Questions and Answers of Principles Of Auditing And Other Assurance Services

Criticize the working paper on the next page that you are reviewing as senior auditor on the December 31 audit of Pratt Company.
One of the practical problems confronting the auditors is that of determining whether adjusting journal entries or other corrective actions are warranted for misstatements, omissions, and
What topics should be discussed in a preliminary meeting with a prospective audit client?
In planning an audit the auditors must consider those factors that affect the risk of the particular engagement. List three risk factors relating to each of the following: management characteristics,
Are auditors justified in relying upon the accuracy of working papers prepared for them by employees of the client?
Define and differentiate between an audit plan and an audit program.
The first standard of fieldwork requires, in part, that "the work is to be adequately planned." An effective tool that aids the auditor in adequately planning the work is an audit program. What is an
Arthur Samuels, CPA, agreed to perform an audit of a new client engaged in the manufacture of power tools. After some preliminary discussion of the purposes of the audit and the basis for
In planning the audit of CVG Services, Inc., the auditors identified a number of fraud risk factors. The auditors believe that these factors indicate that there is a moderately high risk that CVG's
Auditors can access SEC filings of certain public companies from EDGAR (Electronic Data Gathering and Retrieval system), which has the Internet address presented below.In addition, the auditors may
Select the best answer for each of the following. Explain the reasons for your selection.a. In planning and performing an audit, auditors are concerned about risk factors for two distinct types of
Valley Finance Company opened four personal loan offices in neighboring cities on January 2. Small cash loans are made to borrowers who repay the principal with interest in monthly installments over
You are a new staff assistant with the Houston office of a national public accounting firm. Yesterday you read an article in The Wall Street Journal in which the managing partner of your firm's New
In view of the consideration afforded internal control by the auditors, how do you account for the fact that the auditors' standard report makes no reference to internal control in describing the
The process of gathering evidential matter to support an opinion on a client's financial statements involves several types of testing procedures. In the course of the audit, the CPAs perform detailed
During your first audit of a manufacturing company with approximately 100 production employees, you find that all aspects of factory payroll are handled by one employee and that none of the usual
Select the best answer for each of the following questions. Explain the reason for your selection.a. Which of the following would be least likely to be considered an objective of internal control?(1)
At the Main Street Theatre the cashier, located in a box office at the entrance, receives cash from customers and operates a machine that ejects serially numbered tickets. To gain admission to the
A CPA's audit working papers include the narrative description below of the cash receipts and billing portions of the internal control of Parktown Medical Center, Inc. Parktown is a small health care
Select the best answer for each of the following questions. Explain the reasons for your selection.a. When erroneous data are detected by computer program controls, data may be excluded from
Johnson, CPA, was engaged to audit the financial statements of Horizon Incorporated, which has its own computer installation. While obtaining an understanding of internal control, Johnson found that
Robert Rotter, CPA, is considering the use of a mean-per-unit estimation sampling plan. Explain the factors that Rotter would consider in determining:a. The acceptable risk of incorrect rejection.b.
Select the best answer for each of the following questions. Explain the reasons for your selection.a. Which of the following is an element of sampling risk?(1) Choosing an audit procedure that is
Sampling for attributes is often used to allow an auditor to reach a conclusion concerning a rate of occurrence in a population. A common use in auditing is to test the rate of deviation from a
The attest function is said to be the principal reason for the existence of a public accounting profession. What is meant by attesting to a client's financial statements?
Distinguish between the responsibilities of a senior auditor and a staff assistant.
Evaluate the following quotation: "Every business, large or small, should have an annual audit by a CPA firm. To forgo an audit because of its cost is false economy."
What is the difference between generally accepted accounting principles (GAAP) and generally accepted auditing standards (GAAS)? Give an example of a generally accepted accounting principle and an
The generally accepted auditing standards established by the AICPA list first the requirement that "the examination is to be performed by a person or persons having adequate technical training and
The first SAS issued was substantially larger and different in coverage from all the following ones. What explains this difference?
List the five categories of generally accepted accounting principles. Explain how the auditors determine the appropriate principle when there is a conflict between sources in two of the categories.
What has the AICPA done to help ensure adequate quality control by CPA firms?
What is the Public Oversight Board? What is its purpose?
Your CPA firm has been requested to perform a peer review of the firm of William & Stafford. What is involved in the performance of such an engagement? Discuss.
Select the best answer for each of the following items and give reasons for your choice.a. The three generally accepted auditing standards classified as standards of fieldwork may be summarized
The following audit report is deficient in several respects.Required:You are to criticize the report systematically from beginning to end, considering each sentence in turn. Use a separate paragraph
The business activities of Casa Royale, Inc., consist of the administration and maintenance of approximately 400 condominiums and common property owned by individuals in a suburban residential
Why was the Independence Standards Board formed? What is the source of the board's authority?
How do the positions of the SEC and the AICPA differ with respect to the independence of a CPA who performs routine accounting services for a client?
Arthur Brown is a CPA who often serves as an expert witness in court cases. Is it proper for Brown to receive compensation in a damage suit based on the amount awarded to the plaintiff? Discuss.
Sally Adams, CPA, is an auditor with a large CPA firm. Her husband, Steve Adams, plans to accept a position as controller of Coast Corporation, an audit client of Sally's firm. Comment upon whether
Select the best answer for each of the following. Explain the reasons for your selection.a. In which of the following situations would a CPA firm have violated the AICPA Code of Professional Conduct
An audit client, March Corporation, requested that John Day, CPA, conduct a feasibility study to advise management of the best way the corporation can use electronic data processing equipment and
What is a computer service center? Are the auditors of a client that uses a service center concerned about the controls applied at the organization? Explain.
What is a dual-purpose test?
If you were preparing a credit sales system flowchart, what document would you show as:a. The source for posting debits to a customer’s account in the accounts receivable ledger?b. Authorization to
Cognitive Heuristics Andrew Mills, an entry-level staff member with less than six months professional experience, is assigned to audit the cash accounts of Drexel Industries, a long-standing audit
Cognitive Heuristics Alpine Roofing Company, an audit client of Marques, CPA, manufactures two products:tar shingles and aluminum gutters. In examining Alpine's Reserve for Warranty Guarantees as of
From data available in the public press, a public accounting firm estimates that undetected management fraud may occur in 20 out of every 1,000 large, publicly traded companies and in 80 out of every
In a financial statement audit, an independent auditor must judge the validity of audit evidence obtained. Assume you have assessed a low level of control risk.Required:1. In the course of an audit,
Much of an auditor's work during a financial statement audit consists of obtaining and evaluating evidence about the assertions embodied within an entity's financial statements.Following are several
Auditors frequently refer to the terms "standards" and "procedures." Auditing standards relate to the measures of quality achieved in an engagement, and auditing procedures to the methods or
The third generally accepted auditing standard of field work requires that an auditor obtain sufficient competent evidential matter to afford a reasonable basis for an opinion regarding the financial
The purpose of all auditing procedures is to gather sufficient competent evidence for an auditor to form an opinion on an entity's financial statements taken as a whole.Required: Using the format
Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data. These procedures range from simple
The first generally accepted standard of field work requires, in part, that "the work is to be adequately planned," and an audit program is one tool auditors use to plan audit work.Required: What is
Adam Fionte, an entry-level staff member in a public accounting firm, prepared the following working paper, the lead sheet, for J&K Sales Co., Inc., for December 31, 1998 trade accounts
Following is an audit working paper that documents an auditor's test for kiting, an intentional irregularity that conceals cash shortages by transferring funds from one bank (or company) to another,
Preparing working papers is an integral part of a financial statement audit.Required: 1.a. What are the purposes or functions of audit working papers?b. What records may be included in audit working
In late spring of 1998, you are assigned as the in-charge auditor of your firm's recurring annual audit of a major client, the Lancer Company. You are given the engagement letter for the audit
The audit committee of the board of directors of Unicorn Corp. asked Tish & Field, CPAs, to audit Unicorn's financial statements for the year ended December 31, 1998.Tish & Field explained the need
For many years the financial and accounting community has recognized the importance of, and has endorsed forming, audit committees. Today, audit committees are quite common. Independent auditors have
Jones is approached by a prospective client who wishes to engage him to perform an audit that in prior years was performed by another auditor.Required: Discuss the procedures Jones should follow in
Tom Majors, an entry-level staff auditor, has been assigned to observe the physical inventory of the Lewiston Chemical Company. Lewiston processes and distributes industrial chemicals.Upon arriving
In the information age, an auditor has a wealth of readily accessible data available to help understand a client's business and industry, particularly for industries not served previously by the
Throughout this chapter numerous references are made to audit research that lends insight into audit practice. For example, we learn from research that cognitive biases and working paper order affect
What advantage do local area networks (LANs) offer over individual microcomputers?
What advantage does Internet technology offer over local area networks (LANs)?
What are the key concepts embodied within the COSO Report's definition of internal control?
Identify the components of internal control that are integrated within the management process.
Briefly explain the components of internal control.
Briefly explain management's responsibility for internal control.
Why is a formal system of transaction authorization necessary?
Which functions must be separated in order to achieve optimum segregation of duties? Why?
Briefly explain the concept of reasonable assurance.
What is an auditor's objective when obtaining an understanding of an entity's information system?
Identify and indicate the major components of each phase of an auditor's consideration of internal control.
What methods can an auditor use to document internal control?
What is the purpose of a transaction walk-through?
Briefly describe the process of identifying transaction cycles.
In your own words, briefly define what is meant by a "material weakness in internal control."
An integrated services digital network is a high-speed phone line that can be used to:a. Access software from a service bureau.b. Access software from the Internet.c. Enhance the processing
Information systems that access software from file servers and direct print jobs from print servers are called:a. Local area networks (LANs).b. Telecommunications channels.c. Intranets.d. Service
A public accounting firm has issued a report that refers to criteria established in Internal Control: Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway
As part of a periodic planning exercise, a company discovers that an eastern European political dispute may interfere with supply sources. This is an example of:a. Control environment.b. Risk
Internal control should provide reasonable (but not necessarily absolute) assurance, which means that:a. Internal control is management's, not the auditor's, responsibility.b. An attestation
Which of the following statements is an example of an inherent limitation of internal control?a. The effectiveness of control procedures depends on segregation of duties.b. Procedures are designed to
An auditor considers internal control to:a. Determine whether assets are safeguarded.b. Suggest improvements in internal control.c. Plan audit procedures.d. Express an opinion.Choose the correct
After obtaining an understanding of an entity's internal controls, an auditor may assess control risk at the maximum for some assertions because the auditor:a. Believes internal control activities
After obtaining an understanding of an entity's internal controls and assessing control risk, an auditor may next:a. Perform tests of controls to verify management's assertions that are embodied in
The primary purpose of performing tests of controls is to provide reasonable assurance that:a. Internal control is effective.b. The accounting system is documented accurately.c. Transactions are
After obtaining an understanding of a client's controls, an auditor may decide to omit tests of the controls. Which of the following is not an appropriate reason to omit tests of controls?a. The
Which of the following statements is not true about test data?a. Test data should consist only of conditions that interest the auditor.b. Only one transaction of each type need be tested.c. Test data
Processing data through the use of simulated files provides an auditor with information about the effectiveness of control procedures. One of the computer assisted audit techniques that uses this
General controls relate to all computer activities and application controls relate to specific tasks. General controls include:a. Controls designed to assure that all data submitted for processing
Which of the following computer assisted audit techniques allows fictitious and real transactions to be processed together without client personnel being aware of the testing process?a. Parallel
Assume you have been requested by the Upton Corporation to prepare a report expressing an opinion on management's assertions about internal control. In each of the five years Upton has been an audit
An entity's internal controls should be designed to achieve a variety of objectives.Assume that an entity wishes to accomplish the following four control objectives:1. Transactions should be executed
An auditor must have a general understanding of how employees could make errors or intentionally commit and conceal fraud. Otherwise, the auditor would be unable to recognize potential deficiencies
You have been assigned to the audit of the F&S Savings and Loan Association. In preparing for the audit, you learn the following about F&S:Total assets approximate $$400$ million. F&S

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