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principles of auditing

Questions and Answers of Principles of Auditing

What are the principal differences between tracing and vouching?
Identify three classifications of audit procedures and describe the purpose of each.
a. Identify three types of substantive tests and indicate how they relate to one another.b. What is a dual-purpose test?
When does the evaluation of evidence obtained from audit procedures occur and what effects can it have on the auditor's report?
Identify four major types of working papers.
Describe five essential techniques of good working paper preparation.
Identify two categories of working paper files and differentiate the contents of each.
a. Who owns and maintains custody of the working papers?b. Is it ever appropriate for the auditor to disclose the contents of working papers to anyone other than the client?
a. Indicate which categories of the generally accepted auditing standards apply to each phase of the audit.b. Identify other environmental factors that have an impact on the phases of an audit.
a. State the steps involved in accepting an audit engagement.b. Contrast the manner in which the auditor can evaluate the integrity of management between a new and a recurring audit engagement.
Before accepting an audit engagement, the auditor should identify special circumstances and unusual risks.a. Why is it important to identify the intended users of financial statements?b. Why should a
a. Why is it essential for auditors to determine whether they have the competence to complete an engagement before accepting it?b. What is involved in making this determination?
a. What is the composition of a typical audit team?b. Is it ever appropriate to accept an engagement in which the members of the proposed audit team do not possess all the expertise needed to
a. State four examples of situations in which an auditor might wantto use the services of a specialist outside the auditor's firm.b. What should an auditor do before relying on the work of a
a. Why is it important for an auditor to evaluate independence in deciding whether to accept a new client?b. What should an auditor do if he or she concludes that independence requirements cannot be
a. State two critical factors in determining the ability to use due care in completing an audit.b. Why is it advisable to accept a new audit engagement early in the client's fiscal year?
a. Distinguish the time frames in which interim and year-end work are typically performed.b. Why do auditors prefer to perform part of the field work at an interim date?
a. What are the purposes of an engagement letter?b. Who prepares the engagement letter, to whom is it sent, and what is its disposition?
a. State the first standard of field work.b. Identify the components of audit planning.
a. What information about a client is essential in audit planning?b. What procedures may be used by the auditor to acquire the information?
a. What specific information should an auditor seek to obtain from taking a tour of the client's operations?b. What is the purpose of having the auditor communicate with the audit committee in the
a. Why is it important for the auditor to identify related parties in the planning phase of the audit?b. Give three examples of transactions involving related parties.c. What specific auditing
In addition to currently effective SFASs and SASs, what other types of pronouncements should be considered for their potential impact on an audit engagement?
a. State three uses of analytical procedures in an audit engagement.b. Which uses are required on all audits?
a. How can analytical procedures assist the auditor in audit planning?b. List the steps involved in the effective use of analytical procedures in the planning phase.
a. Describe the types of calculations and comparisons commonly used in analytical procedures.b. What premise underlies the use of analytical procedures in auditing?c. Identify five sources of
Kent, CPA, is engaged in the audit of Davidson Corp.'s financial statements for the year ended December 31,19X9. Kent is about to commence auditing Davidson's employee pension expense, but Kent's
Dodd, CPA, audited Adams Company's financial statements for the year ended December 31,19X8. On November 1,19X9, Adams notified Dodd that it was changing auditors and that Dodd's services were being
Over the past two decades, increasing recognition has been given to the importance of analytical procedures in performing financial statement audits. Their use has been required since SAS 56 became
Pro-Tex Company is a wholesale distributor of professional equipment and supplies. The company's sales have averaged about \($900,000\) annually for the three-year period 19X3-19X5. The firm's total
Choose an industry of interest to you. Assume that you have just received your first audit assignment as a staff assistant on an audit engagement for a client in this industry. Eager to show your
State the two levels at which preliminary judgments of materiality should be made in the planning phase and state the reason for each.
a. In audit planning, the auditor should recognize that there may be more than one level of materiality relating to the financial statements. Explain,b. What decision rule should be used when
a. What official quantitative guidelines exist for financial statement materiality?b. State five quantitative guidelines commonly used in practice.
a. Flow do qualitative considerations relate to making materiality judgments?b. A misstatement that is quantitatively immaterial may be qualitatively material. Explain.
a. Define materiality at the account-balance level.b. What is another name for materiality at this level?c. Distinguish between the terms material account balance and materiality.
a. Identify two factors the auditor should consider in allocating financial statement materiality to accounts.b. If the amount of error found in an account is less than its materiality allocation,
a. Define inherent risk.b. When might an auditor choose to forego assessing inherent risk for an assertion?
a. Define control risk.b. Can control risk be zero? Explain.c. What must the auditor do to support a lower assessed level of control risk?
a. Define detection risk.b. What influences the actual level of detection risk for an assertion?
What is the relationship among the audit risk components?
a. What is the audit risk model and when is it used?b. What is a risk components matrix and when is it used?
Generally, the auditor specifies an overall audit risk level for the financial statements as a whole and then uses that same level for each assertion.However, the levels of inherent, control, and
a. What is a preliminary audit strategy?b. Name two alternative audit strategies.
a. Identify four components of audit strategies.b. Contrast the four components of audit strategies under the primarily substantive approach versus the lower assessed level of control risk approach.
A major part of audit planning is selecting an appropriate audit strategy for obtaining sufficient competent evidence for each significant financial statement assertion. These strategies are based on
Each year, the AICPA issues a general audit risk alert document and a number of industry audit risk alerts. If you can obtain access to a current copy of either the general alert or one of the
Explain the common attributes of activities defined as auditing.
Distinguish among the three principal types of audits and describe the nature of the auditor's report for each.
Distinguish among the three principal types of auditors and indicate the types of audits each may perform.
a. What is the origin of what we would recognize as a company audit?b. Whatled to the migration of the company audit to the U.S., when did the migration occur, and what was the focus of these early
Identify three important milestones in the rise of the U.S. public accounting profession.
a. Describe three important changes in audit practice that evolved by the 1940s.b. Which of those changes has the profession come under pressure to reverse in recent years?
What besides auditing contributed to the growth of the public accounting profession in the U.S.?
Explain the nature of attest services and identify several types performed by CPA firms.
Explain the nature of nonattest services and identify several types performed by CPA firms.
Identify three sets of professional standards that pertain at least in part to attest services and three sets that pertain in part to nonattest services.
Name three types of attestation reports and the type(s) of attest services to which each pertains.
Identify four private sector organize ions associated with the public accounting profession and briefly desciibe their principal activities.
Name four divisions of the AICPA that have a direct impact on auditing.
a. In what forms may a CPA firm be organized?b. In what four groups are CPA firms often classified?
Identify six public sector organizations associated with the public accounting profession and briefly describe one or two principal activities of each.
What is the purpose of the profession's multilevel regulatory framework?
Describe the four components of the multilevel regulatory framework.
State the nine elements of a system of quality control for a CPA firm.
What are the roles of the Quality Control Inquiry Committee and the Public Oversight Board?
Cowan, an engineer, is the president of Arco Engineering.At a meeting of the board of directors, Cowan was asked to explain why audits of the company are made by (1) internal auditors, (2)
After performing an audit, the auditor determines that 1. The financial statements of a corporation are presented fairly.2. A company's receiving department is inefficient.3. A company's tax return
The public accounting profession has achieved remarkable growth and stature in the United States since the beginning of this century, to the point that by the 1960s, some claimed the U.S. was the
The accounting profession's commitment to achieving high quality in rendering professional services is demonstrated by the breadth and effectiveness of its multilevel regulatory framework.Requireda.
The AICPA has established nine elements of quality control.Listed below are specific policies and procedures adopted by the CPA firm of Baily, Brown& Co.:1. Periodic evaluations are made of
The AICPA's Division for CPA Firms and Quality Review Division play important roles in the profession's self-regulation activities.Requireda. The activities of these two divisions are directed toward
Government regulation is one component of the profession's regulatory framework.Requireda. Identify the regulatory organizations involved in government regulation and indicate the primary activities
Boards of accountancy administer accountancy laws in the fifty states, the District of Columbia, and each U.S. territory. For your jurisdiction (e.g., your state or the jurisdiction in which you
Prepare a brief profile of the public accounting profession in your state or other jurisdiction. You might include information such as the number of licensed practice units, the number of licensed
a. Contrast accounting and auditing as to objectives, methodology, applicable standards, and responsible parties,b. What assumption underlies financial statement audits?
Cite four factors that contribute to the need for financial statement audits?
Identify four important groups related to a client with whom the auditor may maintain professional relationships.
How may the typical approach the auditor should take toward management's assertions be characterized? Explain.
a. What is an audit committee, what is its ideal composition, and why has there been a marked increase in their use?b. What are the functions of audit committees?
Explain how the work of a client's internal auditors might affect the work of the independent auditor and state the determining factors that should be considered.
What is the ASB, with what organization is it affiliated, and what is its composition?
What are SASs, what is the process for their issuance, and in what forms are they accessible?
a. Identify the three categories of the ten generally accepted auditing standards.b. Briefly indicate the subject matter of each of the ten standards.
Who issues International Standards on Auditing and what is their standing relative to local national standards such as the AICPA's SASs?
a. What are the seven basic elements of the auditor's standard report?b. What is the significance of the date of the auditor's standard report?
How is compliance with the four standards of reporting of GAAS indicated in the auditor's standard report?
a. Identify two categories of departures from the auditor's standard report.b. Identify three types of circumstances that require a departure from the auditor's standard report and indicate the type
State the wording in the opinion paragraph that differentiates each of the four types of opinions that may be expressed.
To what does the term expectation gap refer and how has the Auditing Standards Board responded to it?
a. Explain the auditor's responsibility for detecting illegal client acts,b. Explain the auditor's reporting responsibilities for (1) errors and irregularities and (2) illegal client acts.
Indicate the alternative circumstances and effects on the auditor's report when the auditor concludes there is substantial doubt about the entity's ability to continue as a going concern for a
The auditor's standard report contains standardized wording.Listed below are the sentences in the standard report.1. We conducted our audit in accordance with generally accepted auditing standards.2.
Circumstances may necessitate a departure from the auditor's standard report.Requireda. Indicate the two types of departures from the auditor's standard report.b. Indicate the effects on the
Reed, CPA, accepted an engagement to audit the financial statements of Smith Company. Reed's discussions with Smith's new management and the predecessor auditor indicated the possibility that Smith's
During the year under audit, a client may have committed an illegal act.a. Define the term illegal act.b. What characteristics of illegal acts influence the auditor's responsibilities?c. The
It was noted in the chapter that in recent years several"whistleblowing'' bills had been introduced in the U.S. Congress that would require the auditor to report actual or suspected fraud and other
How does general ethics guide human behavior?
What is the difference between the ethical absolutists and ethical relativists schools of thought?
What are the six steps in a general framework for ethical decision making?

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