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business
auditing the art and science of assurance

Questions and Answers of Auditing The Art And Science Of Assurance

Binu is performing tests of controls in the purchases cycle of Oakland Hardware Company. Based on the audit firm guidelines, a sample size of 50 purchases is selected from the cash disbursements
You are planning to use nonstatistical sampling to evaluate the results of accounts receivable confirmation for the Meridian Company. You have already performed tests of controls for sales, sales
Jeff Jacobs is a junior accountant with the public accounting firm of Maxwell and King LLP. Jeff was assigned to do the audit of Astor Electronics Inc. The in-charge auditor informed Jeff that, based
Cora hardware is a wholesaler of cabinetry hardware (knobs and pulls) for residential use. Cora’s annual sales are $4 million and the year-end accounts receivable balance is $450 000. The company
Explain why auditors often use ADAs and sampling together. Provide an example of this approach.
Below are two control activities:• Purchase orders should to be created and approved by two different people.• Only authorized accounting staff can post journal entries.REQUIREDDefine the control
The chart below represents a year-to-date trend analysis of cash receipts and sales.REQUIREDWhat does this chart tell you about potential risks of misstatement in accounts receivable? Explain which
It is hard to believe that auditing standards could differ on something that is as seemingly objective as sampling. However, like many things in auditing, there is often considerable leeway around
Below is a transcript of a conversation between Mitch and AJ as they try to select a sample and evaluate the results.AJ: Mitch, did you have a chance to select a sample of Hillsburg’s customers
You are the audit senior on the audit of Great Eastern Hotel (GEH). This two-star hotel is located in a major coastal city and as such is prone to seasonal fluctuations. The 200-room hotel is open
Provide two inherent risk factors in the revenue cycle and identify the accounts that are likely to be overstated or understated and explain why.
Biomed Products Incorporated (BPI) is a public company, listed on the Toronto Stock Exchange (TSX), that manufactures and markets various types of medical equipment that monitors patients’ vital
Provide two financial ratios that may identify potential revenue recognition problems. Explain your reasoning.
List potential misappropriation of assets and financial reporting fraud that can occur in the revenue. Recommend internal controls that can either detect or prevent these frauds from occurring.
You are the audit senior in charge of the accounts receivable confirmations. One of the responses is from a company that has no operations in Canada, but you note the response is from a mailing
It is October 21, 2020, and you, an audit manager at E&N LLP, are in charge of reviewing the audit engagement file of Eye in the Sky Inc., which has a year-end of July 31, 2020. Today you will be
Below is a transcript of a May 15 Zoom videoconference call between Joe Anthony, the partner, and Leslie Nagan, the managerJA: Leslie, I can’t hear you. Leslie, I think that you are on mute. Scroll
For each procedure, identify the relevant assertions for account balances. AUDIT PROCEDURE Obtain a list of accounts payable. Re-add and compare with the general ledger. Trace from the general ledger
Your client, Schroeder Manufacturing Co., provided the following schedule of property, plant, and equipment for the year ended June 30, 2020. Balances have been agreed to the general ledger. As part
List one possible internal control for each of the five assertions for cash disbursements transactions. For each control, list a test of controls to test its effectiveness.
List one possible control for each of the five assertions for acquisition transactions. For each control, list a test of controls to test its effectiveness.
Distinguish between a vendor’s invoice and a vendor’s statement. Which document is more reliable evidence for performing tests of details of acquisition transactions and for directly verifying
The auditor examines all unrecorded invoices on hand as of February 28, 2021, the last day of the audit of the December 31, 2020, year-end. Which of the following misstatements is most likely to be
You are doing the audit of the UTE Corporation for the year ended December 31, 2020. The following schedule for the property, plant, and equipment and related allowance for amortization accounts has
In auditing accounts payable, an auditor’s procedures will most likely focus primarily on management’s assertion of(1) Existence.(2) Realizable value.(3) Completeness.(4) Valuation and allocation.
PawLow Inc. is a private manufacturer of specialized lubricants for the space industry. Its lubricants are used to cover moving mechanical parts inside rocket ships, the Space Station, and the Mars
You are part of the engagement team for the audit of Suzuki Manufacturing for the year ended December 31, 2020, and are responsible for auditing the acquisition cycle. Download the Excel file for the
Below is a transcript of a video conference call between Joe, the audit partner and Leslie, the audit manager.JA: Leslie. I just got off another video call with Avis. She gave me an update on
What is meant by cost accounting records, and what is their importance in the conduct of an audit?
List the audit procedures that could be employed to determine whether slow-moving or obsolete items have been included in inventory.
Included in the December 31, 2020, inventory of Kupitz Supply Ltd. are 2600 deluxe ring binders in the amount of $5 902. An examination of the most recent purchases of binders showed the following
Ruswell Manufacturing Ltd. applied manufacturing overhead to inventory at December 31, 2020, on the basis of $3.47 per direct labour hour. Explain how you would evaluate the reasonableness of total
On December 31, 2020, Best Cement Inc., a cement wholesaler, conducted its annual year-end inventory count. Best Cement stores all of its cement in large storage silos (very tall cylinder-shaped
For each audit procedure commonly performed in the inventory and distribution cycle for a manufacturing company, identify whether each of the procedures is primarily a test of controls or a
Big Tasty Bird Inc. (BTB) is a turkey farm. BTB year-end is September 30, 2020. It takes about four to six months to raise a turkey from the time the chicks hatch from their eggs. A full-grown and
Apex is a private company that manufactures pharmaceutical drugs. It is now December 15, 2020, and you are planning to attend the December 31 inventory count. Apex’s year-end is December 31, 2020.
Your client, Ridgewood Heating and Cooling, specializes in residential air conditioning and heating installations. The company maintains an inventory of air conditioning units, furnaces, and air
You encountered the following situations during the December 31, 2020, physical inventory of Latner Shoe Distributing Corp.a. Latner maintains a large portion of its shoe merchandise in 10 warehouses
You are the in-charge accountant on the audit of Dezine Inc. (DI). It is March 25, 2020, and your firm is partway through the audit for the year ended January 31, 2020. You are currently assigned to
PawLow Inc. is a private manufacturer of specialized lubricants for the space industry. Its lubricants are used to cover moving mechanical parts inside rocket ships, the Space Station, and the Mars
iBee is a private corporation located in Punkeydoodles Corners, Ontario, that owns and maintains a large honeybee colony. Tom Doodles established the company as a small hobby business in 1977. Over
Below is a transcript of a discussion between Fran, the audit manager, and AJ.FM: AJ, I heard that you like to play video games?AJ: Yes, I do. Why?FM: We need someone with good joystick control
Explain why a combined audit approach is common for the human resources and payroll cycle.
Following are some of the tests of controls and substantive tests of transactions procedures often performed in the human resources and payroll cycle. (Each procedure is to be done on a sample basis
Which one of the following controls is the best control to prevent or detect fictitious payroll transactions?(1) Use and account for prenumbered payroll cheques.(2) Restrict authorization for hiring,
Archer Uniforms Inc. is a distributor of professional uniforms to retail stores that sell work clothing to professionals such as doctors, nurses, and security guards. Traditionally, most of the sales
Melania Spencer was a long-term, trusted executive who had full responsibility over the executive payroll function at a large investment dealer. She always aspired for luxury and had an extensive
Below is a transcript of a May video conference between Joe Anthony, the partner, and Leslie Nagan, the manager.JA: Leslie, I just ended a call with Avis. Finally, some good news. Avis said that
Below are seven potential misstatements due to errors or fraud, preceded by a list of auditing procedures (a. through h.) the auditor could consider performing to gather evidence to determine whether
Below is a transcript of conversation between Fran and Leslie.LN: Hi Fran. How are things progressing on the Hillsburg audit? Do you have any updates for me? FN: Hi Leslie, I was just about to call
Explain the meaning of the following statement: “The auditor should actively evaluate whether there is substantial doubt about the client’s ability to continue as a going concern.”
In an examination of Marco Corporation as of December 31, 2020, the following situations exist. No related entries have been made in the accounting records.1. Marco Corporation has guaranteed the
The following items were discovered during the December 31, 2020, audit of the financial statements of Westmoreland Corporation.1. The company’s financial statements did not include an accrual for
Callie Peters is completing the audit of MakingNewFriends.com for the year ended December 31, 2020. Callie has been the audit manager on this engagement for the past three years. MakingNewFriends.com
Access CPA Canada’s CAS 450, Evaluation of misstatements identified during the audit, to answer the following questions:a. What are the three types of misstatements that can be identified by an
You are a public accountant in the public accounting firm of Lind and Hemming. One of your larger clients is Yukon Corp., a company incorporated under the Canada Business
You are the audit senior who has recently been assigned to the year-end audit of Ontario Agra Corporation (OAC). After the end of the audit fieldwork, the senior on the engagement resigned suddenly
In your audit of Aviary Industries for calendar year 2020 you found a number of matters that you believe represent possible adjustments to the company’s books. These matters are described below.
Below is a transcript of a conversation between Leslie, the manager, and Joe, the partner.LN: Joe, do you have a minute? I need to talk to you. Something really weird and interesting just happened.
When the financial statements are fairly stated but the auditor concludes there is substantial doubt whether the client can continue in existence, the auditor should issue a(n)(1) Adverse opinion.(2)
An entity changed from the straight-line method to the declining-balance method of amortization for all newly acquired assets. This change has no material effect on the current year’s financial
List the conditions requiring modification to the audit opinion, and give one specific example of each of those conditions.
Roscoe, a public accountant, has completed the examination of the financial statements of Excelsior Corporation as of and for the year ended December 31, 2020. Roscoe also examined and reported on
The following are independent situations for which you will recommend an appropriate auditor’s report. For each situation, using the framework for reporting decisions, identify the appropriate
Materia Blues Inc. is a company that manufactures and distributes books internationally. The company has proposed that the following comments be included in the company’s 2018 annual report to the
You are the in-charge accountant on the audit of Amazing Inc. (AI). It is March 25, 2021, and your firm is part way through the 2020 audit. You are currently assigned to work on various sections
JA: Fran, I don’t want to sound harsh, but we really need to wrap up all the outstanding audit work ASAP. Hillsburg has scheduled a Board of Directors meeting for next week. The Board wants to sign
Describe circumstances in which public accountants perform agreed-upon procedures engagements related to financial information other than financial statements.
Why do practitioners sometimes decide to limit the distribution of an agreed-upon procedures report?
In October 2014, the province of Nova Scotia announced that it would provide Nova Star Cruises Limited, the new operator of the ferry between Yarmouth, NS, and Portland, Maine, with $5 million in
JA: Hi Leslie. I just got off the phone with Avis, Hillsburg’s CFO. Hillsburg’s Board requested that Avis look into applying for the Canada Emergency Wage Subsidy program (CEWS). CEWS is a
Explain why criteria are so important with respect to assurance engagements that involve non-financial information.
As mentioned in Auditing in Action 3-2, Ernst & Young recently paid the largest settlement in a Canadian class action suit related to its audits of Sino-Forest. It subsequently paid an $8 million
Recently, standard setters revised the Auditor’s Report to provide more detail on management’s and auditors’ responsibilities related to going concern disclosures. Refer to Figure 3-3 and
The following general ledger accounts are included in the trial balance for an audit client, Jones Wholesale Stationery Store.REQUIREDa. Identify the accounts in the trial balance that are likely to
Linus Peabody is a junior auditor with the accounting firm Dig and Deep, LLP. He recently discovered through a casual conversation with Betty Boone, another audit junior with Dig and Deep, that one
You are an audit manager at Tick and Bop LLP and are planning the audit of Lotusbank, a digital bank that provides a range of financial services including mortgages. Of all the Canadian digital
Discuss why a number of Chartered Professional Accountant (CPA) firms have willingly chosen to settle lawsuits out of court. What are the implications to the profession from such actions?
Read the following transcript between Mitch and you (AJ).AJ: Hey Mitch, I didn’t know that you used to work for another public accounting firm before you started to work at BKK, LLP.MB: Yeah,
What is the role of the CPAB?
Below are some key facts about Hillsburg Hardware and Ben & James, the paint manufacturer, Hillsburg is considering purchasing.Hillsburg Hardware LimitedHillsburg Stores Ltd. began operations in
The following are two events that happened at Hillsburg during the audit period:• Hillsburg’s ONHAND system was hit by the WannaCry cyberattack, and the company did not have an external
The following independent scenarios describe auditor decisions made during an audit engagement.1. Chen Li worked on the audit of Diagnostic Imaging Services (DSI), which provides diagnostic imaging
What assertion is the auditor assessing when considering the following question: Do all recorded property, plant, and equipment exist at the balance sheet date?
Distinguish between the existence and completeness assertions. State the effect on the financial statements (overstatement or understatement) of a violation of each assertion with regard to accounts
The cost of equipment repairs incurred by a construction company is recorded in the incorrect accounting period. Which accounts and assertions are relevant for this situation?
What are relevant management assertions? Why are relevant assertions important to the audit process?
Distinguish between the responsibilities of management, of those in charge of governance, and of the auditor for the financial statements being audited.
The following is a conversation between you, audit junior, and Mitch Bray, the other junior assigned to the Hillsburg audit engagement.MB: Hey. Did you update your social media profiles?AJ: No, not
Robert Lewandowski, the owner of iEat Inc., a private company that designs and installs interactive computer display terminals in coffee shops and restaurants, recently switched auditors and hired
Donna, a public accountant, is approached by the owner of one of her clients, for whom she normally compiles monthly and annual financial statements, to perform an audit of the company’s
Helmut & Co., a public accounting firm, was the new auditor of Mountain Ltd., a private company in the farm equipment and supply business. In early February 2020, Helmut & Co. began the audit
Diane Harris, a PA, is the auditor of Fine Deal Furniture, Inc. In the course of her audit for the year ended December 31, 2020, she discovered that Fine Deal had serious going-concern problems.
Barbara Whitley had great expectations about her future as she sat at her graduation ceremony in May 2020. She was about to receive her Master of Accountancy degree, and the following week she would
Why is an auditor’s independence so essential?

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