Auditing A Risk Based-Approach 11th Edition Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg - Solutions

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The audit program for the Revenue account for a client has been drafted. The following item appears: Required (a) Does the procedure address the stated assertion? Explain. (b) If your answer to (a) is no, provide the correct assertion or explain what work would be required to address
Yellow Aviation is an existing client of PPP Partners. The auditors are aware that the impact of the global financial crisis on airlines has been severe, with predictions of a prolonged downturn. Also, as a result of the crisis along with the entry of new competitors in the domestic and
The auditor is planning for the audit of a specialty retail store. Inventory is material, and items range in value from $1 to over $500. The nature of the store means that the type of merchandise changes every season, and many items are specially ordered with special branding and promotional
A client has a material balance in property, plant, and equipment. The discussions with management indicate that there is a risk the client will capitalize all repair costs to minimize the impact on expenses. Repairs are likely to be material because of the extreme weather conditions affecting
Tropical Cruises is a new client of MMM Partners. Tropical Cruises is a low-cost cruise ship operator, travelling between Canada and the United States. The planning for the first audit is underway. The auditors have become aware that police in two countries are investigating several Tropical
State the assertion that is violated in the following sentences:(a) The client fails to accrue management bonuses in the current year.(b) The client does not adjust its inventory to the lower of cost or market.(c) The client books revenue in the current year when it has not yet been earned.(d) The
Review the examples of working papers provided in the chapter. List six things that should be included in every working paper.
The working papers for a client contain both a permanent and a current file. The difference between the two files is that: (a) The permanent file is kept by the audit partner in charge and cannot be altered after the first audit engagement is completed, but the current file can be
Analytical procedures are used to gather evidence: (a) At the planning stage to gain an understanding of a client. (b) At the execution stage to evaluate information included in the fi nancial statements. (c) At the fi nal review stage to assess whether the fi nancial statements refl
Inspecting documents, such as an invoice for the purchase of fi xed assets, provides the auditor with evidence relevant to the: (a) Rights and obligations assertion, because the document will show the client’s name as the purchaser. (b) Occurrence assertion, because the document will
If an expert is engaged to assist with the audit: (a) It means the auditor does not have the requisite skill and knowledge to assess the item. (b) It means the auditor should not have taken on the audit because they are not qualified. (c) CPA Canada must be contacted and permission
Generally the most persuasive form of evidence is: (a) Internally generated evidence. (b) Externally generated evidence held by the client. (c) Externally generated evidence sent directly to the auditor. (d) None of the above; they are equally persuasive.
When an auditor inspects tangible assets on hand and traces the details to the details recorded in the client’s records, the auditor is gathering evidence to support the: (a) Completeness assertion. (b) Existence assertion. (c) Both (a) and (b). (d) Neither (a) nor (b).
When an auditor gathers documentary evidence or physical evidence to support an entry in the client’s records, the auditor is gathering evidence to support the: (a) Completeness assertion. (b) Existence assertion. (c) Both (a) and (b). (d) Neither (a) nor (b).
An external confirmation sent to a bank: (a) Requests information about the bank balances and loan amounts. (b) Requests information about interest rates paid on deposits and charged on loans. (c) Is relevant to the audit of interest revenue and expense. (d) All of the above.
The quantity of evidence that an auditor will gather: (a) Varies with audit risk. (b) Is the same for all audits because it has to be appropriate. (c) Depends on the size of the audit team. (d) All of the above.
The auditor is responsible for: (a) Ensuring that the financial statements are prepared in accordance with accounting standards and the law. (b) Ensuring that accurate accounting records are maintained. (c) Ensuring that any potential misstatements are prevented or detected and
AutoCare Ltd. (ACL) is a federally incorporated public company formed in 2010 to manufacture and sell specialty auto products such as paint protection and rust proofing. By 2014, ACL’s board of directors felt that the company’s products had fully matured and that it needed to diversify. ACL
Fellowes and Associates is a successful mid-tier accounting firm with a large range of clients across Canada. During the 2016 financial year, Fellowes and Associates gained a new client, Health Care Holdings Group (HCHG), which owns 100 percent of the following entities: Shady Oaks Centre, a
Securimax Limited 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
Securimax Limited 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
Featherbed Surf & Leisure Holidays Ltd. is a resort company based on Vancouver Island. Its operations include boating, surfing, diving, and other leisure activities: a backpackers’ hostel, a family hotel, and a five-star resort. Justin and Sarah Morris own the majority of the shares in the
Li Chen has calculated profitability ratios using data extracted from his client’s pre-audit trial balance. He also has the values for the same ratios for the preceding two years (using audited figures). Table 4.8 presents the data for gross profit and profit margins. Li is a little confused
Niagara Dairy is a boutique cheese maker based in the Niagara region of Ontario. Over the years, the business has grown by supplying local retailers and, eventually, by exporting cheese products. In addition, there is a “farm-gate” shop and café located next to the main processing plant in
om’s Trailers Ltd. (TTL), located in London, Ontario, manufactures industrial trailers that are used to ship goods across the country. Originally, Tom Tran owned 60 percent of the common shares of TTL and the other 40 percent was owned equally by Tom’s four brothers. Tom’s brothers have
Claytonhill Beverages Ltd. is 100 percent owned by Buzz Bottling. While the company has in the past been profitable, it incurred a loss for the year ended December 31, 2016. The parent company, Buzz Bottling, has indicated that if Claytonhill incurs another loss, it will put the subsidiary up for
Triple J Movers Ltd. is owned by Jacques Tétreault. The company used to be profitable but several new small companies have started to compete with Triple J, offering very low prices that Triple J cannot match. Jacques thinks he can make his company profitable again if he eliminates his
Clear Sky Aviation credits prepayments of air travel to a deferred revenue account until the travel service is provided, at which point it transfers the appropriate amount to sales revenue. A problem with its control system means that the proper allocation of revenue between sales revenue recorded
Cheap-as-Chips stocks thousands of items in inventory that range in value from $1 to $100. The inventory on hand represents a material portion of current assets. The merchandise items change according to the season and the promotional theme adopted by the stores’ management for the year.
Testing controls mean that: (a) The auditor can completely rely on a client’s system of internal controls. (b) No substantive testing is required. (c) The auditor can plan to reduce their reliance on detailed substantive testing of transactions and account balances. (d) All of
An example of an item that is material is: (a) A theft of $100. (b) An undisclosed lawsuit for $1 million. (c) An undisclosed related party. (d) All of the above.
For an audit, the auditor can control: (a) Inherent risk. (b) Control risk. (c) Financial risk. (d) Detection risk.
An auditor will identify accounts and related assertions at risk of material misstatement: (a) After testing internal controls. (b) Before writing the audit report. (c) In order to plan the audit to focus on those accounts. (d) To eliminate audit risk.
Analytical procedures: (a) Cannot be performed on interim data. (b) Are not affected by different accounting methods between the client and other members of the industry.(c) Must take into account seasonal variation in the client’s business. (d) Are only useful if the client’s
An auditor is interested in the client’s inventory turnover ratio because it helps the auditor understand: (a) If the industry is the same as another industry. (b) If the client is as competitive and has as high a turnover as the industry average. (c) If the client’s accounts
Common uses of analytical procedures include: (a) Risk identification during the audit planning stage. (b) Estimation of account balances during the audit execution stage.(c) Overall assessment of the financial statements at the final review stage of the audit. (d) All of the above.
Profitability ratios are used to assess performance and: (a) Companies will be interested in trends in the ratios. (b) Companies will try to have the same ratio in each month of operation. (c) Should be the same for all divisions of the company. (d) companies will track their
A combined audit strategy: (a) Is appropriate when internal controls are minimal. (b) Means that the auditor will gain the minimum necessary knowledge of the client’s system of internal controls. (c) Requires the auditor to conduct extensive control testing. (d) Means that the
A substantive audit strategy: (a) Is appropriate when internal controls are very strong. (b) Means that the auditor will gain the minimum necessary knowledge of the client’s system of internal controls. (c) Requires the auditor to conduct extensive control testing. (d) Means
You are a graduate working for W&S Partners, a Canadian accounting firm with offices located in each of Canada’s major cities. W&S Partners has just been awarded the December 31, 2016, statutory audit for Cloud 9 Ltd. (Cloud 9). The audit team assigned to this client is: Jo Wadley,
Expansion Aviation has installed a new payroll module to its existing accounting system that integrates with the general ledger application. The new payroll application is more complex than the old system, but its reporting function provides more details. For example, the new application calculates
A new client, an oil and gas explorer in Western Canada, is currently negotiating a loan worth $3 million to avoid defaulting on its long-term debt that is due in three months. Its latest quarterly earnings report indicated the entity has a working capital deficiency of $500,000, while its cash
From the list below, identify what you would consider as (a) a motive for fraud, (b) an opportunity for fraud. 1. college or university tuition 2. gambling debts 3. the fact that nobody counts the inventory, so losses are not known 4. the fact that the petty cash box
An airline company has been adversely impacted by the global financial crisis’s effect on business travel. In addition to lower overall demand, the airline company faces increased competition from other airlines, which are heavily discounting flights. The airline company policy for revenue is to
Featherbed Surf & Leisure Holidays Ltd. (Featherbed) is a resort company based on Vancouver Island. Its operations include boating, surfing, diving, and other leisure activities; a backpackers’ hostel; a family hotel; and a five-star resort. Justin and Sarah Morris own the majority of the
Featherbed Surf & Leisure Holidays Ltd. (Featherbed) is a resort company based on Vancouver Island. Its operations include boating, surfing, diving, and other leisure activities; a backpackers’ hostel; a family hotel; and a five-star resort. Justin and Sarah Morris own the majority of the
Ivy Bishnoi is preparing a report for the engagement partner of an existing client, Scooter Ltd., an importer of scooters and other low-powered motorcycles. Ivy has been investigating certain aspects of Scooter Ltd.’s business given the change in economic conditions over the past 12 months. She
Client closing procedures: (a) Are routine transactions that do not have an impact on audit risk. (b) Are the responsibility of those charged with governance who must ensure that transactions are recorded in the correct accounting period. (c) Affect expense accounts only. (d)
When gaining an understanding of the client, the auditor will consider: (a) related party identification. (b) the appropriateness of the client’s system of internal controls to mitigate identified business risks. (c) controls over the technology used to process and store data
The planning stage of an audit does not include: (a) gaining an understanding of the client. (b) identifying factors that may affect the risk of a material misstatement in the fi nancial statements. (c) developing an audit strategy and a risk and materiality assessment. (d)
The auditor must consider whether it is appropriate to assume that the client will remain as a going concern: (a) because this means that assets are valued on the basis that they will continue to be used for the purposes of conducting business. (b) only if the client is facing bankruptcy,
An example of an incentive or pressure that increases the risk of fraud is: (a) The client operates in a highly competitive industry. (b) The client has a history of making losses. (c) A significant percentage of management remuneration is tied to earnings. (d) All of the above.
An attitude of professional scepticism means: (a) The auditor can rely on past experience to determine current risk of fraud. (b) Any indicator of fraud is properly investigated. (c) The auditor can rely on management assertions. (d) All of the above.
The CSA’s Corporate Governance Guidelines are designed to help companies: (a) improve their corporate structure. (b) improve performance. (c) enhance their accountability to shareholders and other interested third parties. (d) all of the above.
When gaining an understanding of the client at the industry level, the auditor: (a) Will not ignore information about the client’s industry. (b) Will not consider the level of demand for the goods and services provided by other companies in the client’s industry. (c) Will not
When gaining an understanding of the client’s sources of financing, the auditor: (a) Is not interested in debt covenants because all debt contracts are the same. (b) Will assess if the client is meeting interest payments when they are due. (c) Will ignore the relative reliance on
When gaining an understanding of the client, the auditor will identify the geographic location of the client because: (a) More spread-out clients are harder to control. (b) The auditor will need to visit the various locations to assess processes and procedures at each site. (c) The
Identify and discuss any professional conduct issues in the following independent scenarios. (a) Arun Sidhu was the auditor of Red Brick Ltd. and issued a clean audit opinion despite the fact that the depreciation expense of the client was materially misstated due to a calculation
Roy Dussault is a CPA who started a sports equipment importing business. The business became very successful and he sold it to his neighbour. As part of the sale agreement, Roy agreed to perform an audit of the financial statements for the first year at no charge. Roy told the new owner that there
Identify and discuss any breaches, if any, to the principles and rules of the code of professional conduct in the following independent scenarios. Explain. (a) Susanne, a professional accountant, has agreed to audit the financial statements of a newly formed biotechnology company that is
Ahmad & Partners is a public accounting firm in eastern Canada. Last year it audited Chan Corporation, a publicly traded company that manufactures automobile component parts. Although the company has been profitable for many years, Ahmad & Partners was hired by Canada Bank, which was
Jules is a student in the CPA program, and was recently hired as a junior auditor. His employer is conducting an external audit of DDD Ltd.’s 2016 fi nancial statements. DDD is a wholesale distributor of electronic supplies. Jules found a purchase invoice with all required supporting
Fellowes and Associates Chartered Accountants is a successful mid-tier accounting fi rm with a large range of clients across Canada. During the 2016 financial year, Fellowes and Associates gained a new client, Health Care Holdings Group (HCHG), which owns 100 percent of the following
Stave, Brown and Paul, a three-partner accounting firm, has implemented the following independence safeguards. 1. In the audit report for Weltzin Educational Services Inc., partner Jessica Brown has the CFO of Weltzin sign the following: “I approve the proposed journal entries made by
Elise Lauzière is the partner in charge of the audit of Hertenstein Ltd., a large listed public company. Elise took over the audit from Marjorie Szliske, who has recently retired from the audit firm. Marjorie was a very experienced auditor and the author of several reports into ethical standards
If a prospective new audit client does not allow the auditor to contact its existing auditor: (a) the auditor should contact the existing auditor anyway because it is their duty. (b) the auditor should consider refusing to take on the prospective new client. (c) the existing auditor
Generally, the auditor could be legally liable: (a) under contract law to third parties and to the client. (b) under contract law and under the tort of negligence to the client. (c) under contract law but not under the tort of negligence to third parties. (d) under the tort of
Audit committees for listed entities per the CSA: (a) must include the CFO if he or she is on the board of directors. (b) can be any size. (c) have the same chair as the board of directors. (d) should have a formal charter.
Safeguards to independence: (a) are not the responsibility of the client. (b) are too difficult to implement by audit firms; they must be contained in legislation. (c) include audit committees. (d) apply only to business relationships between auditors and clients, not to social
Safeguards to independence: (a) minimize the risk that a threat to independence will surface. (b) deal with a threat when one becomes apparent. (c) are developed by the accounting profession, legislators, regulators, clients, and accounting firms. (d) all of the above.
A self-review threat arises when: (a) the auditor has a loan from the client. (b) the auditor represents the client in negotiations with a third party. (c) the auditor performs services for the client that are then assured. (d) there is a long association between the auditor and
A self-interest threat arises when: (a) the auditor owns shares in the client’s business. (b) an assurance team member has recently been a director of the client. (c) the auditor encourages others to buy shares in the client’s business. (d) the client threatens to use a
Professional independence for auditors: (a) detracts from the ability of users to rely on the financial statements to make their decisions. (b) is the ability to act with integrity, objectivity, and professional scepticism. (c) is important when the auditor acts independently, and
Professional behaviour means that members of a profession must: (a) comply with rules and regulations. (b) claim to possess all qualifi cations. (c) question the reputation of accountants who are not members of professional bodies. (d) provide all services clients request.
Professional competence and due care means that members of the professional body must: (a) Maintain their knowledge and skill at the required level. (b) Keep up to date with changes in regulations and standards. (c) Act diligently. (d) All of the above.
The audit expectation gap occurs when:(a) Auditors perform their duties appropriately and satisfy users’ demands.(b) User beliefs do not align with what an auditor has actually done.(c) Peer reviews of audits ensure that auditing standards have been applied correctly and the standards are at the
The insurance hypothesis means:(a) Managers must take insurance.(b) Owners must take insurance.(c) An audit acts as insurance.(d) None of the above
Agency theory explains that audits are demanded because conflicts can arise between:(a) Managers and owners.(b) Managers and agents.(c) Owners and principals.(d) Auditors and owners.
Those charged with governance have a responsibility to ensure that the information in financial statements is:(a) Relevant and reliable.(b) Comparable and understandable.(c) Fairly presented.(d) All of the above.
A “clean” audit report is issued when:(a) The auditor has no independence issues.(b) The audit opinion is unqualified and the auditor includes a paragraph in the audit report to emphasize something important.(c) The audit opinion is unqualified and unmodified.(d) The users cannot rely on the
Negative assurance means:(a) The auditor disclaims responsibility for the audit opinion.(b) An adverse audit report.(c) The auditor has conducted an audit and provides an opinion that the financial statements are not materially misstated.(d) The auditor has done adequate work to report whether or
The function of internal audit is determined by:(a) The external auditor.(b) The Institute of Internal Auditors.(c) Those charged with governance and management.(d) The government
Performance audits are useful because:(a) They include an internal audit.(b) They are concerned with the economy, efficiency, and effectiveness of an organization’s activities.(c) They involve gathering evidence to ascertain whether the entity under review has followed the rules, policies,
Under the Canada Business Corporations Act the auditor has a responsibility to:(a) Form an opinion on the subject criteria.(b) Form an opinion on the independence of the company.(c) Form an opinion on the fair presentation of the financial statements.(d) All of the above.
The parties relevant to an assurance engagement are:(a) Assurance practitioner, users, responsible party.(b) Assurance practitioner, responsible party, subject matter.(c) Assurance practitioner, users, criteria.(d) Assurance practitioner, subject matter, criteria
Explain how engagement risk affects audit pricing.
An acquisition will typically result with the acquiring organization bringing goodwill onto its books.a. How is the amount of goodwill determined at the time of acquisition?b. When should an organization consider whether goodwill has been impaired? How is goodwill impairment determined?c. What are
Ignite Restaurant Group (IRG), the owner of various restaurants including Joe’s Crab Shack, went public in May 2012. Just two months later, the company announced that it needed to restate its financial statements to correct errors related to the treatment of certain leases. The announcement
In 2012, HP announced an impairment charge of $8.8 billion related to its 2011 acquisition of Autonomy. More than $5 billion of the impairment charge related to accounting improprieties, misrepresentation, and disclosure failures discovered by an internal investigation by HP, and a forensic review
Obtain a copy of PCAOB Release No. 104-2017-033.a. What is this PCAOB Release?b. Identify the audit deficiency related to long-lived assets.c. How could that deficiency negatively affect the quality of the audit?d. Discuss how professional skepticism might relate to that deficiency.
Obtain a copy of PCAOB Release No. 104-2016-142.a. What is this PCAOB Release?b. How many issuer audits did the PCAOB review?c. How many issuer audits with audit deficiencies are included in the inspection report?d. Which issuer audits included deficiencies related to business combinations? e.
What are typical planning analytical procedures related to debt?
What are typical planning analytical procedures related to equity?
What type of audit approach does the auditor typically plan for equity? Why is this typically the most appropriate approach?
Explain how the auditor might use a bond amortization spread- sheet when auditing interest expense over the life of a bond.
Refer to the Focus on Fraud feature “Warranty Accrual Accounting.” Obtain a copy of the related SEC AAER (SEC AAER No. 3765 / April 19, 2016) and other relevant news articles.a. Why did Logitech’s management choose not to follow GAAP? Consider the fraud triangle in answering this question.b.
Assume that the auditor discovers a material subsequent event requiring management to take action to notify users. What steps should the auditor take if the client refuses to take the appropriate action?
What criticisms has the PCAOB levied against auditors in per- forming engagement quality reviews?
Describe the documentation requirements relating to the PCAOB’s AS 1220, Engagement Quality Review.
The Why It Matters feature on OAO Gazprom speaks to issues of lack of disclosure quality at the company in and around 2009. Below is a stock price chart that shows the market€™s reaction to those weak disclosures. Use online resources to determine other reasons that OAO Gazprom stock was

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Auditing A Risk Based-Approach 11th Edition Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg - Solutions

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