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principles of auditing
Principles Of Auditing: An International Perspective 1st Edition Rick Stephan Hayes, Philip Wallage, Arnold Schilder, Roger Dassen - Solutions
Why should an internal control system be monitored over time? What issues are considered when evaluating the ongoing monitoring for internal control?
Internal Control Definition. According to the COSO report, ‘Internal control is a process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: effectiveness and
Obtain Understanding of Internal Control.Johannes Mullauer, Wirtschaftsprufer, who has been engaged to audit the financial statements of Ais, GmbH, is about to start obtaining an understanding of the internal control structure and is aware of the inherent limitations that should be
Components of Internal Control. Internal control consists of five interrelated components.These are derived from the way management runs a business and are integrated with the management process.RequiredA. Name and define the components of internal control.B. How do the components of internal
Assess Internal Control Environment. Using the COSO criteria for assessing internal control environment (Illustration 7.4) describe a company with an effective control environment.
Control Environment. The board of directors of CD Mania, BV, a chain of retail music stores in the Netherlands, has just issued policies specifying standards of ethical behaviour for employees toward customers, suppliers, and even competitors. Furthermore, each employee has a formal job description
Control Environment. Hasse Nilsson, Statautor Revisor, is in charge of the audit of a new client, US Clothing Store. It is owned by three men, Messrs Simpson, Andersson and Ding. Only one of the owners, Mr Simpson, is active in the business — the other two live and work in another city. Mr
Risk Assessment. Eva-Maria Saevert, Wirtschaftsprufer, obtained an understanding of the control procedures related to valuation for sales for her client Sammlung der Schweiz. The results lead her to believe that performing tests of controls to reduce the assessed level of control risk would be the
Risk Assessment. OK Yen, Ltd is a Japanese electronics games and amusements company specializing in pachinko games. Pachinko parlours are a big industry in Japan, whose 18,000 pachinko parlours in 1996 accounted for a quarter of the country’s civil sector and are thought to produce Japanese Yen
Control Activities. A company’s internal control structure is strengthened by including procedures that have specific functions or purposes. For example, the control procedures may include a voucher system that provides for all invoices to be checked for accuracy, approved for propriety, and
Separation of Duties. Aurello Pellegrini, Dottore Commercialista (CONSOB), is approached by his client who has just reorganized his medium-sized manufacturing company to make it more structured by giving responsibilities in related areas to one employee. The ‘supervisor for customers’ is
Separation of Duties. The division of the following duties is meant to provide the best possible controls for the Ma Foi Magasin, a small wholesale store in Dijon, France.1 V¥ Assemble supporting documents for general and payroll cash disbursements.2 v Sign general cash disbursement cheques.3 v
Separation of Duties. Papagei Stuck Corporation fabricates products, using very expensive components purchased from suppliers.Therefore, the company attempts to tightly control raw materials’ inventories through the use of the perpetual inventory records and employees who have sole responsibility
Proper Documentation. Properly designed and utilized forms facilitate adherence to prescribed internal control structure policies and procedures. One such form might be a multicopy purchase order, with one copy intended to be mailed to the vendor. The remaining copies would ordinarily be
Information and Communications. Hayes & Hu, Ltd, personal financial advisers in the Notting Hill district of London, has asked Joseph Smallman, Chartered Accountant (CA), to recommend a computer information system.Hayes & Hu advise individuals on equity investments, manage finances for individuals
Information and Communications. Luxury Auto Leases, Inc. of New Mexico, USA, has offices in Tucumcari, Santa Fe, and Albuquerque.Lisa Dockery, the company president has an office in Santa Fe and visits the other offices periodically for internal audits.Ms Dockery is concerned about the honesty of
Monitoring. Monitoring is done in two ways: through ongoing activities and individual evaluations.RequiredA. From what sources does ongoing monitoring come? What issues might be considered?B. When conducting individual evaluations what should the auditor consider?C. What type of reports on
Control Environment. Review 1996 articles in Business Week and Fortune, Internet or Lexis- Nexis databases and answer the following question: ‘What are the effects Bill Gates has on the control environment of Microsoft compared to the effect Spindler had on Apple Computer's control environment?’
Internal Control Activities An example of a lack of internal controls with a disastrous result was the bond trading loss in the New York Office of Daiwa Bank in 1995. Over 11 years 30,000 unauthorized trades were made resulting in a \($1.1\) billion loss (an average of \($400,000\) in losses for
What are the seven financial statement assertions made by management according to ISA 500?
Name two types of risk in the Audit Process?Briefly discuss each.
What three elements make up audit risk?Define each.
, What is meant by materiality? What is the SAS 47 definition of materiality?
Ifa balance to an account has a $10 million error could an auditor say it is a material error?Why or why not?
What are the ISA standards that are used by an auditor to guide her through the first phase of an audit?
At what phase of the audit is materiality assessed?
What is test of controls? Where is the evidence for these tests obtained? Give an example.
What are substantive tests? What is the difference between a substantive test and a test of controls? Give an example of a substantive test.
What additional procedures are done when an auditor is close to the end of her audit?
Management Assertions and Audit Objectives.The following are management assertions (1-7), and audit objectives applied to the audit of accounts payable (a—h).Management assertion 1 Existence 2 Rights and obligations 3 Occurrence 4 Completeness 5 Valuation 6 Measurement 7 Presentation and
Materiality. The concept of materiality is important in an audit of financial statements and expression of opinion.RequiredA. How are materiality (and immateriality)related to the proper presentation of financial statements?B. In what ways will considerations of materiality affect the auditor in
Audit Process Model. What are the four Phases of an Audit? Discuss each. Determine which is the most important of the four and explain why.
Audit Process Model. Based on the standard Audit Process Model, trace the procedures an auditor would use to audit a retail clothing business (continuing client) from the initial client contact to the audit opinion.
Audit Objectives and Financial Statement Accounts. Look at the financial statements of a major public company. Pick three accounts and discuss the financial statement assertions that might be associated with those accounts. For example, the financial statement assertions that might be associated
Why is knowledge of the internal control system necessary to prepare an audit plan?
To what extent can an existing auditor discuss the affairs of his client with a new auditor?
If money is owed to the auditor, what can an auditor do and what risks are involved?
What is a principal auditor? What must he consider when the work of another auditor is used?
What can impair the objectivity of an audit?
Discuss the difference between a modified audit report and an unmodified audit report.
What should be included in an engagement letter? What are some reasons a client might change the terms of the engagement? What are the two basic types of engagement proposals?
What must be considered by the auditor when sending an engagement letter to a component of the business?
Name four sound business reasons why audit fees may be lowered from the previous year’s rate?
Client Evaluation. The audit firm of F. A. Bloch and Co. has been approached by the following companies who wish to retain Bloch for audit work:1 Interlewd, an internet company, whose website features explicit images of male nudes and which operates male strip clubs on the west coast of Australia.2
First Time Engagement Evidence. ISA 510 states that when auditing a first time engagement‘the auditor should obtain appropriate evidence that: (a) the opening balances do not contain misstatements that materially affect the current period’s financial statements; (b) the prior period's closing
Use of Other Auditor. Rene Lodeve, Reviseur d’Entreprises, has been hired by BelleRei, NV, a Liége, Belgium, company. Lodeve will audit all accounts except those of a subsidiary in Spain, which represents 15 per cent of the total sales of BelleRei, which is audited by another accountant, Jeme
Audit Fees. Ursula Chona, Contador Publico (CP Titulado), an auditor from Medellin, Columbia, was referred a client by a local attorney and she has agreed to accept the client for a financial statement audit. She must now determine what fee she will charge.RequiredA. According to international
Engagement Letter. Stephen Hu, CPA, from Taipei, Taiwan, has just accepted a new client, Kiwan Xou. The company will be audited under the ISA and IAS standards. The client will be given an audit opinion and a management letter.The fees are based on hourly fees, will take 125 hours, and will involve
Audit Staffing. Inge Broholm is an audit manager with Ashe, Auktoriserad Revisors. She has been placed in charge of this year’s audit of Uplift Corporation. After assessing her staff needs for the audit, she made the following request for staff:1 A senior accountant with 4 to 5 years’experience
Quality Review. Charalambos Viachoutsicos is assigned the responsibility of setting up a quality review programme at his St Petersburg, Russia, audit firm, Levenchuk.RequiredA. What should the verification procedures include? Who should perform the procedures?B. What type of documentation is
Audit Proposal. Juao Castelo, Revisor Oficial de Contas (ROC), is required to write a client audit proposal for two clients, one continuing (JJinne) and one new (Autodafe).Required A. Based on the proposal for a continuing client and a new client discussed in this chapter, list the contents of the
Description of the Business:Compu Group Corporation designs, develops, manufactures and markets a wide range of personal computing products, including desktop personal computers, portable computers, tower PC servers and peripheral products that store and manage data in network environments. The
Evaluate this quote: ‘Every international business, large or small, should have an annual audit by an independent auditor.’ Why must an auditor review the financial statements of a company each year?
What was the main reason the International Accounting Standard Committee (IASC) was founded? How have the international auditing standards strengthened the international accounting standards?
What does the practice and theory of international audit include aside from knowledge of ISAs?
What is the definition of an audit according to the International Standards on Auditing?Briefly discuss the key terms in the definition.
What steps does an auditor take in order to assess the reliability and sufficiency of information contained in the accounting records?
What is the existence assertion? What is the rights and obligation assertion? How does an auditor test an assertion?
What are some professional responsibilities discussed in the IFAC Code of Ethics for Professional Accountants?
What are the differences and similarities in audits of financial statements, compliance audits and operational audits? What is an operational audit designed to do?
What type of organizations can expect to have a compliance audit? Why?
What are the two types of auditors? Briefly define them.
How does Philip Wallage’s view of the audit process compare the empirical scientific cycle to the financial audit process?
What is meant by ‘due professional care’?Why is it important?
What are the five components of internal control? Give a sentence on each.
Based on the Evaluation and Judgement phase (IV) of the audit process model on what judgements are the overall conclusions formed?
Name three influential international organizations in the field of accounting other than the IFAC?
Expectations Gap. The general public think that an auditor guarantees the accuracy of financial statements. Is this true? Why? What other things does the public believe about audited financial statements?
Audit. The London, Tokyo and New York Stock Exchange, among others, require an annual audit of the financial statements of companies whose securities are listed on it. What are the possible reasons for this?
Operational Audits. List four examples of specific operational audits that could be conducted by an internal audit in a manufacturing company. Describe how you would conduct each.
Reasons for Audits. Give reasons why the following organizations should have annual audits by an independent external auditor:(a) The US Federal Reserve Board(b) A retail company traded on the London Stock Exchange(c) Walt Disney Company(d) Amnesty International(e) Asmall grocery store in Ponta
Auditing Tasks. Each of the following represents tasks that auditors frequently perform:1 Compilation of quarterly financial statements for a small business that does not have any accounting personnel capable of preparing financial statements.2 Review of tax return of corporate president to
Objectives of an Audit. Tracy Keulen, the sole owner of a small bakery, has been told that the business should have financial statements reported on by an independent Registeraccountant (RA). Keulen, having some bookkeeping experience, has personally prepared the company’s financial statements
Auditor Traits. Here are some traits that might be beneficial for an auditor: technical accounting and auditing ability, supervisory ability, public relations ability, good judgement and general decision-making ability.Required Which of these personal traits is more important for:A. A partner?B. A
Auditor Responsibility. Four friends who are auditing students have a discussion. Jon says that the primary responsibility for the adequacy of disclosure in the financial statements and footnotes rests with the auditor in charge of the audit fieldwork. Mai-ling says that the partner in charge of
Audit Terms and Concepts. Each auditing term in Column One below bears a close relationship to a term in Column Two.Required Identify the most closely related terms in Columns One and Two. Organize your answer in a two-column format by copying the numbers and terms in Column One as given. Rearrange
Attitudes about Auditors. The following three statements are representative of the attitudes and opinions sometimes encountered by professional auditors.1 An audit by an independent auditor is essentially negative and contributes to neither the gross national product nor the general wellbeing of
Internal and External Audit. Khaled Al-Zubari, an executive recruiter, is a member of the Board of Directors of Mantilla Corporation. At a recent board meeting, called to discuss the financial plan for 20X4, Mr Al-Zubari discovered two planned expenditures for auditing. In the Controller’s
Qualifications of Auditors. From the library or the Internet web site Auditing texticom (click ‘CASES’ and ‘Cases from Principles of Auditing: An International Perspective’) get a copy of the EC Eighth Company Law Directive which is about the qualifications and work of
Due Professional Care. Discuss lawsuits resulting from negligence of ‘due professional care’.Required A. Consult the library, a database like Lexis, Nexis or the Internet for lawsuits resulting from negligence of ‘due professional care’. Discuss at least two.B. Describe briefly the
Give a brief outline of the historical development of auditing.
Discuss the potential impact of the Cadbury and COSO report on the audit profession.
What are the most significant components of the audit expectation gap? Briefly discuss potential or existing actions by the audit profession aimed at closing these gaps.
Describe the nature, composition and potential sanctions of disciplinary courts.
Discuss the conditions that have to be met in order to hold an auditor successfully liable.
Summarize differences between the privity, foreseen users and reasonably foreseeable users standards.
Describe the legal possibilities to limit the financial risks for auditors as a result of litigation.
What do you think of a system of proportionate liability?
Briefly discuss the service package that is currently offered by large audit firms.
Identify and define the two components of audit quality.
What is the theoretical basis for the assumption that Big Five firms provide higher technical audit quality than non-Big Five firms?
Briefly discuss the determinants of the audit fee level.
Discuss the new objects of assurance services.
History of Auditing. In this chapter, the history of auditing has been briefly described, from an international perspective.RequiredIdentify the major differences with the developments specific for your country and try to explain these based on differences in the economic system or development.
Agency Theory. Identify principals and agents in the cases mentioned below. Describe the contributions and ‘prices’ associated with these relationships, identify potential risks for the principal and give suggestions for limiting these risks.A. The Pasadena Bank lends money to the Alhambra
Audit Regulation. Comment on the following statements:A. Audited financial statements are entirely accurate.B. An unqualified audit opinion guarantees that the audited company will remain in business for at least one year.C. An unqualified audit opinion indicates that the audited company operates
Auditor's Opinion on the Occurrence of Fraud. Sundback, CGR, is the auditor for Upseerin Manufacturing, a privately owned company in Espoo, Finland, which has a 30 June fiscal year. Upseerin arranged for a substantial bank loan which was dependent upon the bank receiving, by 30 September, audited
Opinion on the Occurrence of Illegal Acts.Ostling, Auktoriserad Revisor, accepted an engagement to audit the financial statements of Sandnes Company of Goteborg, Sweden.Ostling’s discussions with Sandnes’s new management and the predecessor auditor indicated the possibility that Sandnes’s
Legal Liability to Third Parties. Suppose you are a judge in the following civil case.Plaintiff Sue Bank, a banker, accuses auditor Big Zero of having performed a negligent audit in the financial statements of company “Trouble’.Five months after the financial statements (with an unqualified
Audit Quality and Audit Fee Determination.Company Hochbau, a construction company, has decided to change auditors, as a result of continuous communication problems with the existing auditors. As the chief financial officer, you have made a schedule for the audit tender.RequiredGive a brief outline
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