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auditing international approach
Auditing And Assurance Services A Systematic Approach 5th Edition William Messier, Steven Glover, Douglas Prawitt - Solutions
List the key segregation of duties in the purchasing process. What errors or fraud can occur if such duties are not segregated? P-968
Briefly describe each of the following documents or records: purchase req- uisition, purchase order, receiving report, vendor invoice, and voucher. Why would an entity combine all documents related to a purchase trans- action into a "voucher packet"? P-968
What major types of transactions occur in the purchasing process? What financial statement accounts are affected by each type of transaction? P-968
Distinguish among the three categories of expenses. Provide an example of each type of expense. P-968
Evaluate the audit findings and reach a final conclusion on accounts payable and accrued expenses. P-968
Describe how confirmations are used to obtain evidence about accounts payable. P-968
Identify tests of details of account balances and disclosures used to audit accounts payable and accrued expenses. P-968
Identify tests of details of transactions used to audit accounts payable and accrued expenses. P-968
Identify substantive analytical procedures used to audit accounts payable and accrued expenses. P-968
Relate the assessment of control risk to substantive testing. P-968
Identify key internal controls and develop relevant tests of controls for purchasing, cash disbursements, and purchase return transactions. P-968
Assess control risk for a purchasing process. P-968
Identify and evaluate inherent risks relevant to the purchasing process and related accounts. P-968
Know the appropriate segregation of duties for the purchasing process. P-968
Understand the functions in the purchasing process. P-968
Identify and describe the types of documents and records used in the purchasing process. P-968
Identify the types of transactions in the purchasing process and the financial statement accounts affected. P-968
Develop an understanding of the purchasing process. P-968
Understand why knowledge of an entity's expense and liability recognition policies is important to the audit. P-968
Visit the SEC's Web site (www.sec.gov) and identify a company that has been recently cited for revenue recognition problems. Prepare a memo summarizing the revenue recognition issues for the company.L-987
Visit the Web site of a catalog retailer similar to EarthWear Clothiers, and determine how it processes sales transactions, recognizes revenue, and reserves for returns.L-987
Friendly Furniture, Inc., a manufacturer of fine hardwood furniture, is a publicly held SEC-registered company with a December 31 year-end. During May, Friendly had a flood due to heavy rains at its major manu- facturing facility that damaged about $525,000 of furniture. Friendly is insured for the
SEC Accounting and Auditing Enforcement Release (AAER) No. 108 specifies certain conditions or criteria that a bill and hold transaction of a public company should meet in order to qualify for revenue recogni- tion. The AAER also specifies certain factors that should be considered in evaluating
You are engaged to audit the Ferrick Corporation for the year ended. Jan- uary 31, 2006. Only merchandise shipped by the Ferrick Corporation to customers up to and including January 30, 2006, has been eliminated from inventory. The inventory as determined by physical inventory count has been
During the year Strang Corporation began to encounter cash-flow diffi- culties, and a cursory review by management revealed receivable collec- tion problems. Strang's management engaged Stanley, CPA, to perform a special investigation. Stanley studied the billing and collection process and noted
The “Accounts Receivable—Confirmation Statistics” working paper shown above was prepared by an audit assistant during the calendar year 2006 audit of Lewis County Water Company, Inc., a continuing audit client. The engagement supervisor is reviewing the working papers.L-987
Adam Signoff-On, CPA, was auditing Defense Industries, Inc. Signoff-On sent positive accounts receivable confirmations to a number of Defense's government customers. He received a number of returned confirmations marked “We do not confirm balances because we are on a voucher system.”L-987
Assertions are expressed or implied representations by management that are reflected in the financial statement components. The auditor performs audit procedures to gather evidence to test those assertions.L-987
The Art Appreciation Society operates a museum for the benefit and en- joyment of the community. During the hours the museum is open to the public, two clerks who are positioned at the entrance collect a five-dollar ?L-987
For each of the following situations based on SAB No. 101, indicate how and/or when the client should recognize the revenue. Justify your decision. 1. Your client, Thomson Telecom, maintains an inventory of telecommu- nications equipment. Bayone Telephone Company placed an order for 10 new
In evaluating the adequacy of the allowance for doubtful accounts, an au- ditor most likely reviews the entity's aging of receivables to support man- agement's financial statement assertion ofa. Existence. Valuation and allocation.c. Completeness.d. Rights and obligations.L-987
An auditor should perform alternative procedures to substantiate the ex- istence of accounts receivable when No reply to a positive confirmation request is received.b. No reply to a negative confirmation request is received.c. The collectibility of the receivables is in doubt.d. Pledging of the
The negative request form of accounts receivable confirmation is useful particularly when?L-987
Negative confirmation of accounts receivable is less effective than posi- tive confirmation of accounts receivable becausea. A majority of recipients usually lack the willingness to respond objec- tively.b. Some recipients may report incorrect balances that require extensive follow-up.c. The
Which of the following is most likely to be detected by an auditor's review of a client's sales cutoff? a Unrecorded sales for the year.b. Lapping of year-end accounts receivable.c. Excessive sales discounts.d. Unauthorized goods returned for credit.L-987
Cash receipts from sales on account have been misappropriated. Which of the following acts would conceal this defalcation and be least likely to be detected by an auditor? A Understating the sales journal.b. Overstating the accounts receivable control account.c. Overstating the accounts receivable
Smith Corporation has numerous customers. A customer file is kept on disk. Each customer file contains a name, an address, a credit limit, and an account balance. The auditor wishes to test this file to determine whether credit limits are being exceeded. The best procedure for the au- ditor to
Which of the following internal controls would be most likely to deter the lapping of collections from customers?a. Independent internal verification of dates of entry in the cash receipts journal with dates of daily cash summaries.b. Authorization of write-offs of uncollectible accounts by a
Which of the following controls is most likely to help ensure that all credit revenue transactions of an entity are recorded?a. The billing department supervisor sends a copy of each approved sales order to the credit department for comparison to the customer's au- thorized credit limit and current
The completeness of IT-generated sales figures can be tested by compar- ing the number of items listed on the daily sales report with the number of items billed on the actual invoices. This process usesa. Check digits.b. Control totals.c. Validity tests.d. Process-tracing data.L-987
When evaluating internal control of an entity that processes revenue trans- actions on the Internet, an auditor would be most concerned about thea. Lack of sales invoice documents as an audit trail. Potential for computer disruptions in recording sales.c. Inability to establish test data.d.
For the control activities to be effective, employees maintaining the ac- counts receivable subsidiary ledger should not also approvea. Employee overtime wages.b. Credit granted to customers. LWrite-offs of customer accounts.d. Cash disbursements.L-987
Identify three other types of receivables the auditor should examine. What audit procedures would typically be used to audit other receivables?L-987
Distinguish between positive and negative confirmations. Under what cir- cumstances would positive confirmations be more appropriate than neg- ative confirmations?L-987
List and discuss the three factors mentioned in the chapter that may af- fect the reliability of confirmations of accounts receivable.L-987
Describe how the auditor verifies the accuracy of the aged trial balance.L-987
List four analytical procedures that can be used to test revenue-related accounts. What potential misstatements are indicated by each of these analytical procedures?L-987
What are the two major controls for sales returns and allowances transactions?L-987
In understanding the accounting system in the revenue process, the auditor typically performs a walkthrough to gain knowledge of the system. What knowledge should the auditor try to obtain about the accounting system?L-987
The auditor needs to understand how selected inherent risk factors affect the transactions processed by the revenue process. Discuss the potential effect that industry-related factors and misstatements detected in prior periods have on the inherent risk assessment of the revenue process.L-987
When a client does not adequately segregate duties, the possibility of cash being stolen before it is recorded is increased. If the auditor suspects that this type of defalcation is possible, what type of audit procedures can he or she use to test this possibility?L-987
Describe the credit function's duties for monitoring customer payments and handling bad debts.L-987
Accounting standards require that revenue must be earned and realized before it can be recognized. Discuss what is meant by the terms earned and realized.L-987
Evaluate the audit findings and reach a final conclusion on accounts receivable and revenue- related accounts. L-987
Learn how to audit other types of receivables. L-987
Describe the confirmation process and how confirmations are used to obtain evidence about accounts receivable. L-987
Identify tests of details of account balances and disclosures used to audit accounts receivable and revenue-related accounts. L-987
Identify tests of details of transactions used to audit accounts receivable and revenue-related accounts. L-987
Identify substantive analytical procedures used to audit accounts receivable and revenue-related accounts. L-987
Relate the assessment of control risk to substantive testing. L-987
Identify key internal controls and develop relevant tests of controls for revenue, cash receipts, and sales returns transactions. L-987
Assess control risk for a revenue process. L-987
Identify and evaluate inherent risks relevant to the revenue process and related accounts. L-987
Know the appropriate segregation of duties for the revenue process. L-987
Understand the functions in the revenue process. L-987
Identify and describe the types of documents and records used in the revenue process. L-987
Identify the types of transactions in the revenue process and the financial statement accounts affected. L-987
Understand the revenue process. L-987
Understand why knowledge of an entity's revenue recognition policies is important to the audit. L-987
Doug Stevens, CPA, is interested in testing the fairness of the ending inventory balance at an audit client, Morris Co. Doug has relatively little experience using statistical sampling methods and, quite frankly, doesn't like to turn any- thing over to random chance especially the selection of
Mead, CPA, was engaged to audit Jiffy Company's financial statements for the year ended August 31. Mead is applying sampling procedures. During the prior years' audits Mead used classical variables sampling in performing tests of controls on Jiffy's accounts receivable. For the current year Mead
You are in charge of the audit of Hipp Supply Company for the year ended December 31. In prior years, your firm observed the inventory and tested compilation and pricing. Various misstatements were always found. About 10 percent of the dollar value of the inventory is usually tested. This year you
World-famous mining mogul Steve Wilsey hired the public accounting firm of Joe Wang Associates, PC, to conduct an audit of his new acquisition, Cougar Goldust, Inc. The gold inventory was scheduled to be taken on November 30. The perpetual records show only the weight of the gold in various
The progressive public accounting firm of Johnson and Johnson has decided to design a nonstatistical sample to examine the accounts receivable balance of Francisco Fragrances, Inc., at October 31. As of October 31, there were 1,500 accounts receivable accounts with a balance of $5.5 million. The
McMullen and Mulligan, CPAs, were conducting the audit of Cusick Machine Tool Company for the year ended December 31. Jim Sigmund, senior-in-charge of the audit, plans to use MUS to audit Cusick's inventory account. The balance at December 31 was $9,000,000. Required:a. Based on the following
The firm of Le and Lysius was conducting the audit of Coomes Molding Corporation for the fiscal year ended October 31. Michelle Le, the partner in charge of the audit, decides that MUS is the appropriate sampling tech- nique to use in order to audit Coomes's inventory account. The balance in the
Edwards has decided to use monetary-unit sampling in the audit of a client's accounts receivable balance. Few, if any, misstatements of account balance overstatement are expected. Required:a. Identify the advantages of using monetary-unit sampling over classical variables sampling.b. Calculate the
Which of the following would most likely be an advantage in using classi- cal variables sampling rather than monetary-unit sampling?a. An estimate of the standard deviation of the population's recorded amounts is not required.b. The auditor rarely needs the assistance of a computer program to
In classical variables sampling, which of the following must be known in order to estimate the appropriate sample size required to meet the audi- tor's needs in a given situation?a. The qualitative aspects of misstatements, P-9652
Which of the following statements concerning the auditor's use of statisti- cal sampling is correct?a. An auditor needs to estimate the dollar amount of the standard devia- tien of the population in order to use classical variables sampling.b. An assumption of monetary-unit sampling is that the
An auditor is performing substantive procedures of pricing and extensions of perpetual inventory balances consisting of a large number of items. Past experience indicates that there may be numerous pricing and extension errors. Which of the following statistical sampling approaches is most
In a probability-proportional-to-size sample with a sampling interval of $5,000, an auditor discovers that a selected account receivable with a recorded amount of $10,000 has an audit amount of $8,000. If this were the only error discovered by the auditor, the projected misstatement for this sample
Which of the following statements concerning monetary-unit sampling is correct?a. The sampling distribution should approximate the normal distribution.b. Overstated units have a lower probability of sample selection than units that are understated. che auditor controls the risk of incorrect
The risk of incorrect acceptance relates to thea. Effectiveness of the audit.b. Efficiency of the audit.c. Planning materiality.d. Allowable risk of tolerable misstatement. P-9652
Which of the following sample planning factors would influence the sam- ple size for a substantive test of details for a specific account? P-9652
A number of factors influence the sample size for a substantive test of de- tails of an account balance. All other factors being equal, which of the fol- lowing would lead to a larger sample size?a. Greater reliance on internal controls.b. Greater reliance on analytical procedures.c. Smaller
Which of the following sampling methods would be used to estimate a nu- meric measurement of a population, such as a dollar value?a. Random sampling.b. Numeric sampling. Attribute sampling. dVariable sampling. P-9652
What is the decision rule for determining the acceptability of sample results when classical variables sampling is used? P-9652
Describe the two methods suggested for projecting a nonstatistical sample result. How does an auditor determine which method should be used? 9.9 What are the advantages and disadvantages of classical variables sampling? P-9652
How do the desired confidence level, risk of material misstatement and tolerable and expected misstatements affect the sample size in a nonstatis- tical sampling application? P-9652
What is the decision rule for determining the acceptability of sample results when monetary-unit sampling is used? P-9652
How does the use of probability-proportional-to-size selection provide an increased chance of sampling larger items? P-9652
Identify the advantages and disadvantages of monetary-unit sampling. P-9652
How are the desired confidence level, the tolerable misstatement, and the expected misstatement related to sample size? P-9652
How is the sampling unit defined when monetary-unit sampling is used for statistical sampling? How is the sampling unit defined when classical vari- ables sampling is used? P-9652
List the steps in a statistical sampling application for substantive testing. P-9652
Work through an example of classical variables difference estimation. P-9652
Learn to apply classical variables difference estimation. P-9652
Learn to apply nonstatistical sampling techniques. P-9652
Work through an extended example of monetary- unit sampling. P-9652
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