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auditing international approach
Auditing An International Approach 1st Edition Bahram Soltani - Solutions
Discuss the effect of the company’s internal control system on the auditor’s risk assessment.
Discuss the term ‘significant risks’ and how auditors should deal with them.
Define the terms ‘material misstatements’ and ‘uncorrected misstatements’. What are the auditor’s actions when such misstatements exist?
Define the terms ‘risk assessment procedures’ and ‘analytical procedures’.
Explain the main sources of business risk and their influence on a company’s risk assessment process.
Discuss the characteristics of the IFAC audit risk model.
Regulatory bodies are concerned that auditors consider the qualitative aspect of materiality judgements. Explain the meaning and the importance of ‘qualitative’ aspect of materiality.
The audit risk model operationalizes a risk-based approach of selecting the amount of detailed testing necessary for an audit to be effective.Discuss the following:(a) The components of the audit risk model.(b) The relationship between these components.(c) What criticisms can be made of the audit
How are risks and controls related? Why is it important to assess risks before evaluating the quality of an organization’s controls?Discuss the auditor’s risk assessment procedures and the measures that should be taken, particularly with regard to the company’s activities and the internal
The risk model from the chapter can be restated as follows:AR = IR × CR × DR Where:AR = audit risk IR = inherent risk CR = control risk DR = detection risk Using the audit risk model, compute the detection risk for the following values of audit risk, inherent risk and control risk. Then answer
Distinguish between sampling risk and non-sampling risk. How can each be reduced?
Explain the characteristics of statistical sampling in auditing.
What are the principal methods of selecting sample? Explain each of them briefly.
Discuss the factors influencing sample size for (a) tests of control and (b) substantive procedures.
What are the main characteristics of the population?
What are the features of (a) attribute sampling, and (b) variables sampling? Identify their differences in terms of objectives.
What type of actions should an auditor take when errors are detected in the sample results?
Discuss the application of probability-proportional-to-size sampling (PPS) in auditing.
Explain the evaluation of the sample results in the PPS method. What is tainting age and how is it determined?
When using non-statistical sampling, what are the steps to follow? Why is the auditor’s professional judgement important in determining sample size and sample selection method?
Assume that you are auditing a random sample of 100 sales vouchers and find one improperly authorized error. The achieved upper limit of control failures is 4.7 percent at a 5 percent risk of assessing control risk too low. What does this achieved upper limit mean?How do you decide whether this
The risk that an error is not identified through sampling is generally considered as sampling risk. This relates to the probability that a misstatement exists in the population but is not selected in an auditor’s sample. In contrast, the non-sampling risk is related to an auditor’s failure to
Discuss the advantages and disadvantages of the PPS method. How does this method differ from the classical methods in terms of audit objective? How does the selection of a sample differ between the classical variables sampling and PPS sampling? What are the potential implications of this difference
In evaluating the results of the sample in the PPS method, the auditor calculates an upper misstatement limit (UML) from the sample data and compares it with the tolerable misstatement specified in designing the sample.Discuss the following:(a) What are the factors involved in calculating the
What are the characteristics of reliable audit evidence?
Describe the assertions used by the external auditor in the audit of financial statements.
Provide some examples of the audit evidence in different stages of audit process.
Describe the sufficiency and appropriateness of audit evidence.
List and describe the procedures used in gathering audit evidence.
Discuss the importance of electronic audit evidence in the audit process.
To what extent is the knowledge of the company’s activities and operations important in the audit process?
Provide some examples of the areas in which the auditor uses professional judgement.
What types of judgement biases affect the availability heuristic?
Describe the term ‘anchoring heuristic’.
Discuss the relationship between the concepts of reliability of evidence and audit risk.
Talk in detail about the role of evidence in audit decision-making.
Discuss the effect of information technology on evidence-gathering in auditing. Under what conditions is electronically stored evidence as reliable as paper-based evidence?
What are the characteristics of audit evidence in theoretical terms? Evaluate the arguments put forward by Mautz and Sharaf (1961).
Define bounded rationality and heuristics in auditing.
What is the pattern of the audit process proposed by Flint (1988)?
Describe knowledge structures and memory in auditing. Provide some examples of the questions related to the audit function in this area. Provide your answers with references to research studies in this area.
Provide a comprehensive evaluation of the role of business knowledge in auditors’ professional judgement and the matters taken into consideration throughout the course of audit.
Define ‘tone at the top’ or control environment.
Discuss the auditor’s understanding of control environment (internal and external).
Explain the relationship between the objectives an organization intends to achieve and the internal control components.
How have computerized systems influenced the auditor’s understanding of internal control?
What are the main features of the COSO report on internal controls?
What are the essential points included in the COSO report with regard to IT systems?
Explain the importance of ‘transaction integrity’ in audit procedures.
To what extent does a computerized information system affect the auditor’s assessment of control risk?
Describe the features of Auditing Standard No. 2 of PCAOB, particularly with regard to IT controls.
What are the constraints on internal control effectiveness?
Discuss the features and benefits of a ‘top-down approach’ to the audit of internal control over financial reporting. What are the reasons for its effectiveness and efficiency in audit process?
A company’s security infrastructure and related controls are important features of its internal control system. Discuss this issue with regard to the auditor’s consideration when examining the financial statement assertions.
How does the auditor’s assessment of the risk of financial statement misstatement affect the work that must be performed in an audit of internal control over financial reporting?
In the aftermath of a series of high-profile business scandal, efforts were made to enhance corporate governance and risk management with the establishment of new regulations. In the US, the Sarbanes-Oxley Act of 2002 and the establishment of PCAOB address the essential issues on internal control
Auditors generally employ a ‘risk-based’ approach to auditing financial statements. The auditor’s assessment of the risk that a financial statement amount or disclosure is misstated affects the nature, timing and the extent of the auditor’s work on that financial statement amount or
The identification of significant accounts plays a central role in the scoping of an audit of internal control over financial reporting. What role do qualitative factors and an assessment of risk have in the identification of significant accounts? (Adapted from PCAOB, 2005)
At many companies, management identifies and tests what it describes as ‘key’ or ‘significant’controls as a part of its assessment of internal control over financial reporting. Is the auditor required to test all the controls that management tested because management described them as key
How does the auditor’s assessment of risk affect the auditor’s decisions about the nature, timing and extent of testing of controls? (Adapted from PCAOB, 2005)
The auditor’s opinion on the effectiveness of internal control over financial reporting is rendered at a point in time (e.g. at year-end), whereas the auditor’s opinion on the financial statements covers the financial results over a period of time (for the entire year). In an integrated audit
Public companies are expected both to improve their processes and procedures for monitoring the operation of controls, and to make more use of control self-assessments. Management also plays a role as part of internal control itself. How should these factors affect the auditor’s evaluation of
It has been stated that information technology systems are an essential part of the overall financial reporting process. Discuss the place of information technology within the organization and how it contributes to an effective system of internal control over financial reporting.
How should the auditor evaluate a company’s internal control over financial reporting when a company has implemented a significant change to information technology that affects the company’s preparation of its financial statements?
The Committee of Sponsoring Organizations of the Treadway Commission has discussed in its document entitled ‘COSO ERM Framework (2004)’, a comprehensive approach to Enterprise Risk Management. Discuss the following questions:(a) What is the main objective of this framework?(b) What are the
What are the possible auditor’s actions when a company’s management is unwilling to make the suggested modifications or extend its assessment?
Describe the term ‘substantial doubt about going concern status’ and the auditor’s responsibility in this respect. What are the different forms of audit opinions with regard to going concern assumption?
Provide examples of events or conditions that underpin the going concern assumption under ISA 570 (IFAC) and SAS 59 (AICPA). How can an external auditor judge the validity of this assumption in different circumstances?
In what areas might an auditor and management disagree? When would an adverse opinion become necessary?
What words and phrases in the standard audit report imply a risk that the financial statements might contain a material misstatement?
What are the objectives of a review of interim financial statements by external auditors and how would this review be beneficial to users of corporate financial reporting?
What are the objectives of an audit of internal control over financial reporting and the content of the auditor’s opinion?
In your opinion, to what extent could a lack of auditor independence affect the auditor’s performance and how this should be expressed in the audit report?
What are the characteristics of audit reports in the European countries? How do these differ from reports prepared in the US?
The standard audit report is the most common report issued by an independent auditor. It contains an unqualified opinion stating that the financial statements ‘present fairly, in all material respects’ or ‘give a true and fair view’ (depending on the use of US practices and/or International
The role of the auditor has changed over the years in response to changes in economic and political institutions. Consequently, the nature of an audit today is different from what it was in the 1950s. However, the format of a standard audit report, which consists of a series of short coded
Markly Werke, Inc. is a public corporation that manufactures a line of home appliances.These comments were included in the company’s 2004 annual report to the shareholders:The integrity of the financial information reported by Markly Werke, Inc. is the responsibility of the company’s
Discuss the importance of timelines of corporate and audit reports as one of the quality characteristics of accounting information and the effect of this quality on investment decisions.
Discuss the term ‘scope limitation’ and explain why the auditor should ordinarily disclaim an opinion when the client imposes significant limitations on the audit procedures.
Discuss the effect of scope limitation on audit opinion and report wording.
Discuss the changes in accounting principles (1) when these changes are made in conformity with IFRSs or GAAP and (2) when these changes are not made in conformity with IFRSs or GAAP.
What is the role of the company’s audit committee in dealing with the matters concerned with audit reporting?
Discuss the recent changes made with regard to the auditor’s reporting responsibility (refer to the Sarbanes-Oxley Act of 2002, and the positions adopted by the IFAC, the PCAOB and the European Commission).
Audit situations 1 to 10 present various independent factual situations an auditor might encounter in conducting an audit. For each situation, do the following:(a) Identify which of the conditions requiring a modification of or a deviation from an unqualified standard report is applicable.(b) Given
Some European companies are listed in the US. The Securities and Exchange Commission(SEC) generally requires foreign registrants to furnish financial information substantially similar to that required of domestic companies. However, foreign registrants’ financial statements need not be prepared
The form and content of an audit report are affected by environmental factors such as the legal and economic circumstances, as well as the accounting and auditing practices used in each jurisdiction. Despite efforts to harmonize the accounting and auditing practices within the EU, there are still
There are major differences between accounting and auditing practices in the US and some of the EU member states.15 An unqualified audit report prepared on the basis of US format is shown as Figure 12.12You are asked to compare the US format with those shown in case 12.29 In your comments, consider
What are the requirements for auditing in an IT environment?
Describe e-business and e-commerce and their effects on auditing.
What is the impact of the auditor’s understanding of an entity’s business activities within the scope of audit?
To what extent do computerized information systems affect the auditor’s function?
What are the new types of audit risks in an e-commerce environment?
Discuss the features of risk management approach proposed by the IFAC in the context of IT.
How would it be possible to rely on accounting information in a changing IT environment?
What principles must be required to achieve the objective of the reliability of accounting information?
What are the features of computer-assisted audit techniques (CAATs)?
What factors should the auditor consider when using a CAAT?
What are the different classifications of CAATTs?
What advantages does an integrated test facility (ITF) have over a test data approach and how does it use test data?
In what way(s) is the assessment of audit risk affected in terms of transaction trails and data?
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