Auditing A Practical Approach 2nd Canadian edition Fiona Campbell, Robyn Moroney, Jane Hamilton, Valerie Warren - Solutions

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The following questions concern the use of analytical procedures during an audit. Select the best response. a. For all audits of financial statements made in accordance with auditing standards, the use of analytical procedures is required to some extent b. Which of the following
Distinguish among the following types of current-period supporting schedules and state the purpose of each: analysis, trial balance, and substantive analytical procedures.
Who owns the audit files? When can they be used by other people?
Explain why liquidity activity ratios are useful to auditors.
Describe how the use of audit data analytics might increase both the effectiveness and efficiency of the audit.
Why is it important that an auditor develop an expectation of the account balance when performing substantive analytical procedures about the reasonableness of an account balance? What are the audit documentation requirements when performing a substantive analytical procedure?
As part of the engagement team for the audit of JA Tire Manufacturing for the year ended December 31, 2019, you are responsible for auditing the sales and collection cycle. Visit the textbook website to download the data file “JATireSales.xls” provided to your audit firm by the company. The
The following questions concern auditor responsibilities in an audit of financial statements. Choose the best response. a. The auditor’s responsibility regarding material misstatements caused by fraud is (1) Less than the auditor’s responsibility regarding material misstatements
The following questions deal with management assertions. Choose the best response. a. An auditor reviews aged accounts receivable to assess likelihood of collection to support management’s assertion about account balances of (1) Existence. (2) Completeness. (3) Accuracy,
The following questions concern the reasons auditors do audits. Choose the best response. a. The major reason an independent auditor gathers audit evidence is to (1) Form an opinion on the financial statements. (2) Detect fraud. (3) Evaluate management. (4) Assess control
Identify the management assertion and general balance-related audit objective for the specific balance-related audit objective: Read the fixed asset footnote disclosure to determine that the types of fixed assets, depreciation methods, and useful lives are clearly disclosed.
Identify the two broad categories of management assertions.
What are the six elements of professional skepticism? Describe two of those six elements.
Describe management’s responsibility for the financial statements. Do you believe the CEO and CFO of a public company perceive an even greater responsibility as a result of the Sarbanes–Oxley Act requirement to certify the financial statements submitted to the SEC?
Part 1. Whitlow & Company is a brokerage firm registered under the Securities Exchange Act of 1934. The act requires such a brokerage firm to file audited financial statements with the SEC annually. Mitchell & Moss, Whitlow’s CPAs, performed the annual audit for the year ended December
The SEC Enforcement Division investigates possible violations of securities laws; recommends SEC action when appropriate, either in a federal court or before an administrative law judge; and negotiates settlements. Litigation Releases, which are descriptions of SEC civil and selected criminal suits
Gordon & Groton, CPAs, were the auditors of Bank & Company, a brokerage firm and member of a national stock exchange. Gordon & Groton audited and reported on the financial statements of Bank, which were filed with the Securities and Exchange Commission. Several of Bank’s customers
Taylor Bean & Whitaker Mortgage Corp. (Taylor Bean) was a Florida mortgage lender. Once one of the nation’s largest privately held mortgage companies, the company collapsed in 2009 after a multibillion dollar mortgage fraud unraveled. The downfall of Taylor Bean also triggered the
In order to expand its operations, Gibson Corp. raised $5 million in a public offering of common stock, and also negotiated a $2 million loan from Citizens National Bank. In connection with this financing, Gibson engaged Horton & Co., CPAs, to audit Gibson’s financial statements. Horton knew
The following questions concern CPA firms’ liability under common law or statutory law. Choose the best response. a. Which of the following elements is required to be proven by the plaintiff to hold an accountant liable for gross negligence but not for actual fraud? (1)
The following questions concern CPA firms’ liability under common law. Choose the best response. a. In a common law action against an accountant, lack of privity is a viable defense if the plaintiff (1) Is the client’s creditor who sues the accountant for negligence. (2) Can
Distinguish between audit risk and audit failure. Why is there at least some level of audit risk on every audit engagement?
The following questions concern auditor professional responsibilities. Choose the best response. a. The concept of materiality would be least important to an auditor when considering the (1) Adequacy of disclosure of a client’s illegal act. (2) Effects of a direct financial
The following questions concern auditor independence. Choose the best response. a. What is the meaning of the rule that requires the auditor be independent? (1) The auditor must adopt a critical attitude during the audit. (2) The auditor’s sole obligation is to third
What is the purpose of the AICPA Code of Professional Conduct restriction on commissions?
Describe some of the reasons why there have been calls for mandatory rotation of audit firms. How could an investor of a public company determine how long an audit firm has served as that company’s auditor?
PCAOB Rule 3211, Auditor Reporting of Certain Audit Participants, requires that an audit firm file a form, referred to as Form AP, for each initial issuance of an audit report. On Form AP, the audit firm discloses the name of each audit engagement partner who participated in the audit, as well as
A careful reading of an unmodified opinion audit report indicates several important phrases. Explain why each of the following phrases or clauses is used rather than the alternative provided: a. “The accompanying financial statements present fairly, in all material respects, the financial
The following questions concern audit reports other than unmodified opinion audit reports with standard wording. Choose the best response. a. As compared to an unmodified opinion, an opinion qualified due to a material departure from generally accepted accounting principles would (1)
The following questions concern unmodified opinion audit reports. Choose the best response. a. Which of the following is not a required element of a standard unmodified opinion audit report issued in accordance with AICPA auditing standards?(1) A title that emphasizes the report is from an
When an auditor discovers more than one condition that requires departure from or modification of the standard unmodified opinion audit report, what should the auditor’s report include?
Distinguish between an unmodified opinion audit report that contains an emphasis-of-matter explanatory paragraph and a qualified report.
What is the rationale for the PCAOB’s requirement to include a discussion of critical audit matters in the audit report? Provide two examples of areas that might be considered critical audit matters in the audit of a public company in the hotel and lodging industry.
Describe the information included in the opinion and basis for opinion sections in a separate audit report on the effectiveness of internal control over financial reporting. What is the nature of the additional paragraphs in the audit report?
What four circumstances are required for a standard unmodified opinion audit report to be issued?
On February 17, 2019, a CPA completed all the evidence gathering procedures on the audit of the financial statements for the Buckheizer Technology Corporation for the year ended December 31, 2019. The audit is satisfactory in all respects except for the existence of a change in accounting
Review the information in Table 2-1 on page 25 and discuss the following: a. For the largest 10 firms listed in the table, how many firms generate the largest percentage of their revenue from consulting? Discuss why some firms may have larger consulting practices than other firms. b. In
The following questions require you to access AICPA standards (www.aicpa.org), PCAOB auditing standards (pcaobus.org), and IAASB auditing standards (www.iaasb.org). a. Your audit supervisor stated it was important for you to understand AU-C 315. Which organization is the source of the
For each engagement described below, indicate whether the engagement is likely to be conducted under international auditing standards, AICPA auditing standards, or PCAOB auditing standards. a. An audit of a public company headquartered in the U.S. listed only on U.S. exchanges. b. An
Sarah O’Hann enjoyed taking her first auditing course as part of her undergraduate accounting program. While at home during her semester break, she and her father discussed the class, and it was clear that he didn’t really understand the nature of the audit process as he asked the following
The following questions address CPA firms and entities that regulate them. Choose the best response. a. An auditor of an entity subject to the rules of the SEC must conduct the financial statement audit in accordance with (1) PCAOB standards. (2) Statements on Standards for
The following questions deal with auditing standards. Choose the best response. a. Which of the following best describes what is meant by U.S. auditing standards? (1) Acts to be performed by the auditor (2) Measures of the quality of the auditor’s performance (3) Procedures to
Auditing standards have been criticized by different sources for failing to provide useful guidelines for conducting an audit. The critics believe the standards should be more specific to enable practitioners to improve the quality of their performance. Evaluate this criticism of auditing standards.
Individuals are licensed as CPAs by individual states. Information on the requirements for each state can be found through links to websites of each state board of accountancy that are provided on the NASBA website (www.nasba.org). The Uniform CPA Examination is administered by the AICPA, and
There are many types of information that require assurance. Individually or in groups, identify the following types of assurance services. Required:a. Identify three or more assurance services that are likely to be provided only by public accounting firms. b. Identify three or more
Dave Czarnecki is the managing partner of Czarnecki and Hogan, a medium-sized local CPA firm located outside of Chicago. Over lunch, he is surprised when his friend Juarez Foley asks him, “Doesn’t it bother you that your clients don’t look forward to seeing their auditors each year?” Dave
Monterrey Corporation has an existing loan in the amount of $7 million with an annual interest rate of 6.5%. The company provides an internal company-prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace Monterrey Corporation’s existing
The following questions deal with assurance services and types of audits. Choose the best response. a. Which of the following is considered an assurance engagement? (1) Bookkeeping (2) Preparation (3) Compilation(4) Audit b. Which of the following engagements is most likely
What is the role of the Public Company Accounting Oversight Board (PCAOB)? How does the PCAOB provide oversight of audit firms?
Why might an organization seek the assurance of a CPA about information presented in the organization’s corporate sustainability report?
Economic conditions and financial markets have been significantly affected by the global financial crisis that swept around the world in 2008. Love and Lawson identified a series of specific issues flowing from the crisis that must be considered by financial statement auditors and that may affect
Concerns have been raised over how quickly the Alberta oil sands are being developed. Amid the international concern of global warming, the oil sands have emerged as Canada’s fastest growing source of greenhouse gas pollution. Other ecosystem impacts include toxic waste, strip mining, and species
Public company financial statements The financial statements for public companies are available through SEDAR (www.sedar.com). This is the official site that provides access to information filed by public companies and investment funds with the Canadian Securities Administrators (CSA). The
Executive remuneration Listed companies are required to make certain disclosures in their annual reports about the compensation paid to their top executives. One reason for this is to help interested stakeholders assess the performance of executives. It also helps executives and companies set
The Focus on Fraud feature “Weak Internal Controls, Unethical Decisions, and a Fictitious Vendor at Baird Products” introduced you to an example of a purchasing manager who used a fictitious vendor to accomplish a fraud in the acquisition and payment cycle. Using appro- priate sources, locate
As of mid-2017, the FASB was conducting early stage research about developing an accounting standard for digital currency. With the use of digital currency increasing, proponents argue that inconsistent accounting practices are becoming a problem. As the digital currency Bitcoin becomes more of a
AS 2110 provides the following guidance regarding the auditor’s need to obtain an understanding of the company's selection and application of accounting principle:As part of obtaining an understanding of the company's selection and application of accounting principles, including related
Locate and read the article listed below.Choi, J. H., S. Choi, C. E. Hogan, and J. Lee. (2013). The effect of human resource investment in internal control on the disclosure of internal control weaknesses. Auditing: A Journal of Practice & Theory 32(4): 169–199.a. What is the purpose of the
Locate and read the article listed below.Gramling, A. A., E. F. O’Donnell, and S. D. Vandervelde. (2013). An experimental examination of factors that influence auditor assessments of a deficiency in internal control over financial reporting. Accounting Horizons 27(2): 249–269.a. What is the
Locate and read the article listed below.Pickerd, J. S., Summers, S. L., & Wood, D. A. (2015). An examination of how entry-level staff auditors respond to tone at the top vis-à-vis tone at the bottom. Behavioral Research in Accounting 27(1): 79–98.a. What is the purpose of the study?b.
Access information about the Auditing Standards Board on the AICPA website at www.aicpa.org.a. Identify the members of the Board and describe their backgrounds. What are their professional qualifications?b. Identify the most recent auditing standard issued by the AICPA. Describe the nature of the
Fabrication Holdings Ltd. (FH) has been a client of KFP Partners for many years. You are an audit senior and have been assigned to the FH audit for the first time for the financial year end, December 31, 2016. FH’s financial statements for the year ended December 31, 2016, show land and
Fabrication Holdings Ltd. (FH) has been a client of KFP Partners for many years. You are an audit senior and have been assigned to the FH audit for the first time for the financial year end, December 31, 2016. FH’s financial statements for the year ended December 31, 2016, show land and
It is August 2016 and the first audit for Springsteen Ltd. with your audit firm (refer to question 12.9) for the 2015–16 year is almost complete. Prior to reaching your final conclusions, you are reviewing the working papers for the year ended June 30, 2016. The material bank loan with Eastcoast
Springsteen Ltd. is a new audit client for the 2016 financial year. Springsteen’s financial report for the 2015 year, the last with the previous auditor, was prepared on the assumption of a going concern. An unmodified audit opinion with an emphasis of matter paragraph was included in the
Hatami and Partners completed the field work for the December 31, 2016, audit of Harbinger Corporation on March 1, 2017. The financial statements and auditor’s report were issued and mailed to shareholders on March 15, 2017. Required In each of the two situations below, select from the
Martin Rorke is reviewing the results of the review of subsequent cash receipts. There are several receipts listed from customers that were considered doubtful at the end of the year (June 30). Martin is also reviewing evidence that shows that another customer that had a large balance at year end
Phil Nanere is the partner in charge of the audit for a new client, Western Wonderland (WW). The client engaged Phil’s audit firm in November 2015, in preparation for the 2016 audit. From January 30, 2016, onwards, WW has consistently paid its suppliers late, well in excess of the suppliers’
Why do audit reports contain paragraphs outlining (a) management’s responsibility for the financial statements and (b) the auditor’s responsibility for the financial statements? What is contained in these paragraphs?
List and describe the engagement wrap-up process. Why is it important?
Communication with those charged with governance: (a) Means that the auditor should write to the board of directors about any matters of governance interest arising from the audit of the financial statements. (b) Is done at the start of the audit. (c) Is done through the audit
Emphasis of matter is used without an accompanying qualification of the audit report when: (a) Significant uncertainty exists that should be brought to the reader’s attention. (b) An extreme limitation of the scope of the engagement exists. (c) There is a disagreement with those
Management’s responsibility for the financial statements includes: (a) Selecting internal controls tests. (b) Selecting samples for audit testing. (c) Selecting and applying appropriate accounting policies. (d) Selecting experts to assist with testing asset valuations.
The following is an example of an event that provides evidence with respect to conditions that developed subsequent to year end: (a) Bankruptcy of a customer subsequent to year end, which would be considered when evaluating the adequacy of the allowance for uncollectable accounts. (b)
If an auditor becomes aware after the date of the auditor’s report but before the financial statements are issued of a fact that may materially affect the financial statements, the auditor should: (a) Consider whether the financial statements need changing. (b) Discuss the matter
The following is a valid type of subsequent event: (a) An event that provides additional evidence with respect to conditions that existed at year end. (b) An event that occurred after the start of the year but before the end of the year. (c) Legal action that was settled in the last
Subsequent events are: (a) Events subsequent to the start of the financial year. (b) Events subsequent to the appointment of the auditor. (c) Events subsequent to the end of the financial year. (d) Events subsequent to the going concern assumption.
The going concern assumption means: (a) The entity is facing difficulties continuing as a going concern. (b) The entity is viewed as continuing in business for the foreseeable future with no need for liquidation. (c) Assets and liabilities are stated at liquidation values. (d)
If an auditor finds any misstatements or deviations in planned procedures: (a) The auditor should consider the reason for the misstatement or deviation. (b) The auditor should not revise the risk assessment. (c) The auditor should not alter any planned procedures. (d) The
At the conclusion of the audit, the wrap-up process involves: (a) Review of proper and complete execution of planned audit procedures. (b) The determination that all necessary matters have been appropriately considered. (c) Revisiting open review notes, to-do items, and open audit
Subsequent payments testing is: (a) Vouching for a sample of payments made after year end to supporting invoices to ensure that amounts related to invoices dated prior to year end have been included in payables. (b) Vouching for a sample of cash receipts received after year end to
Auditing payables usually focuses most heavily on: (a) Completeness, and valuation and allocation. (b) Existence. (c) Rights and obligations. (d) Existence, and rights and obligations.
Additions and disposals of PPE: (a) Are usually minor amounts so are not audited. (b) Are usually tested for cut-off. (c) Can be easily audited through analytical procedures so no other tests are required. (d) None of the above.
Physical inspection of PPE: (a) Is a useful technique to gather evidence about the completeness of PPE on the balance sheet. (b) Is always done for every asset every year because PPE is a very significant balance sheet account. (c) Can reveal insights into whether there are damaged,
Auditing cash receipts: (a) Can provide evidence about the balance of accounts receivable. (b) Could reveal unusual delays in posting credits to debtors’ accounts. (c) Can reveal cut-off problems. (d) All of the above.
An accounts receivable positive confirmation: (a) Provides evidence about the classification assertion. (b) Provides evidence about the existence of the accounts receivable. (c) Provides evidence that the accounts receivable will definitely be collected. (d) Is not as useful
An auditor compares remittance advices or lists of cash receipts with entries in the cash receipts journal and entries in the cash receipts journal with the remittance advices or lists of cash receipts because: (a) the first provides evidence about the completeness of entries in the cash
Valuation and allocation is a significant assertion for cash: (a) Always. (b) Never. (c) When the client has cash balances that are held in a foreign currency. (d) None of the above.
A major assertion for the cash account is: (a) Existence. (b) Completeness. (c) Classification. (d) All of the above.
The timing of substantive procedures is influenced by: (a) Work done to obtain an understanding of internal audit activities. (b) A review of processes to generate estimates of provisions. (c) Interim reviews of activities such as monthly reviews of gross margins. (d) All of the
Beautiful Shoes Inc. is a high-end ladies shoe store. It has recently expanded its operations and signed a long-term lease in a popular shopping centre. The owner, Beverly Hung, is concerned because the lease agreement requires that she submit to the landlord a percentage of her gross sales at the
You, a recently designated CPA, have agreed to serve on a committee that is organizing a sports adventure race as a fundraiser for Far West Camp, a camp for teenagers from all economic backgrounds. Far West Camp has obtained support from two sponsors that have specified criteria that must be met
Securimax Ltd. has been an audit client of KFP Partners for the past 15 years. Securimax is based in Waterloo, Ontario, where it manufactures high-tech armour-plated personnel carriers. Securimax often has to go through a competitive market tender process to win large government contracts. Its main
Securimax Ltd. has been an audit client of KFP Partners for the past 15 years. Securimax is based in Waterloo, Ontario, where it manufactures high-tech armour-plated personnel carriers. Securimax often has to go through a competitive market tender process to win large government contracts. Its main
André is seeking your advice on the selection of substantive procedures for the audit of his client, Rock Ltd. Rock is a specialist outdoor clothing and equipment retailer and has experienced reasonable growth over the past three years, although this growth has come substantially from the clothing
The following is a copy of the auditor’s working paper relating to the search for accounts payable cut-off testing for the client New Millennium Ecoproducts. Required (a) Why does an auditor test accounts payable cut-off? Explain with reference to income statement effects. (b)
The following is a copy of the auditor’s working paper relating to the search for unrecorded liabilities for the client New Millennium Ecoproducts. Required (a) Why does an auditor search for unrecorded liabilities? (b) Explain the test documented in section 1. Does this test
The following is a copy of the auditor’s working paper relating to the cut-off procedures for inventory sales for the client New Millennium Ecoproducts. Required (a) Why is an auditor interested in whether inventory movements are recorded for the correct date? (b) The test
The following is a copy of the auditor’s working paper relating to the roll forward procedures for accounts receivable for the client New Millennium Ecoproducts. Required (a) When are roll forward procedures used? Why are they useful in testing accounts receivable and
The following is a copy of the auditor’s working paper relating to the testing of depreciation expense for the client New Millennium Ecoproducts. Required (a) The opening book value balances of the assets are carried forward from the prior period and reconciled to the general ledger

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Auditing A Practical Approach 2nd Canadian edition Fiona Campbell, Robyn Moroney, Jane Hamilton, Valerie Warren - Solutions

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