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auditing international approach
Auditing An International Approach 7th edition Wally J. Smieliauskas, Kathryn Bewley - Solutions
What are analytical procedures? How are they useful in the risk assessment step of an audit?
What are key information sources auditors can use to obtain a deep knowledge of the auditee company’s business?
How does a deep knowledge of the auditee’s business and environment help an auditor to assess the risk of its financial statements not being fairly presented?
What does the term audit engagement team mean?
What is the purpose of a time budget in conducting an audit engagement?
What are the three main steps in the audit process?
What is an audit engagement letter? What information does it contain? What is its purpose?
Why do the professional ethics codes require that a successor auditor communicate with a predecessor auditor?
When does a potential successor auditor have an obligation to communicate with a predecessor auditor? What does this communication include?
What does the term predecessor auditor mean?
What are the key factors involved in determining whether an auditor, or audit firm, can accept an audit engagement? What difference arises between a continuing audit engagement and a new engagement?
What preliminary knowledge about a potential auditee company does a professional accountant need to obtain as part of deciding whether to accept an audit engagement?
List the ethical requirements that must be met to perform an independent audit engagement.
What are the key qualities people hired to do audits must have to perform an audit engagement?
What does the term those charged with governance refer to in auditing standards?
Current Canadian GAAS through 2015 do not permit the auditor to refer to a going-concern uncertainty in the audit report when the uncertainty is properly disclosed in the financial statement notes.Required:a. Describe the strengths and weaknesses of this approach, taking into consideration the
When will an auditor express an opinion containing the phrase “except for”?a. The client refuses to provide for a probable income tax liability that is very material, or super-material.b. There is a high degree of uncertainty associated with the client company’s future.c. He or she did not
An EOM paragraph inserted in an audit report causes the report to be characterized asa. An unqualified opinion report.b. A divided responsibility.c. An adverse opinion report.d. A denial of opinion.
When other independent auditors are involved in the current audit on parts of the client’s business, the principal auditor can write an audit report that.a. Mentions the other auditors but fails to describe the extent of the other auditors’ work, and gives an unqualified opinion.b. Does not
Phil became the new auditor for Royal Corporation, succeeding Liz, who audited the financial statements last year. Phil needs to report on Royal’s comparative financial statements and should write in his report an explanation about another auditor having audited the prior yeara. Only if Liz’s
Which of these situations would require an auditor to insert an explanatory paragraph about consistency in an unqualified audit report?a. Client changed its estimated allowance for uncollectible accounts receivableb. Client corrected a prior mistake in accounting for interest capitalizationc.
A company accomplished an early extinguishment of debt, and the auditors believe that recognition of a huge loss distorts the financial statements and causes them to be misleading. The auditors’ reporting choices are toa. Explain the situation and give an adverse opinion.b. Explain the situation
An auditor has found that the client is suffering financial difficulty and that the goingconcern status is seriously in doubt. The client has not placed good disclosures in the financial statements. Which of the following audit report alternatives must the PA choose?a. Unqualified report with a
A PA finds that the client has not capitalized a material amount of leases in the financial statements. When considering the materiality of this departure from GAAP, the PA’s reporting options area. Unqualified opinion or disclaimer of opinion.b. Unqualified opinion or qualified opinion.c. EOM
Some of the GAAS require certain statements in all audit reports (“explicit”), and others require statements only under certain conditions (“implicit”). Which of the following is always an explicit feature of the reporting standards? Standardsa. GAAPb. Consistencyc. Disclosured. GAAS
According to CPA Canada, what is the objective of an audit of financial statements?a. An expression of opinion on the fairness with which they present financial position, results of operations, and cash flows in conformity with GAAPb. An expression of opinion on the fairness with which they present
PA developed a system for clients to enter transaction data by remote terminal into the PA’s computer. The PA’s system processes the data and prints monthly financial statements. When delivered to the clients, these financial statements should includea. A standard unqualified audit report.b.
Under what conditions would an auditor use an emphasis of matter paragraph?
Identify the levels of assurance associated with auditor reports.
Explain the effect of pervasive materiality on an auditor report when there is a scope limitation.
The auditor knows about the client’s situation for which opinions? Explain.
What effect does the materiality of a GAAP departure have on the auditor’s reporting decision?
Why does association exist if a professional accountant is only providing a Notice to Reader report on a company’s financial statements?
What does a professional accountant’s Notice to Reader report on financial statements indicate to financial statement users?
What term is used when a professional accountant simply prepares financial statements for a company, but does not do any work that could support giving assurance to users about the fair presentation of these financial statements?
What is the difference between the accountant’s work when issuing an audit opinion, and the work when issuing a review engagement report?
What term is used for a type of assurance engagement that provides a moderate, rather than a high, level of assurance?
What level of assurance does an audit provide?
What does the term high level of assurance mean?
What does the term association mean in the accounting profession? What responsibilities arise for a professional accountant who is considered to be associated with a company’s financial information?
Explain why there is some discussion now in the auditing profession of expanding the standard auditor’s report wording to include more customized Auditor’s Comments.
What are the main components that GAAS require to be included in an auditor’s report on financial statements?
What kind of audit opinion is given if the scope of the audit engagement was limited but the problems would only affect isolated information in the financial statements? What kind of report is used if there are audit scope limitations that made it impossible for the auditor to determine if the
What kind of audit opinion is used if there are GAAP violations but they only affect isolated information in the financial statements? What kind of opinion is given if the GAAP violations severely undermine the usefulness of the financial statements overall?
What are two main categories of problems that can prevent an auditor from issuing an unmodified audit opinion on GAAP financial statements? Which type relates to management’s responsibilities and which type relates to auditors’ responsibilities?
What is a modified (or qualified) audit opinion? How does it differ from an unmodified audit opinion?
Why do most of the public company audit reports we see include unmodified audit opinions?
What information is the auditor communicating to financial statement users when he or she issues an unmodified audit opinion?
What does the term unmodified audit opinion mean? What simpler term for this type of opinion is often used in practice?
What standards are followed for writing an auditor’s report?
Does the requirement for standardized audit report wording relate to the “expectations gap” in some way? Explain.
Why does the auditor’s report traditionally have standardized wording?
What does it mean to say that the financial statements “present fairly” in accordance with GAAP?
What does an independent auditor’s report on financial statements state? When does the auditor provide this report?
It is going to be a long night! First thing this morning, the senior partner of your three-partner firm, Peters, Peters, and Paul (PPP), called you into her office to tell you that she had a confidential but exciting assignment for you. The firm has been retained to review the audit working papers
Adrogué and Ratliff46 recommended that courts adopt the "hierarchy of GAAP for financial statements of non-governmental entities" published by the AICPA.47 This hierarchy has five strata, listed below in descending order of authority:1. FASB Statements and Interpretations, APB Opinions, and AICPA
A basic assumption of accounting theory is that the going-concern assumption is true. If the auditor assesses that there is a 20% chance the auditee will fail, what should the auditor do? If the auditor assesses a range of risks of failure 0–40%, what should the auditor do? When are quantitative
1. Are auditors providing high assurance when they fail to disclose going-concern problems for failing companies?2. What is wrong with the self-fulfilling prophecy argument from the auditor’s perspective?3. Identify the perspectives possible and the resulting arguments regarding the expensing of
The management accountants employed by Robbins Inc. wrongly charged executives’ personal expenses to the overhead on a government contract. Their activities can be characterized asa. Errors in the application of accounting principles.b. Irregularities of the type independent auditors should plan
Under the Foreign Corrupt Practices Act,a. Companies must refrain from bribing foreign politicians for commercial advantage.b. Independent auditors must audit all elements of a company’s internal control system.c. Independent auditors must establish control systems to keep books, records, and
When a PA knows that a tax client has skimmed cash receipts and not reported the income in his federal income tax return, but she signs the return as a PA who prepared the return, that PA has violated which rule of professional conduct?a. Confidential Client Informationb. Integrity and
A PA’s legal licence to practise public accounting can be revoked by which organization?a. CPA Canadab. Provincial body of PAsc. Auditing Standards Boardd. Provincial securities commissions
Which of the following would probably not be considered an “act discreditable to the profession”?a. Numerous moving traffic violationsb. Failing to file the PA’s own tax returnc. Filing a fraudulent tax return for a client in severe financial difficultyd. Refusing to hire Asian Canadians in
When a client’s financial statements contain a material departure from a CPA Canada Handbook Accounting Recommendation and the PA believes that disclosure is necessary to make the statements not misleading, the PAa. Must qualify the audit report for a departure from GAAP.b. Can explain why the
PA Smith is the auditor of Ajax Corporation. Her audit independence will not be considered impaired if shea. Owns $1,000 worth of Ajax shares.b. Has a husband who owns $2,000 worth of Ajax shares.c. Has a sister who is the financial vice-president of Ajax.d. Owns $1,000 worth of the shares of
CPA Ontario should remove its general prohibition against PAs taking commissions and contingent fees becausea. CPAs prefer more price competition to less.b. Commissions and contingent fees enhance audit independence.c. The Charter of Rights will force the change anyway.d. Objectivity is not always
Which of the following bodies does not have any power to punish individual members for violations of the rules of professional conduct?a. CPA Canadab. Canada Revenue Agencyc. OSCd. CPA Ontario
Which of the following committees have been authorized to discipline members in violation of the rules of professional conduct?a. CPA Canada Committee on Professional Ethicsb. Appeals Committeec. Discipline Committeed. Professional Conduct Committee
If a PA says she always follows the rule that requires adherence to CPA pronouncements in order to give a standard unqualified audit report, she is following a philosophy characterized bya. The imperative principle in ethics.b. The utilitarian principle in ethics.c. The generalization principle in
What are class-action lawsuits, and why should auditors be concerned about them?
Why is critical thinking becoming more important in the CAS and IFRS audit environment?
What is a professional accountant’s role with regard to ethical decision problems?
What is the difference between common law and statutory laws in relation to determining auditor legal liability?
What are the elements of negligence that apply in establishing auditor liability under common law?
What is the expectations gap in auditing? How does it relate to auditor liability?
Does professional experience guarantee that auditors will reach ethical decisions in auditing conflict situations? Explain your position.
Why is experience important in using good professional judgment?
What is the relation between professional judgment and critical thinking?
What is critical thinking? How is it useful to an auditor?
What is professional skepticism? How does it relate to an auditor’s objectivity? How does it relate to the professional accountant’s ethical requirement to use due care?
How can an auditor’s objectivity be affected by his or her own personal biases?
Give examples of conflicts that could arise between the following parties in a three-party accountability situation: (a) the management and the shareholders of a company, (b) the auditor and the management of a company, (c) the shareholders and the auditor of a company.
What is the meaning of an auditor’s opinion that a set of financial statements is “fairly presented”?
What is a financial statement auditor’s responsibility in relation to unethical financial reporting?
1. Consider the following quality control policy and identify the quality control element it relates to: “Designate individuals as specialists to serve as authoritative sources; provide procedures for resolving differences of opinion between audit personnel and specialists.”2. What is a
Ask a relative or friend what they think auditors do. Are auditors expected to find all errors? Find all intentional errors? Find all unintentional errors (no matter how small)? Ask them to read the auditor’s report in Exhibit 2–1. Then ask whether this report meets their expectations of the
Which of the following is not mandatory when performing an audit in accordance with GAAS?a. Proper supervision of assistants.b. Efficient performance of audit procedures.c. Understanding the auditee’s system of internal controls.d. Adequate planning of work to be performed.
Which of the following concepts is not included in the wording of the auditor’s standard report?a. Management’s responsibility for the financial statements.b. Auditor’s responsibility to assess significant estimates made by management.c. Extent of auditor’s reliance on the auditee’s
Which of the following is not an example of a quality control procedure likely to be used by a public accounting firm to meet its professional responsibilities to auditees?a. Completion of independence questionnaires by all partners and employees.b. Review and approval of audit plan by the partner
Auditor Jones is studying a company’s accounting treatment of a series of complicated transactions in exotic financial instruments. She should look for the highest level of authoritative support for proper accounting ina. provincial securities commissions’ staff position statements.b. CPA
The assurance standards do not contain a requirement that auditors obtaina. Adequate knowledge in the subject matter of the assertions being examined.b. An understanding of the auditee’s internal control structure.c. Sufficient evidence for the conclusions expressed in an attestation report.d.
Which of the following is not found in the standard unqualified audit report on financial statements?a. An identification of the financial statements that were audited.b. A general description of an audit.c. An opinion that the financial statements present financial position in conformity with
Auditors’ activities about which of these generally accepted auditing standards (GAAS) are not affected by the auditee’s utilization of a computerized accounting system?a. The audit report shall state whether the financial statements are presented in accordance with GAAP.b. The work is to be
The primary purpose for obtaining an understanding of the company’s internal controls in a financial statement audit is toa. Determine the nature, timing, and extent of auditing procedures to be performed.b. Make consulting suggestions to management.c. Obtain direct, sufficient, and appropriate
After the auditors learned of Auditee Company’s failure to record an expense for obsolete inventory, they agreed to a small adjustment to the financial statements because the Auditee president told them the company would violate its debt agreements if the full amount were recorded. This is an
When Auditee Company prohibits auditors from visiting selected branch offices of the business, this is an example of interference with.a. Reporting independence.b. Investigative independence.c. Auditors’ training and proficiency.d. Audit planning and supervision.
What is the theoretical essence of an assurance service?
Define assurance engagements.
What messages are usually implicit in a standard audit report?
Do auditors take any responsibility for auditees’ choices of accounting principles?
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