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auditing international approach
Auditing And Assurance Services A Systematic Approach 5th Edition William Messier, Steven Glover, Douglas Prawitt - Solutions
Learn to apply monetary-unit sampling. P-9652
Understand the similarities and differences between audit sampling for tests of controls and substantive tests of details of account balances. P-9652
Know management's and the auditor's responsibilities for controls that provide reasonable assurance for safeguarding company assets. Be familiar with computer-assisted audit techniques. plo89
Understand how to obtain assurance on controls at a service organization that processes transactions for the entity. plo89
Understand how the audits of internal control and financial statements are integrated, and the implications of each audit for the other. fis Understand how to decide which locations or business units should be audited. plo89
Know the auditor's communication responsibilities on an audit of internal control over financial reporting. plo89
Understand the conditions requiring modification of the auditor's opinion on the effectiveness of internal control and the types of reports available to the auditor under such conditions. plo89
Understand the unqualified report for the audit of internal control over financial reporting. plo89
Understand the auditor's responsibility to issue an opinion on the effectiveness of a client's internal control over financial reporting as part of an Integrated audit. plo89
Understand the auditor's responsibility to evaluate and issue an opinion on management's assessment of the effectiveness of internal control over financial reporting? plo89
Know what information must be included in management's report on internal control over financial reporting, plo89
Be familiar with the auditor's documentation requirements. plo89
Know the written representations that the auditor must obtain from management. plo89
Understand how the auditor can use the work of others on an audit of internal control. plo89
In Be familiar with how auditors conduct an audit of internal control over financial reporting. plo89
Know the framework used by management to assess internal control. plo89
Understand the extent of management's documentation of internal control. plo89
Understand management's assessment process. plo89
Understand the differences between a control deficiency, a significant deficiency, and a material weakness. plo89
Know the definition of internal control over financial reporting. plo89
Understand the auditor's responsibilities for reporting on internal control under Section 404 of the Sarbanes-Oxley Act. p-986
Be familiar with management's responsibilities for reporting on internal control under Section 404 of the Sarbanes-Oxley Act. p-986
Search the Internet (e.g., a company's Web site or sec.gov), and find an audit report for a company's audit of internal control over financial re- porting that expresses an adverse opinion with respect to the effectiveness of internal control. p-986
Search the Internet (e.g., a company's Web site or sec.gov), and find an audit report for a company's audit of internal control over financial re- porting. Determine whether the company used the combined or separate format. p-986
Brown, CPA, is auditing the financial statements of Big Z Wholesaling. Inc., a continuing audit client, for the year ended January 31, 2006. On January 5, 2006, Brown observed the tagging and counting of Big Z's phys- ical inventory and made appropriate test counts. These test counts have been
Auditors use various audit techniques to gather evidence when a client's accounting information is processed using IT. Select the audit procedure from the following list and enter it in the appropriate place on the grid. Audit procedure: 1. Test data method 2. Custom audit software 3. Auditing
The following audit report was drafted by a junior staff accountant of Meryll & Meryll, CPAs, at the completion of the audit of Douglas Com- pany's internal control over financial reporting. Douglas is a public com- pany and is thus subject to SEC reporting requirements. The report was submitted to
Assume that scenario b in Problem 7-38 is a material weakness. Prepare a draft of the auditor's report for an audit of internal control over financial reporting. Assume that First Coast's auditor is issuing a combined report for the financial statement audit and audit of internal control. p-986
Assume that scenario a in Problem 7-38 is a material weakness. Prepare a draft of the auditor's report for an audit of internal control over financial reporting. Assume that Lorenz's auditor is issuing a separate report on in- ternal control.
For each of the following independent situations, indicate the type of re- port on internal control over financial reporting you would issue. Justify your report choice.a. The auditor of Burns Security Systems has determined that manage- ment's process for assessing internal control over financial
For each of the following independent situations relating to the audit of in- ternal control, indicate the reason for and the type of audit report you would issue regarding (1) management's assessment and (2) the effective- ness of the client's internal control over financial reporting.a. During
For each of the following independent situations, indicate the type of re- port on internal control over financial reporting you would issue. Justify your report choice.a. Hansen, Inc., has restated previously issued financial statements to reflect the correction of a misstatement.b. Shu & Han
For each of the following independent situations, indicate the type of report on internal control over financial reporting you would issue. Justify your report choice.a. Johnson Company's management does not have an adequate antifraud program or controls.b. Tap, Tap, & Associates completed the
Following are examples of control deficiencies that may represent signifi- cant deficiencies or material weaknesses. For each of the following scenar- ios, indicate whether the deficiency is a significant deficiency or material weakness. Justify your decision.a. During its assessment of internal
Following are examples of control deficiencies that may represent signifi- cant deficiencies or material weaknesses. For each control deficiency, indi- cate whether it is a significant deficiency or material weakness. Justify your decision.a. The company uses a standard sales contract for most
Following are three examples of controls for accounts that you have deter- mined are significant for the audit of internal control over financial re- porting. For each control, determine the nature, timing, and extent of test- ing of the design and operating effectiveness. Refer to Exhibit 7-2 for
A primary advantage of using generalized audit software packages to audit the financial statements of a client that uses an IT system is that the audi- tor maya. Consider increasing the use of substantive tests of transactions in place of analytical procedures.b. Substantiate the accuracy of data
Which of the following most likely represents a weakness in internal con- trol of an IT system?a. The systems analyst reviews output and controls the distribution of out- put from the IT department.b. The accounts payable clerk prepares data for computer processing and enters the data into the
In multilocation testing, if a location is not determined to be individually significant but may still present specific risks of a material misstatement, and if documented company-level controls exist, what work would the auditor do at that location?a. Evaluate documentation and test controls over
If management makes an adverse assessment of internal control because of a material weakness (i.e., "internal control over financial reporting is not effective") and the auditor agrees with the assessment, the auditor would issuea. An adverse opinion.b. An unqualified opinion on management's
In auditing internal control over financial reporting for a public company client, Emily finds that the company has a significant subsidiary located in a foreign country. Emily's accounting firm has no offices in that country, and the company has thus engaged another reputable firm to conduct the
In auditing a public company audit client, Natalie, an auditor for N. M. Neal & Associates, identifies four deficiencies in internal control over fi- nancial reporting. Three of the deficiencies are highly unlikely to result in financial misstatements that are consequential in amount. One of the
AnnaLisa, an auditor for N. M. Neal & Associates, is prevented by the man- agement of Lileah Company from auditing controls over inventory. Lileah is a public company. Management explains that controls over inventory were recently implemented by a highly regarded public accounting firm that the
When auditors report on the effectiveness of internal control "as of" a spe- cific date and obtain evidence about the operating effectiveness of controls at an interim date, which of the following items would be the least helpful in evaluating the additional evidence to gather for the remaining
Auditing Standard 2 requires an auditor to perform a walkthrough as part of the internal control audit. A walkthrough requires an auditor toa. Tour the organization's facilities and locations before beginning any audit work.b. Trace a transaction from every class of transaction from origination
Which of the following controls would most likely be tested during an in- terim period?a. Controls over nonroutine transactions.b. Controls over the period-end financial reporting process.c. Controls that operate on a continuous basis.d. Controls over transactions that involve a high degree of
Company-level controls can have a pervasive effect on the entity's ability to meet the control criteria. Which one of the following is not a company- level control?a. Controls to monitor results of operations.b. Management's risk assessment process.c. Controls to monitor the inventory taking
Significant deficiencies and material weaknesses must be communicated to an entity's audit committee because they representa. Materials fraud or illegal acts perpetrated by high-level management.b. Disclosures of information that significantly contradict the auditor's going concern assumption.c.
Which of the following is not a factor that might affect the likelihood that a control deficiency could result in a misstatement in an account balance?a. The susceptibility of the related assets or liability to loss or fraud.b. The interaction or relationship of the control with other controls.c.
A control deviation caused by an employee performing a control procedure that he or she is not authorized to perform is always consid- ered aa. Deficiency in design.b. Deficiency in operation.c. Significant deficiency.d. Material weakness.p-986
Which of the following statements concerning control deficiencies is true?a. The auditor should communicate to management, in writing, all control deficiencies in internal control identified during the audit.b. All significant deficiencies are material weaknesses.c. All control deficiencies are
The Sarbanes-Oxley Act of 2002 requires management to include a report on internal control in the entity's annual report. It also requires auditors to attest to management's internal control assertion. Which of the following statements concerning these requirements is false?a. The auditor should
Distinguish between generalized and custom audit software. List the functions that can be performed by generalized audit software. p-986
What should the auditor do when a significant period of time has elapsed between the service organization auditor's report and the date of manage- ment's assessment? p-986
Describe how the auditor decides which locations or business units to test. p-986
Under what circumstances would an auditor qualify his or her opinion on the effectiveness of a client's internal control over financial reporting? p-986
Under what circumstances would an auditor disclaim an opinion on the effectiveness of a client's internal control over financial reporting? p-986
Under what circumstances would an auditor give an adverse opinion on the effectiveness of a client's internal control over financial reporting? p-986
Under what conditions might the auditor's opinions on management's assessment of internal control and on the effectiveness of internal control be different from each other? p-986
What are the types of reports that an auditor can issue for an audit of in- ternal control over financial reporting? Briefly identify the circumstances justifying each type of report. p-986
What are the auditor's documentation requirements for an audit of inter- nal control over financial reporting? p-986
How does the auditor evaluate the competence and objectivity of others who perform work for management? p-986
AS2 indicates that certain circumstances should be regarded as at least sig- nificant deficiencies and as strong indicators of a material weakness. What are these circumstances, and why do you think the PCAOB assessed them as being of such importance? p-986
A walkthrough involves tracing a transaction through the information sys- tem. What type of evidence does a walkthrough provide to the auditor? p-986
The period-end financial reporting process controls are always considered significant. What are those controls and what should the auditor's evalua- tion of those controls include?p-986
Describe how the auditor should identify the significant processes and major classes of transactions. p-986
List the steps in the auditor's process for an audit of internal control over financial reporting. p-986
Management must document its assessment of internal control. What would such documentation include? p-986
The first element in management's process for assessing the effectiveness of internal control is determining which controls should be tested. Identify the controls that would typically be tested by management.p-986
Discuss how the terms likelihood and magnitude play a role in evaluating the significance of a control deficiency. p-986
Briefly summarize management's and the auditor's basic responsibilities under Section 404 of the Sarbanes-Oxley Act of 2002. p-986
Preview Company, a diversified manufacturer, has five divisions that oper- ate throughout the United States and Mexico. Preview has historically al- lowed its divisions to operate autonomously. Corporate intervention oc- curred only when planned results were not obtained. Corporate management has
Ken Smith, the partner in charge of the audit of Houghton Enterprises, identified the following significant deficiencies during the audit of the December 31, 2006, financial statements: 1. Controls for granting credit to new customers were not adequate. In particular, the credit department did not
Cook, CPA, has been engaged to audit the financial statements of General Department Stores, Inc., a continuing audit client, which is a chain of medium-sized retail stores. General's fiscal year will end on June 30, 2006, and General's management has asked Cook to issue the auditor's report by
Auditors use various tools to document their understanding of an entity's internal control system, including narrative descriptions, internal control questionnaires, and flowcharts. Required:a. Identify the relative strengths and weaknesses of each tool.b. Briefly describe how the complexity of an
Assume that you are an audit senior in charge of planning the audit of a client that your firm has audited for the previous four years. During the audit planning meeting with the manager and partner in charge of the en- gagement, the partner noted that the client recently adopted an IT-based
Johnson, CPA, has been engaged to audit the financial statements of Rose, Inc., a publicly held retailing company. Before assessing control risk, Johnson is required to obtain an understanding of Rose's control environment. Required:a. Identify additional control environment factors (excluding the
An auditor is required to obtain sufficient understanding of each compo- nent of an entity's internal control system to plan the audit of the entity's fi- nancial statements and to assess control risk for the assertions embodied in the account balance, transaction class, and disclosure components
An auditor anticipates assessing control risk at a low level in an IT envi- ronment. Under these circumstances, on which of the following controls would the auditor initially focus?a. Data capture controls. bApplication controls.c. Output controls. General controls. P-985
An auditor's flowchart of a client's accounting system is a diagrammatic representation that depicts the auditor'sa. Program for tests of controls.b. Understanding of the system.c. Understanding of the types of fraud that are probable, given the present system. (d. Documentation of the study and
Significant deficiencies are matters that come to an auditor's attention that should be communicated to an entity's audit committee because they representa. Disclosures of information that significantly contradict the auditor's going concern assumption.b. Material fraud or illegal acts perpetrated
Payroll Data Co. (PDC) processes payroll transactions for a retailer. Cook, CPA, is engaged to express an opinion on a description of PDC's internal controls placed in operation as of a specific date. These controls are rele- vant to the retailer's internal control, so Cook's report may be useful
Audit evidence concerning proper segregation of duties ordinarily is best obtained bya. Inspection of third-party documents containing the initials of those who applied control activities.b. Direct personal observation by the auditor of the employee who applies control activities. P-985
Which of the following audit techniques would most likely provide an au- ditor with the most assurance about the effectiveness of the operation of an internal control?a. Inquiry of client personnel.b. Recomputation of the control by the auditor Observation of client personnel.d. Confirmation with
After obtaining an understanding of an entity's internal control system and assessing control risk, an auditor may Perform tests of controls to verify management's assertions that are em- bodied in the financial statements. 6. Consider whether audit evidence matter is available to support a further
Regardless of the assessed level of control risk, an auditor would perform somea. Tests of controls to determine the effectiveness of internal controls.b. Analytical procedures to verify the design of internal controls.c. Substantive procedures to restrict detection risk for significant transac-
In which of the following situations would an auditor most likely use a reliance strategy?a. The client has been slow to update its IT system to reflect changes in billing practices.b. The auditor hired an IT specialist whose report to the auditor reveals that the specialist did not perform
Which of the following is not a component of an entity's internal control system? La Control risk.b. The entity's risk assessment process.c. Control activities.d. Control environment. P-985
Which of the following statements about internal control is correct?a. A properly maintained internal control system reasonably ensures that collusion among employees cannot occur.b. The establishment and maintenance of internal control is an important responsibility of the internal auditor.c. An
An auditor's primary consideration regarding an entity's internal controls is whether theya. Prevent management override.b. Relate to the control environment.c. Reflect management's philosophy and operating style. Affect the financial statement assertions. P-985
What is the auditor's responsibility for communicating control deficiencies that are severe enough to be considered significant deficiencies or material weaknesses? P-985
What factors should the auditor consider when substantive procedures are to be completed at an interim date? If the auditor conducts substantive procedures at an interim date, what audit procedures would normally be completed for the remaining period? P-985
What are the requirements under auditing standards for documenting the assessed level of control risk? P-985
List the tools that can document the understanding of internal control. P-985
What is meant by the concept of reasonable assurance in terms of internal control? What are the inherent limitations of internal control? P-985
Why must the auditor obtain an understanding of internal control? P-985
What are the major differences between a substantive strategy and a re- liance strategy when the auditor considers internal control in planning an audit? P-985
What are the potential benefits and risks to an entity's internal control from information technology? P-985
What are the factors that affect the control environment? P-985
Describe the five components of internal control. P-985
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