Questions and Answers of Principles of Auditing

Q: Publicly traded companies are required to make certain disclosures in their annual reports about the compensation paid to their top executives. One
Q: a. Evaluate the effectiveness of CTI’s control environment. b. Assess risk at the financial statement level. 1. Evaluate inherent risk at the
Q: Given the information you have collected above about internal controls in the purchases process:a. Evaluation: Evaluate the quality of internal
Q: In this chapter, the history of auditing has been briefly described from an international perspective. Identify the major differences with the
Q: At IFAC/International auditing and Assurance Standard Board’s publication website h tp: /www.ifac.org/auditing-assurance/publications-resources
Q: Describe two treats and related safeguards associated with each of the following independence activities (Code Section):A. Documentation of
Q: What importance would internal controls have for an audit firm?
Q: Using the references in footnotes to this chapter as a beginning place and accessing journal databases such as ABI Inform, discuss the theoretical
Q: Should a corporate governance code be developed by governmental bodies and enforced by law or should a code be developed by private institutions as
Q: Describe the system of oversight of the audit profession in your country. Compare this system with the PCAOB standards. Discuss differences. US
Q: In your role as shareholder, check the compliance of your portfolio firm with a (randomly) select a Corporate Governance Code from www.ecgi.org.
Q: Accounting policies and practices that are most important to the portrayal of the company’s financial condition and results, and require
Q: Which of the following is an example of a subsequent event?a. A bond issuance after the balance sheet date but prior to issuance of the financial
Q: When auditing a fixed asset account such as land, buildings, and equipment, the auditor will normally:a. Vouch the book value of fixed assets to
Q: The internal document commonly used to record a credit purchase in the purchases journal is a:a. Purchase requisition.b. Purchase order.c. Vendor’s
Q: Compare and contrast a compilation engagement and review engagement.
Q: If auditors identify only one material weakness in a client’s internal control system, the appropriate report to issue is a(n):a. Qualified
Q: a. Conclusions: Based on the new information and assuming management cooperates with your recommended course of action, how would you date your
Q: All of the following are examples of a change in accounting principle except:a. A change from one acceptable accounting principle to another
Q: In what circumstances is an auditor required or allowed to include an emphasis-of-matter paragraph in the audit report on the financial statements?
Q: All of the following phrases would be found in the standard unmodified audit report for a private company except:a. In our opinion, the financial
Q: a. Analysis and evaluation: Does KCI have a justified change in accounting principle? If so, how should the change be presented in the financial
Q: Answer the following question based on the information presented for Cloud 9 in the appendix to this text and the current and earlier chapters. You
Q: Mark Jackson is the partner on the audit team for a new client, Central Companies (CC). The client hired Mark’s firm in August 2022 in preparation
Q: Analysis and evaluation: Suppose management does not agree to make adjustments to correct the material misstatements and does not properly present
Q: In a public company audit, the audit report is addressed to the:a. Audit committee.b. The CEO and CFO.c. The SEC.d. The board of directors and
Q: What is the significance of the date on the auditor’s report on the financial statements?
Q: Your firm has been engaged to audit a private company that uses a tax basis of accounting to prepare the financial statements rather than using
Q: a. Information gathering and analysis: What factors should Leo & Lee consider when deciding whether to use the Brazilian accounting firm? (Refer
Q: If a client has a going concern issue that has been properly disclosed in the notes, the auditor should:a. Issue an unmodified report and add an
Q: Marco Ramirez is the partner on the audit engagement of Sun Products, a private company based in New Mexico.Sun Products manufactures outdoor patio
Q: a. Information gathering: Prepare a list of questions that you will inquire of management at the afternoon meeting regarding this new development.b.
Q: Explain the term “consistency” in the context of financial statements. Provide examples of situations that affect consistency of financial
Q: Waveland South, a private company, is a new audit client for 2022. Waveland’s financial statements for 2021 were audited by the previous auditor.
Q: An emphasis-of-matter paragraph is used with an unmodified opinion when:a. A significant uncertainty exists that should be brought to the financial
Q: Explain how the standard audit report on the financial statements would be modified if reference is made to a component auditor.
Q: Billy’s Burger House, a private company, is a chain of fast-food restaurants that has experienced fast growth in the last decade. The restaurant
Q: When the audit opinion is based in part on the work of another auditor, all of the following changes are made to the standard unmodified audit report
Q: Distinguish between a limitation of scope and a departure from the financial reporting framework. Provide an example of each.
Q: Steven Edwards has had difficulties throughout the audit of Kingston Catering. The company is a long-standing client of the audit firm and there have
Q: Which of the following is an example of a modified opinion?a. A qualified opinion.b. A going concern emphasis-of-matter paragraph.c. A consistency
Q: Which would auditors consider to be more serious: a client-imposed scope limitation or a situation-imposed scope limitation? Provide an example of
Q: Mitch Jackson and Rosie Punter are part of the audit team for Hexagon Industries, a large manufacturing, private company client. The client’s
Q: If the auditor encounters a material scope limitation and cannot obtain sufficient appropriate audit evidence regarding the fair presentation of the
Q: Distinguish between a subsequent event and a subsequently discovered fact. What is the auditor’s responsibility for each?
Q: You are completing an internship with a Big Four accounting firm and have worked on one client, a public company, during the entire internship. In
Q: 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
Q: What factors should the auditor evaluate when deciding whether to dual date the audit report on the financial statements for a subsequently
Q: Phillips & Craig LLP was hired by Richards Manufacturing, a public company, to perform an integrated audit of the December 31, 2022, financial
Q: Industrial Holdings Inc. (IH), a public company, has been a client of Walker LLP for several years. Walker has completed the integrated audit of IH
Q: The dual dating of an audit report means:a. The release date of the financial statements was after the completion of fieldwork.b. A subsequent
Q: List and briefly explain the components of the unqualified report on the effectiveness of ICFR.
Q: You have learned that the auditor is responsible for expressing an opinion on the financial statements. The term “financial statements”
Q: All of the following are components of the standard unqualified report on the effectiveness of ICFR except:a. A title that includes the term
Q: What factors do auditors consider when determining if an identified control deficiency is a significant deficiency or a material weakness?
Q: You are a first-year staff at a regional accounting firm. The firm primarily services private company clients and performs more review engagements
Q: Explain how the standard unqualified report on the effectiveness of ICFR would be modified for an adverse opinion.
Q: In an engagement to review financial statements of a private company, the auditor will do all of the following except:a. Confirm key account
Q: Discuss the items an auditor communicates at the end of the audit to those charged with governance.
Q: Communication with those charged with governance must occur:a. After the audit report is issued.b. Before the audit report is issued.c. Before
Q: AU-C 260 stresses the importance of communication with “those charged with governance.” Who are “those charged with governance?” Discuss why
Q: All of the following statements are included in a management representation letter except:a. There have been no violations of laws or regulations.b.
Q: Why is the management representation letter obtained at the end of the audit? Discuss the impact on the audit if management refused to sign the
Q: For a private company client that follows GAAP, auditors must consider the going concern assumption for a reasonable period of time, which is:a. One
Q: As discussed in the “Management Representation Letter” section of this chapter, Section 302 of SOX requires the CEO and CFO of public companies
Q: Evaluate why the accounting assumption of “going concern” is of interest to auditors. Are there specific audit procedures that must be performed
Q: Katrina Ellis is the engagement partner of the audit of Champion Securities, an investment company. Most of Champion’s assets and liabilities are
Q: What are the audit file assembly deadlines and the audit file retention policies for public and private company audits? Provide an analysis of why
Q: The audit firm must retain the audit file of a public company client for:a. 7 years.b. 6 years.c. 5 years.d. 4 years.
Q: Columbia Metal Fabricators (CMF) makes steel components for the construction industry. It specializes in extreme precision manufacturing where
Q: Explain the process of an engagement quality control review.
Q: If auditors discover fraud during the audit, it should first be reported to:a. The SEC.b. The PCAOB.c. The employee who is committing the fraud.d. An
Q: Evaluation: You are drafting a document with items to discuss with BPH’s audit committee closer to the end of the audit. In addition to the kitchen
Q: Mark Jackson is the partner on the audit team for a new client, Central Companies (CC). The client hired Mark’s firm in August 2022, in preparation
Q: Discuss actions an auditor would take when misstatements identified during the audit are not corrected by the client.
Q: All of the following are examples of qualitative characteristics of a misstatement except:a. Affects management’s compensation for the period.b.
Q: a. Analysis: Explain your responsibilities with respect to the kitchen fire.b. Evaluation: Recommend how this event should be handled in the
Q: Provide an example of why an auditor would reevaluate control risk near the end of the audit. Provide a different example of why an auditor would
Q: At the conclusion of the audit, the wrap-up process involves all of the following except:a. Review of proper and complete execution of planned audit
Q: Information gathering: If Leo & Lee does not have an internal qualified individual to serve as engagement quality control reviewer, what options
Q: On October 14, Montevista Inc. made deposits with an overseas supplier totaling $500,000 for the production of specialty items. On October 27, the
Q: Which of the following is a Type II subsequent event?a. Bankruptcy of a customer subsequent to year-end, which would be considered when evaluating
Q: a. Analysis and evaluation: Evaluate the impacts the costing errors and inventory cutoff errors have on the audit and the assessments of control
Q: Martin Rorke is reviewing the results of the review of subsequent cash receipts. There are several receipts listed from customers that were
Q: Discuss the auditor’s responsibility for detecting subsequent events prior to the completion of fieldwork.
Q: Evaluation and conclusions: Evaluate whether the recall qualifies as a subsequent event and its impact on the 2022 financial statements, if any.King
Q: Brad Scarlett is reviewing the results of the subsequent events audit procedures. Brad is writing a report for the audit partner based on these
Q: Differentiate between the two types of subsequent events. List some audit procedures that may identify subsequent events.
Q: Answer the following question based on the information presented for Cloud 9 in the appendix to this text and the current and earlier chapters. You
Q: Information gathering and analysis: Does KCI have a potential loss contingency? Discuss procedures the auditors should perform to gather evidence
Q: Conversations between the board of directors of Acme Inc. and the engagement partner of the audit, Angelo Del Santo, have revealed that Acme uses
Q: Describe the auditor’s process for preparing, sending, and receiving responses from legal letters, including at what point during the audit the
Q: When a client does not maintain its own stock records, the auditor should obtain a written confirmation from the transfer agent and registrar
Q: Andrews, CPA, has been engaged to audit the financial statements of Broadwall Corporation for the year ended December 31, 2022. During the year,
Q: An auditor’s program to examine long-term debt most likely would include steps that require:a. Correlating interest expense recorded for the period
Q: The following transactions and events relate to financing transactions at Weber Inc.1. Declare cash dividend on common stock.2. Issue bonds.3. Pay
Q: What considerations apply in determining the appropriate level of detection risk for stockholders’ equity?
Q: If an auditor performs analytical procedures on rent expense and finds that rent expense has increased 50%, he or she is most likely to perform which
Q: Fabrication Holdings Inc. (FH) has been a client of KFP LLP for many years. You are an audit senior and have been assigned to the FH audit for the
Q: Explain how an auditor will usually test interest expense when auditing notes payable.

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