for an auditor to obtain evidence about whether every name on a company’s payroll is that of a legitimate employee currently on the job?a. Examine personnel records for accuracy and completeness.b. Examine employees’ names listed on payroll tax returns for
Effective internal control over the payroll function should include procedures that segregate the duties of making salary payments to employees and which of the following procedures?a. Controlling employment insurance claims.b. Maintaining employee personnel records.c. Approving employee fringe
Practice in connection with unaudited historical cost financial statements is conducted by which firms?a. International accounting firms only.b. Regional- and local-size public accounting firms.c. Local-size public accounting firms only.d. All public accounting firms.
Does the standard public report on internal control give the opinion known as “positive assurance”?
List the major differences between financial statements and internal control statements.
Identify the major features of compilation engagements.
List the major features of review engagements.
The auditor is required to communicate with those charged with governance, usually an audit committee, regarding the significant audit findings and the planned form of audit report prior to their approval of the financial statements because. a. The auditor is responsible for presenting
An EOM paragraph is useda. To provide additional information that is not presented or disclosed in management’s financial statements.b. So that public companies can always receive unmodified audit opinions.c. To describe the auditor’s exercise of judgment during the performance of the audit.d.
The “subsequent discovery of facts that existed at the balance sheet date” refers to knowledge obtained after which date?a. The date the audit report was delivered to the auditee.b. The audit report date.c. The company’s year-end balance sheet date.d. The date interim audit work was
Unmodified audit opinions are most common becausea. Auditors want to retain the client’s business in future.b. Public companies are required to get qualified audit reports with unmodified opinions.c. Auditors exercise judgment to eliminate most modifications.d. Company management benefits from
Two aspects that affect the form of opinion in an auditor’s report area. The need to issue a modified report or an adverse report.b. The scope of the auditor’s work and the fairness of presentation of the financial statements in accordance with GAAP.c. The knowledge and experience the auditors
Managers of private companies are more likely than managers of public companies to correct misstatements the auditors discover becausea. Accuracy is more important in private companies than public companies.b. Public company managers will be fired if they make errors in the financial statements.c.
Auditor objectivity and skepticism are critical to concluding whether financial statements are fairly presented becausea. Accidental errors can occur in preparing financial statements and can always be distinguished from deliberate fraudulent misstatements.b. When there are deliberate attempts to
What does a person use when they apply professional judgment in an audit engagement?a. Loyalty to the client managementb. Their education and professional training in financec. The knowledge and experience they have gained in their professional work as auditorsd. Strict adherence to professional
Give an example of a situation that would be reported in an EOM paragraph in an audit report containing an unmodified opinion.
Explain the difference between EOM and OM paragraphs. Distinguish these two from a KAM (in ISA 701).
Describe the three requirements that need to be met for a financial reporting framework to be considered a fair presentation framework.
Under what circumstances is an auditor required to give a modified audit opinion? List four types of modified audit opinions that would be given and the circumstances that would give rise to each. Under what circumstances can an auditor express an unmodified opinion on financial statements?
What judgments are made by the auditee’s management in preparing its financial statements?
What do audit team members do to celebrate the successful completion of the audit?
What are two main areas of audit findings that auditors communicate to those charged with governance at the conclusion of the audit?
If auditors discover matters after the audit report date that would have changed the financial statements, and/or their audit report on those statements, what do they need to do?
What determines the date that auditors put on their report? What is the significance of this date to the auditors? to the financial statement users?
Why are clean unmodified opinions by far the most common form of audit report?
When would KAMs be included in an audit report? How might these matters affect users of audited financial statements?
What is an OM paragraph? When and why would it be used?
What is an EOM paragraph? When and why would it be used?
If an auditor decides an unmodified opinion is appropriate, why would there be a need to add additional information to the auditor’s report?
What other aspects of financial reporting are relevant to forming an audit opinion on financial statements, besides the monetary misstatements uncovered in the audit work?
What kind of audit opinion is appropriate if the intangible asset balance has not been prepared in accordance with GAAP because the value of the assets is very unlikely to be realized, and this is the only misstatement in the financial statements? What information would the auditor include in the
What conditions would result in an auditor issuing an adverse opinion? What is the message being communicated to readers by an adverse audit opinion?
Why might management of a public company be reluctant to adjust misstatements that auditors discovered? How might this situation be different in a private company? Why?
What are KAMs in an audit report?
How is professional skepticism related to objectivity?
What is the role of objectivity in conducting an audit that complies with GAAS?
If the auditor believes that management has reported revenues and assets too aggressively (i.e., overstated them), does this mean management is dishonest? Explain your response.
Is it possible that a misstatement cannot be clearly categorized as being due to error or to fraud? Explain your position.
What are two causes of misstatements?
What is implied by stating an opinion that the financial statements fairly present a company’s financial position at period-end and its performance and cash flows for the period then ended?
What would cause the auditor to need to issue a disclaimer of opinion?
What impact does a scope limitation on obtaining evidence about the ending inventory have on the auditor’s opinion?
What does it mean if the auditor gives a qualified opinion because of a scope limitation? Give an example of when this situation might arise.
Why does the engagement partner review all the audit documentation as a starting point in forming an opinion on whether the financial statements are fairly presented?
What two aspects of the audit engagement are expressed in the auditor’s report?
How does an auditor identify facts that are relevant to determining whether there are misstatements in the financial statements being audited?
What is involved in exercising professional judgment?
What is a person using when they apply professional judgment in an audit engagement?
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