Questions and Answers of Auditing International Approach

In testing inventory at an audit client in the retail industry, you note that some of the inventory is contracted to be held on consignment. As a result, which financial statement assertion is now
Miguel is a first year staff at Anderson, Olds, and Watershed, CPAS. He has been working on the accounts receivable substantive testing at FastFix, which has an audit time budget of five hours.
Beyond public accounting firms, there are a number of other opportunities to work as an audit professional. Three common examples would be working as an internal auditor, a governmental auditor, or a
What are some of the ways discussed that an auditor can respond to significant risks, including high potential for fraud?
What is the primary difference between a material misstatement due to fraud and one due to error?
What is an entity-level control and why is it important to the evaluation of internal controls?
Why should auditors understand their clients’ performance measures when assessing inherent risk?
What is the auditor’s responsibility regarding fraud risk?
What is a transaction-level-control?
What is a physical security control? Why is it important in an internal control system?
What are the three different ways an auditor can document their understanding of a client’s internal control system?
What are the four methods used to perform tests of control?
What is meant by an internal control deficiency?
What is a significant deficiency?
What is the nature of communications about internal control that an audit team would provide to an entity’s management, board of directors, or audit committee?
When assessing control risk on a preliminary basis during a financial statement audit, a key objective of evaluating the design of an internal control system is toa. Determine that the company’s
Which of the following methods would be the most effective technique for an auditor to perform when testing the operating effectiveness of an internal control activity?a. Inquiry of appropriate
When performing confirmation of cash balances with a bank, the auditor is primarily gathering evidence related to which financial statement assertion?a. Existence.b. Completeness.c.
Which of the following controls is not an example of a monitoring control that is used to fulfill the monitoring component of the COSO framework?a. Audit committee inquiries of internal and external
Both management and auditors have responsibilities related to the audit client’s internal control system. What is an example of management’s responsibility related to internal control system?a.
Which of the following items is not one of the five components of an internal control system, according to the COSO framework?a. Control environment. b. Risk assessment. c. Information and
Which of the following is an example of a limitation of an internal control system?a. Collusion among employees. b. Human error. c. Management override of controls. d. None of these
According to the COSO Framework, internal control is a process that is designed to achieve objectives in three different categories. Which of the following responses is not one of the categories
State whether PA is associated with the financial information in the following independent situations.a. PA compiles financial statements and prepares the corporate tax return for Appaloosa Inc.b.
Is the FASB’s 2008 GAAP hierarchy a fairness of presentation framework?
CAS 700 notes a distinction between a fairness of presentation reporting framework and a compliance reporting framework. From the assurance framework perspective, what suitable criteria seem to be
PA is the senior in charge of the November 30, 20X1, audit of Baint’s Paints Inc., a manufacturer of various latex and oil-based paints. Baint’s plant is located on the banks of a river and was
Your client, the Neighbourhood Paper Company (NPC), has a fiscal year-end of December 31. NPC needs to borrow money from the bank and believes current value financial statements that report the
Which of these is known as the financial analysis that expresses balance sheet accounts as percentages of total assets?a. Horizontal analysis.b. Vertical analysis.c. Net worth analysis.d.
Where has experience shown that most accounting errors requiring adjustment can be found?a. Systematic processing of large volumes of day-to-day ordinary transactions.b. Payroll fraudsters’
Records from which of the following sources could be used to find the owner of an office building?a. Ministry of Industry and Trade export/import licence files.b. Transport Canada records.c. City and
Which of these is an invalid SIN?a. 462 003 335.b. 473 097 787.c. 506 985 529.d. 700 051 135.
Why must care be taken with evidence of fraudulent activity?
What are the CICA materiality guidelines for reporting errors, irregularities, and illegal acts?
What can an auditor find using horizontal analysis, vertical analysis, net worth analysis, and expenditure analysis?
Where could you find information about real estate valuation, aircraft ownership, names of licensed doctors, assumed (fictitious) business names, and liens on personal property?
Make a two-column list of management styles that show fraud prevention characteristics in one column and, opposite each item, the management style that might lead to fraud.
Why is the order of strength of commitment to fraud matters as follows: (1) Government auditors, (2) External auditors, (3) Internal auditors?
How does the requirement for design of audit procedures in public sector audit work differ from external auditors’ work on financial statement audits (not involving governmental auditing)? Consider
Compare and contrast the economy, efficiency, and effectiveness measures of performance. Which of these is the hardest to audit? Explain.
Explain the difference between compliance and VFM audits.
What is a comprehensive audit?
Identify the 12 attributes of effectiveness.
What factors should governmental auditors consider in determining whether they are independent?
What general auditing services do governmental auditors provide?
What general auditing services do internal auditors provide?
What is operational auditing, and why can it be called a type of consulting service?
Why do you think special attention is paid to compliance auditing for government-type audits when independent PAs may perform compliance procedures in all types of audits anyway?
What precautions should Canadian auditors take when reporting on foreign GAAP financial statements that will be distributed in the United States?
Why do you think a Canadian-style report on foreign GAAP financial statements is similar to a report on another appropriate disclosed basis of accounting (AADBA) financial statements?
What is the auditor’s responsibility for information reported in MD&A in the audit of a public company?
What are the similarities and differences between examination reports on forecasts and audit reports on historical financial statements? on compilation reports on forecasts? on compilation reports on
How are prospective financial statements defined?
Distinguish between attest and direct reporting criteria.
What are the key wording differences to look for in analyzing an assurance report?
Do you think Ontario’s Bill 198 appropriately limits PA legal liability to protect the public interest? Discuss the pros and cons within a principles-based umbrella framework such as critical
Use the critical thinking framework to help resolve the confidentiality versus misleading financial statements conflict discussed in this chapter.
PA is the audit intermediate on the current year’s audit of Bluroot Inc., a publicly traded sugar importer and refiner. During the audit of Bluroot’s cash records and bank account
The auditor's report below was drafted by Smith, a staff accountant at the firm of Wong & Wilson, PAs, at the completion of the audit of the financial statements of PPC Ltd., a publicly held
This is an exercise designed to reveal some facts of reasoning and decision making. The “fraud involvement procedure” is fictional.A team of accountants and psychologists has developed a
Major Manufacturing Company is a large diversified international corporation whose shares trade on the New York Stock Exchange. The U.S. Department of Justice and the SEC have investigated the Global
Farr and Madison, PAs, audited Glamour Inc. Their audit was deficient in several respects:1. Farr and Madison failed to properly audit certain receivables, which later proved to be fictitious.2. With
A public company subject to the periodic reporting requirements of the Exchange Act (1934) must file an annual report with the SEC known asa. Form 10-K.b. Form 10-Q.c. Form 8-K.d. Form S-3.
Able Corporation plans to sell $10 million worth of common shares to investors. The company can do so without filing an S-1 registration statement under the Securities Act (1933) if Able sells the
The SEC document that governs accounting in financial statements filed with the SEC isa. Regulation D.b. Form 8-K.c. Form S-18.d. Regulation S-X.
Good Gold Company sold $20 million worth of preferred shares. The company should have registered the offering under the Securities Act of 1933 if it were sold toa. 150 accredited investors.b. One
Which of these laws does the U.S. SEC not administer?a. Securities Act of 1933.b. Securities and Exchange Act of 1934.c. Internal Control Act of 1937.d. Foreign Corrupt Practices Act of 1977.
What proportion of lawsuits against PAs relate to compilation and review (unaudited financial statements) practice?
Define and explain privity, primary beneficiary, and foreseeable beneficiary in terms of the degree of negligence on the part of a PA that would trigger the PA’s liability.
What must the plaintiff prove in a common law action seeking recovery of damages from an independent auditor of financial statements? What must the defendant accountant do in such a court action?
Identify a 90% RR for each of the following values:1. What is the estimated net economic effect of BP’s Gulf of Mexico oil spill?2. How does BP’s oil spill compare to those of other companies?3.
1. How much was GAP’s merchandise inventory valued at the lower of cost or market in the audited 2010 consolidated balance sheet?2. Best Buy recognizes revenue from gift cards when (i) the gift
1. What was the average market risk premium of Canada in 2011?2. What was the gross domestic product (GDP) growth in Canada in the third quarter of 2011 over the previous quarter?3. How much was
Demonstrate with the Petroni and Beasley study data given in the text that AccR can be much bigger in practice than AudR.
Explain the dilemma represented to the profession by the Petroni and Beasley study.
Assume that an auditor assesses a well-calibrated RR of 25-35,000 and uses the uniform distribution to model the AccR over the RR. The auditor judges that acceptable AccR is 0.2 in this situation.a.
CAS 540, paragraph 13 (d) ( ii) A93–A94, indicates that auditors can normally narrow a reasonable range until it is less than a materiality wide.Describe under what conditions the reasonable range
How does CAS 540 define reasonable quantitatively? What are the problems with this definition?
Which part of the estimation uncertainty concept deals with audit risk? Explain.
If an audit client made an investment of $1 million and there was a 99% probability the project cash flows would be zero,a. The $1 million investment should be recorded as an asset in the balance
The part of information risk due to incorrectly predicting future events, especially in accounting estimates, is known asa. Audit risk.b. Future-oriented risk.c. Likely projected misstatement risk.d.
If the auditor concludes the allowance for doubtful accounts should be between $130,000 and $160,000, this is known asa. The auditor’s range of reasonableness.b. Too large of a range and it must be
If the auditor concludes the allowance for doubtful accounts should be between $130,000 and $160,000 and management’s recorded amount is $110,000, what amount would be treated as a misstatement?a.
What type of risk can be viewed as a qualitative characteristic and corrected by audit training, supervision, and quality control procedures?a. Business risk.b. Accounting risk.c. Control risk.d.
The amount of the allowance for bad debts included in the financial statements is an example ofa. Management bias.b. Auditor’s point estimate.c. Management’s point estimate.d. Outcome of an
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.
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
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.
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
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 =
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.

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