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auditing international approach
Auditing An International Approach 7th edition Wally J. Smieliauskas, Kathryn Bewley - Solutions
Which of the following is not required by CASs?a. Management representation letter.b. Lawyer’s letter.c. Management letter.d. Engagement letter.
Which of the following procedures is part of the audit completion work?a. Risk assessment.b. Control testing.c. Overall evaluation of the financial statements.d. Preparation of the cash flow statement.
Until when do auditors have a responsibility to perform procedures to find subsequent events?a. The year-end balance sheet date.b. The audit report date.c. The date the audited financial statements are delivered to the users.d. The end of audit field work.
What is the main purpose of a written management representation letter?a. Shift responsibility for financial statements from the management to the auditor.b. Provide a substitute source of evidence for detail procedures auditors would otherwise perform.c. Provide management a place to make
When auditing the year-end balance of interest-bearing notes payable, which account are the auditors most likely to audit at the same time?a. Interest income.b. Interest expense.c. Amortization of intangible assets.d. Royalty revenue.
How can related party transactions affect the financial statements?
What is contained in a set of completed audit files?
What kind of evidence is provided by written representations by management? Explain how this evidence is necessary, but not sufficient, according to GAAS.
What are written representations? Why do auditors require them from management?
What kinds of procedures do auditors use to get evidence related to contingencies, commitments, and subsequent events? When during the audit engagement process do auditors perform these procedures? Why?
Which type of subsequent event is not adjusted for in the period-end financial statements under GAAP but requires disclosure in the notes? Give an example, and explain why this presentation is required by GAAP.
Which type of subsequent event requires adjustment to the period-end financial statements under GAAP? Give an example, and explain why this presentation is required by GAAP.
What are subsequent events? Distinguish two main types.
What are commitments? How are they presented in financial statements to comply with GAAP? Why?
What are contingencies? How are they presented in financial statements to comply with GAAP? Why?
Give examples of important items in a cash flow statement that will tie into balance sheet account analyses.
What is the auditor’s main goal in analyzing the cash flow statement?
How can misclassifications within the income statement affect fair presentation, even if the bottom-line net income is not misstated?
How does the analysis of the income statement link to the audit of the balance sheet accounts and the changes in them over the period?
What is the purpose of the auditor’s review of the complete set of financial statements that management has prepared for audit?
What is the purpose of the auditor’s evaluation of the income statement?
What are the main evidence-gathering procedures that are left until the last part of the engagement? Why are these procedures done as late as possible in the engagement?
Exhibit EP 14B-3 contains a working paper prepared by a junior audit team member to document the audit work performed on the longterm debt balance for Canadian Widgets Inc. Evaluate the working paper and list deficiencies it contains. БХНIBIT EP 148-3 CANADIAN WIDGETS INC. In dex KI Working
A corporate balance sheet indicates that one of the corporate assets is a patent. Where will an auditor most likely be able to obtain a written representation of this patent from?a. Patent lawyer.b. Regional patent office.c. Patent inventor.d. Patent owner.
Which item of all corporate share capital transactions should ultimately be traced?a. Minutes of the board of directors meetings.b. Cash receipts journal.c. Cash disbursements journal.d. Numbered share certificates.
What information should be included in a working paper for the audit of investment securities?
Why is the finance and investment cycle particularly important for auditors?
You are the audit senior on the engagement team that is performing the audit of MR Roboto Inc.'s financial statements for its December 31, 20X5, year-end. Your firm has audited MR Roboto for the past three years. You are now reviewing the company's payroll process and controls, in order to start
What are the three phases of a control evaluation? How will the auditor’s work in these phases overlap in practice?
Identify two points in the audit process when analytical procedures are required by GAAS, and explain why they are considered necessary.
Explain why analytical procedures are used throughout the audit process.
Explain why substantive audit procedures provide direct evidence relevant to the audit opinion.
Explain why risk assessment and control testing procedures give indirect rather than direct audit evidence relevant to the audit opinion.
Identify four main purposes of auditing procedures used in the three steps of the audit process.
List and describe six main techniques used to gather audit evidence.
Explain the logical argumentation approach that underlies how an auditor uses audit evidence to support reasonable assurance.
Why is the ownership assertion a key risk in the payroll process?a. The year-end accruals are small so they may be incomplete.b. Payroll duties cannot easily be segregated in most businesses.c. Evidence from government income tax reports is often audited.d. The payroll process involves a high
Where might an auditor find accounting records of cost overruns on contracts? improper charges? improperly capitalized inventory?
What are some common substantive audit procedures for inventory and the production process? What financial statement assertions do these procedures provide evidence about?
In what situations is it most likely that auditors will decide to test controls over the production process?
What are an auditor’s main concerns related to production cost transactions? Why?
What are the main risks for production of manufactured inventory, and management’s main control objectives related to the process? Why?
What are the main classes of transactions and related account balances for the production process?
What is the management purpose for information generated about costs of producing manufactured inventory, or services that are sold to customers?
What are some common substantive audit procedures for payroll? What financial statement assertions do these procedures provide evidence about?
In what situations is it most likely that auditors will decide to test controls over payroll transactions?
What are an auditor’s main concerns related to payroll transactions? Why?
What are the main risks for payroll, and management’s main control objectives and control activities related to the payroll process? Why?
What are the main classes of transactions and related account balances for the payroll process?
Grafite International Inc. (Grafite) is a manufacturer of various components used in the electricity distribution industry. It has factories across the country, and its customer base includes a variety of municipal and provincial electricity distributors. You are an audit senior with Grafite’s
SCI makes clothes under its own labels, and also makes clothes to order under the labels of several large retailers. The large retailers usually order goods to be manufactured and held by SCI until the time comes when they are ready to put them in their stores. These large retailers pay SCI 50% of
Which of the following is an auditor’s objective related to the valuation assertion for the auditee’s PPE and intangible assets?a. Obtain evidence that the auditee has legal rights to its patents.b. Obtain evidence that the auditee has legal title to the building included in its PPE.c. Evaluate
To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. Which of the following is the population for this test?a. Suppliers’ invoicesb. Purchase ordersc. Receiving reportsd. Cancelled cheques
When evaluating inventory controls with respect to segregation of duties, which of the following would an auditor be least likely to do?a. Inspect documents.b. Make inquiries.c. Observe procedures.d. Consider policy and procedure manuals.
Which of the following is the best audit procedure for determining the existence of unrecorded liabilities?a. Examine confirmation requests by creditors whose accounts appear on a subsidiary trial balance of accounts payable.b. Examine a sample of cash payments in the period subsequent to the
To protect against the preparation of improper or inaccurate cash payments, which effective internal control procedure would be required for all cheques?a. Signed by an officer after necessary supporting evidence has been examined.b. Reviewed by a senior officer before mailing.c. Sequentially
Why must auditors understand the physical characteristics of inventoried assets?
How can analysis be used to discover understated expenses?
How can analysis be used to discover excess costs?
Explain two-direction sampling in the context of inventory test counts.
What is the main evidence used to audit depreciation expense?
What assertion(s) are addressed by a physical inspection of PPE?
What assertion is the auditor most concerned about in auditing the purchases, payables, and payments process? Why?
How do the results of the auditor’s control testing affect the plan to perform substantive procedures?
What substantive audit procedures are often performed for purchases, payables, and cash payments?
Why do auditors frequently choose to test controls in the purchases, payables, and payments process?
What are an auditor’s main concerns related to purchasing and payment transactions? Why?
What are management’s main control objectives related to the purchases process? Why?
What are the main classes of transactions and related account balances for the purchases process?
Specialties Papers Inc. (SPI) makes a unique type of paper that is used in specialized biohazard cleanup operations. Since customers cannot predict when they will need large supplies of the paper, they typically purchase a quantity of paper and ask SPI to hold it in its warehouse until they order
When an auditor selects a sample of shipping documents and takes the tracing direction of a test to find the related sales invoice copies, the evidence is relevant for deciding which of the following?a. If shipments to customers were invoiced.b. If shipments to customers were recorded as sales.c.
The negative request form of accounts receivable confirmation is most likely to be acceptable in which case? ASSESSED LEVEL OF NUMBER OF SMALL BALANCES IS CONTROL RISK RELATING PROPER CONSIDERATION TO RECEIVABLES IS BY THE RECIPIENT IS Likely Unlikely Likely Many a. Low b. Low Few C High Few d.
In the audit of cash and accounts receivable, the main emphasis should be on which assertion?a. Completeness.b. Existence.c. Obligations.d. Presentation and disclosure.
What is the best reason for prenumbering, in sequence, documents such as sales orders, shipping documents, and sales invoices?a. Enables determination of the accuracy of each document.b. Enables determination of the proper period recording of sales revenue and receivables.c. Allows checking of the
Which of the following is the most effective technique for detecting suspicious cash transactions between inter-company banks?a. Review the composition of authenticated deposit slips.b. Review subsequent bank statements.c. Prepare a schedule of the bank transfers.d. Prepare a year-end bank
The audit working papers often include an auditee-prepared aged trial balance of accounts receivable as of the balance sheet date. The aging is best used by the auditor for which of the following?a. Evaluating internal control over credit sales.b. Testing the accuracy of recorded charge sales.c.
Which of the following would the auditor consider to be an incompatible operation if the cashier receives remittances?a. The cashier prepares the daily deposit.b. The cashier makes the daily deposit at a local bank.c. The cashier posts the receipts to the accounts receivable subsidiary ledger
What is the purpose of auditing inter-company bank transfers just before and after the year-end?
Why is it a control weakness if the same employee can authorize inventory transfers and record accounts receivable entries?
What purpose is served by prenumbering sales orders, shipping documents (packing slips and bills of lading), and sales invoices?
What is an example of a substantive audit procedure that provides evidence related to the existence of cash? of accounts receivable?
What assertion is the auditor most concerned about in auditing the revenues, receivables, and receipts process? Why?
Give two examples of dual-purpose tests that can be used in the revenue process.
What are some common substantive audit procedures for revenues, cash, and accounts receivable?
In what situations is it most likely that auditors will decide to test controls over revenue transactions?
What are an auditor’s main concerns related to revenue transactions? Why?
What are management’s main control objectives related to the revenue process? Why?
What are the main classes of transactions and related account balances for the revenue process?
Your audit firm is planning the audit of a company’s accounts receivable, which consists of 1,032 customer accounts with a total recorded amount (book value) of $300,000. You have already decided that the accounts receivable can be overstated by as much as $10,000, and the financial statements
N. Wolfe, PA, is planning the audit of Goodwin Manufacturing Company’s inventory. Wolfe plans to audit the inventory by selecting a sample of items for physical observation and counting, followed by price testing. The price testing part of the work takes a large portion of the time on each
Prepare tables like the one in Exhibit DC 10B-2 under different assumptions for the three combinations given below. Calculate monetary-unit sample sizes using the Poisson risk factors for a dollar value of the balance of $300,000 and a tolerable misstatement of $10,000. Assume zero expected
Write an explanation of the auditing theory and GAAS regarding sampling plans when the risk model causes the calculation of RIA (acceptable risk of incorrect acceptance) to exceed 50%.
Using the discovery sampling theory and R value tables, fill in the missing data in each case below. (a) (b) (c) Critical rate of occurrence 0.4% 0.5% 1.0% Required probability q9 q9 q9 Sample size (minimum) (d) (e) (f) Critical rate of occurrence 2.0% 1.0% 0.5% Required probability Sample size
Using the table of random digits and the Poisson risk factor equation, find the computed UEL for each case below. (a) (b) (c) Risk of assessing control risk too low 0.01 0.05 0.10 Sample size 300 300 300 Deviations 6. Sample deviation rate Computed UEL (d) (e) (f) Risk of assessing control risk too
When you audited Kingston Company’s performance of its control procedures, you found four deviations of “wrong quantity billed” in a sample of 80 invoices. At the risk of assessing control risk too low of 5%, this finding showed a UEL of 12%, which is more than your tolerable rate of 4%. This
A local industrial company has two departments. In the larger department, about 45 sales invoices are completed each day; in the smaller department, about 15 invoices are completed each day. About 50% of all sales invoices completed in each department specify discounts from the company’s list
Why do you think the auditing profession has no definite rules for deciding the amount of an adjustment?
If you had to pick the one best measure for an amount to recommend for adjustment based on a sample, which one would you choose?
What is the UEL for the audit of 96 dollar units from the $300,000 accounts receivable, given the errors shown in Exhibit 10B–7, for RIA = 0.48? for RIA = 0.05? What interpretation can you give to these UELs?
What is the risk-related interpretation of each of the UELs you calculated in question 10B-39?
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![EXHIBIT DC 10B-2 TEST OF CONTROL BALANCE-AUDIT TDR N[C] CONTROL RISK CATEGORIES CR RIA RACRTL COST N[S] COST TOTAL 0.10](https://dsd5zvtm8ll6.cloudfront.net/si.question.images/images/question_images/1561/1/3/2/5875d0cfe2bf23ad1561115608560.jpg)
