Questions and Answers of Principles of Auditing

Describe the differences between a market oriented versus a network oriented corporate governance structure.
Describe the positive and negative effects the corporate governance components ‘Transparency and Internal Control’ could have in meeting the company objectives.
Describe the difference between shareholders and stakeholders and discuss why differences play a central role in the corporate governance discussion.
Talk about why IFRS and XBRL could contribute to good corporate governance.
How does the related services framework differ from the assurance framework?
British Airways, Philips, ING, H&M, Nike, Shell, Heineken, Volkswagen, Coca Cola and Samsung are companies that produce annual sustainability verification statements.Required:A. Chose two of the
Explain why the concept of corporate governance is being discussed all over the globe at the beginning of the 21st century.
Diamond Jousts, a UK Limited Company, is traded on the American Stock Exchange as American Depository Receipts (ADRs). They hire Lancelot, Elaine and Guinevere, Chartered Accountants, to prepare an
Haruspex is a new consulting company. They specialise in analysis of the market and process of producing sellable products from industrial waste. They have asked Sophia Coronis, to prepare an
Da Xing Fan, CPA, is engaged by the management of Ky-lin, a non-public company, to review the company’s financial statements for the year ended February 28, 20XX.Required:A. Discuss the content of
Using Illustrations 14.1 through 14.3, compare the following three reports:1. A Report on Financial Statements Prepared in Accordance with the Special Purpose Framework: A Statement of provisions of
List the type of special area engagements and give some examples of each.
In an agreed-upon procedures engagement what matters generally have to be agreed between auditor and management?
Various companies use service organizations for specific services, for example payroll services. As these user entities would like to rely on controls of services organizations, the IAASB came with a
Describe what is meant by ‘prospective financial information’. Give some examples of when a prospective financial information report might be used.
Yarilo Company of Vinnista, Ukraine, owns and operates gas wells which are accounted for in three classifications:1. Producing – for wells currently producing; there are engineers’ estimates of
Which assurance engagements have historical financial information as subject matter? Discuss the differences between these assurance engagements.
What are auditor services? List the major categories (except for consulting) of auditor’s services.Auditor services are work that an audit firm performs for their clients. See also Illustration
For several years you have made the annual audit for Sichou Jinhuangse Company of Nanjing, China. This company is not a dealer in securities. A list of presently held securities is kept, but an
In the course of his initial examination of the financial statements of Yenitscheri Company, Omar Pishdadian, Sworn Financial Advisor (SFA), the auditor, obtained an understanding of the internal
Late in December, the Registeraccountant (RA) firm of Radbod & van Weg accepted an audit engagement at Brandewyn Juwelen, BV, a company that deals largely in diamonds. Brandewyn Juwelen has
You have been assigned to the first audit of the accounts of the Super Blinchiki Company of St. Petersburg, Russia, for the year ending March 31, 20X8. The accounts receivable were confirmed
Audit of Investments. In connection with an examination of the financial statements of Moravia of Prague (Praha), the Czech Republic, Libusa Stadic, Auditor, is considering the necessity of
On January 11 at the beginning of Elijah Domacin’s annual audit of the financial statements for the year ended December 31 of Zedruga Manufacturing Company of Skoplje, Serbia, the Company
Audit Programme. A normal procedure in the audit of a corporate client consists of a careful reading of the minutes of meetings of the board of directors. One of the auditors’ objectives in reading
Audit Programme. The following are eight audit procedures taken from an audit programme:1. Review board of directors’ minutes to verify approval of equipment purchases.2. Review sales, cash
Audit Planning Memorandum €“ Plan Part. Wigila Swaiaty, a for-profit cooperative, was organized in 1954 in Gdansk, Poland, to produce and distribute local crafts such as natural material
The following are three situations in which you are required to develop an audit strategy and prepare a partial strategy memorandum:• You are on the first year audit of Jaani, a medium-sized
Parallel Medical Devices is a distributer of medical devises to large hospitals in South America based in Santiago Chile. Their auditor is Pena and Batistella, Contador Publicos. The audit based on
Siffre Industries of Port Elizabeth, South Africa, has several subsidiaries which are consolidated into the Siffre Industries financial statements. Empire Manufacturing is a manufacturing subsidiary
Sweetheart Junkyard, a Sao Paulo based world-wide online dating site for individuals who feel they have been unlucky in love, has hired Chiquento Da Silva, Aquino, Franco de Lima and Coda (CAFC) as
The Tel Aviv, Israel, firm of Levi, Bar-Hava, Kama and Segal, CPAs are the auditors for Zoom-Za Optical Devices, a manufacturer of high technology scopes and viewing devices. They have a
The Taipei, Taiwan, audit firm of Hung, Pan and Wu is being considered as a component auditor to audit the manufacturing component of Forever Teen clothing company, a Munich, Germany based firm.
Describe a company that would have a high risk of material misstatement of the group financial statements. Make sure it reflects a complex group structure, poor corporate governance, ineffective
Newtight is a Japanese manufacturer of high technology adhesives traded on the Tokyo Nikkei stock exchange. The Kobe audit firm of Noda, Haider and Itabashi, CPAs, is doing a group audit on the
What schedules do you attach to a completion memorandum?
What are the different areas in a completion memorandum? Briefly discuss each area.
What are the objectives when auditing an asset?
List the procedures for testing priced inventory listings.
What may an auditor do if positive confirmations were not replied to on the second mailing?
What may an auditor do if positive confirmations were not replied to on the second mailing?
What are the objectives for MaasTec’s investments audit procedures? Discuss the procedures used to test one of these objectives.
Form of the audit report. The most common type of audit report is the standard unqualified report.Required:A. Review Illustration 12.2, the standard wording of the IAS audit report and
If the Going Concern questions are not resolved, the auditor must adequately disclose in his report the principal conditions that raise doubt about the entity’s ability to continue in operation in
The auditor’s report on special purpose financial statements shall include an emphasis of matter paragraph. Why is this necessary?
What are the basic elements required being included in the assurance report according to International Standards for Review Engagements 2400?
Describe the difference between ‘reasonable assurance engagements’ and ‘limited assurance engagements’.
The following list describes seven situations Certified Accountants may encounter, or contentions they may have to deal with, in their association with and preparation of unaudited financial
What must auditors cover in their internal control report under the PCAOB standards?
What is the Plan Part of the Audit Planning Memorandum? What are the contents of the Plan Part?
What is the purpose of the strategy memorandum? What are the elements contained in this memorandum?
What concerns are ‘critical and significant audit concerns’ for the MaasTec audit? Why are they significant?
What information are you required to provide about your client, MaasTec, regarding their legal situation, related parties and industry?
What kind of differences are there between the accounting for the main company (USATEC) and your local client (MaasTec)?
Name the sections of the ‘group audit instructions’ and describe each.
In addition to documentation required by ISA 230 and other ISAs the group engagement team must include what other matters in the audit documentation?
What should the group and component audit team understand about consolidation?
What information must the group auditor communicate to the component auditor? What information must the component auditor communicate to the group auditor?
What is meant by ‘scope of an audit?’ What are the considerations when determining the scope of the component audit?
Unqualified audit report. Upon completion of all field work on September 23, 20X1, the following audit report was rendered by Alexander Dlouhy, Auditor, to the directors of Rabochaya Raum Company
Bheda Bhasya, Ltd., a company from Ahmadabad, India, without consulting its Chartered Accountant (CA), has changed its accounting so that it is not in accordance with international accounting
Jorge Leyva, Licenciado en Contaduría Público, has completed the examination of the financial statements of Medina Construcción of Caracas, Venezuela, for the year ended July 31, 20X4. Leyva also
Ordinarily, an auditor might write an emphasis of a matter paragraph (1) if there is a significant uncertainty which may affect the financial statements, the resolution of which is dependent
In the audit of Cerberus, SA, of Bydgoszcz, Poland, Merek Olzewski, Certified Public Accountant (CPA), found indications that Cerberus may have going concern problems.Required:A. List three
Limitation on scope. Lorts Corporation of Maastricht, the Netherlands, (whose fiscal year will end December 31, 20X3) informs you on December 18, 20X3 that it has a serious shortage of working
Disagreement with management. Emiko Iamiva, Certified Public Accountant (CPA), audited the Satsuma Company’s earthquake insurance policies. All routine audit procedures with regard to the
Uncertainty concerning future events. Vilma Castro, Contador Público Autorizado, has completed field work for her examination of the Wigwam Winche Company of Panama City, Panama, for the year ended
Nordtek, A/S, a manufacturer of fine skiing equipment based in Skien, Norway, has retained the firm of Berzins, Dybtsyna and Kaarboe (BDK) as their auditors. BDK have found significant deficiencies
Pick a publically traded company from the SEC website www.sec.gov, search for the 10K, review risk factors, controls and procedures, changes in and disagreements with accountants on accounting and
Material misstatements or omissions in audit reports. Auditors are required to report internal control weaknesses to management. The auditors however have no responsibility to report internal control
Define and discuss the terms ‘component auditor, component and group engagement partner’.
What matters should an auditor consider concerning a new group audit client which can be obtained from group management?
What matters must be considered when understanding the group entity and its environment?
If the group engagement team plans to request a component auditor to perform work on the financial information of a component, what must the group engagement team understand about the component
Basic elements of audit report. When the field work was finished on December 31, 20X0, the following standard unqualified auditor’s report was given by Eldridge and Lloyd, Chartered Accountants
What is the purpose of the management letter and what does it usually contain?
What topics are included in a typical ‘long-form’ audit report? Briefly discuss each.
When reporting fraud how would an auditor proceed if he were in France, the UK, Germany or Mexico?
What audit matters of governance interest would ordinarily be communicated by the auditor to the board of directors or audit committee?
Define governance, audit committee and outside directors.
When can an auditor make reference to an expert work in his audit report? When may he not make reference to an expert? Why? What is the international standard involved in this issue?
Discuss uncertainties may lead to an auditor’s report containing a qualification of opinion in many countries.
Define limitations of scope. Under what circumstances do scope limitations arise? Give some examples of scope limitations. What should an auditor do if a limitation on scope is imposed by
Explain the circumstances where the auditor may not be able to express an unmodified opinion.
Define Emphasis of a matter paragraph and ‘other matter paragraph’. In what circumstances would an auditor write an emphasis of a matter paragraph?
When is a disclaimer opinion issued? How is the wording of a disclaimer opinion different from that of an unqualified (unmodified) opinion?
When is an adverse opinion given? How is the wording of an adverse opinion different from that of an unqualified (unmodified) opinion?
When does an auditor express a qualified opinion? Discuss the terms ‘material’ and ‘pervasive’.
There are the four different opinions an auditor can issue. Briefly discuss each and the requirements to give that opinion.
What are the forms of an auditor’s report?
What are the phrases used to express the auditor’s opinion that the financial statements have been prepared according to local legislation, rules issued by professional bodies, etc.?
What elements make up an audit report? Briefly discuss each.
What must the principal executive officer or officers and the principal financial officer or officers certify in each annual or quarterly report filed or submitted to the US Securities and Exchange
How long should an audit report be? Can all important information be conveyed in the standard length?
SEC regulation, tax and working papers. Marshall and Wyatt, CPA, have been for several years the independent auditors of Interstate LDC Land Development Corporation of New Orleans, Louisiana. During
Mneme Monos, a Greek manufacturer of computer chip memories, is being audited by you and you are to make a report to the partner in charge, Abderus Calliope, Soma Orkoton Logiston (SOL). The chief
When an auditor finds the ability of a company to continue as a going concern is questionable, the auditor will use certain audit procedures to obtain further evidence. Jocques Entremont, Expert
Berins & Trichet, Reviseurs d’Entreprises, of Brussels, Belgium has a policy of having their audit papers reviewed by both the partner in charge and an independent reviewer.Required:A. Define
Compare the general checklist used by an audit firm to assure that the review of the audit work is thorough and complete (Illustration 11.8) with the checklist used by a person independent of the
The board of directors of Celestial City Corporation of Taejon, Korea, is issuing a corporate governance report. In this audit year Celestial City lost 1,280,000,000 South Korean Won (won) due to a

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