Questions and Answers of Principles of Auditing

In connection with their audit of the financial statements of Swan Mfg. Corporation of Ayutthay, Thailand for the year ended December 31, 20X4, Virameteekul, Kanchana & Banharn, Chartered
What must the audit supervisor do before he can consider the audit work complete?
What are monetary misstatements? What mistakes can cause a monetary misstatement?
What are some indications that the continuance of the company as a going concern may be questionable?
What procedures should an auditor perform when events or conditions have been identified which may cast significant doubt on the entity’s ability to continue as a going concern?
What is meant by MAP? What items are discussed in MAP and why are they important?
What are auditors required to discuss with the board of directors? The audit committee?
Charalambos Viachoutsicos is assigned the responsibility of setting up a quality review programme at his St. Petersburg, Russia, audit firm, Levenchuk.Required:A. What should the verification
Morgan LeFay, AS, of Horsens, Denmark, auditor Jan Ogier, Statsautoriseret Revisor, determines that LeFay has paid legal fees to four different law firms during the year under audit. Ogier requests
Robert Dingle, president of Alcmena Manufacturing, Ltd., of Perth, Australia, and the company external auditor Deny H. Lawrence, Chartered Accountant (CA), reviewed matters that were supposed to be
The following unrelated events occurred after the balance sheet date but before the audit report was prepared:1. The granting of a retrospective pay increase to selected employees.2. Receipt of a
What are wrap-up procedures? Give some examples.
When does a material inconsistency exist in information other than the financial statements? What other information must an auditor review for material inconsistencies? What should an auditor do if a
When reviewing for adequate disclosure, what does an auditor look for? Give some examples.
If the auditor becomes aware of a fact that may materially affect the financial statements after the date of the auditor’s report but before the financial statements have been issued, what should
What is a review for subsequent events? What should an auditor do if he becomes aware of facts that existed at the date of the auditor’s report after the financial statements have been issued?
What is a contingent liability? What three conditions must be met for a contingent liability to exist?
What kind of evidence does ISA 580 suggest that the auditor get from management? Where might an auditor find evidence to fulfil this requirement?
What should be included in the letter from client’s legal counsel?
The Sarbanes-Oxley Act (SOX) requires that every registered public accounting firm auditing publicly traded companies include quality control policies standards relating to what areas?
Describe the elements of quality control policies adopted by an audit firm.
What are the general procedures for completing the audit as shown in the standard Audit Process Model?
Future Focus Investments of Odense, Denmark is being audited by the public accounting firm of Loft, Blasev and Graversen. Future Focus’s primary investments are in virtual currencies such as
Robert Dingle, president of Alcmena Manufacturing, Ltd., Perth, Australia and the company’s external auditor Powell, Ram and Roberts, Chartered Accountant (CA), reviewed matters that were supposed
D’orsay Dore, SA is being audited by Stolowy & Oxibar, Expert Comptables. During the course of the audit Stolowy & Oxibar discover D’orsay Dore sold inventory to Parisienne de Fedora for
Novosibirsk Energy, a private oil transport company covering the south of Russia is being audited by the public accounting firm of Berezinets, Frolova and Kuter (BFK). During their sampling of oil
The public accounting firm of Rodrigue, Chen and Veenstra, Charted Accountants, is auditing the Windsor, Canada, company Gold Mountain which sells gold and precious metals on their website,
The public accounting firm of Kalinowski, Czajor and Fijalkowska is auditing Whim of Warsaw, a video gaming company. They wish to get a sample of accounts receivable accounts for confirmation.
In work on accounts receivable, use of confirmations is of great importance.Required:A. What is an audit confirmation?B. What characteristics should an audit confirmation possess if an auditor is to
A processor of frozen foods carries an inventory of finished products consisting of 50 different types of items valued at approximately $2,000,000. About $750,000 of this value represents stock
Discuss what you would accept as satisfactory documentary evidence in support of entries in the following?A. Sales journalB. Sales returns registerC. Voucher or invoice registerD. Payroll registerE.
In the examination of financial statements, auditors must judge the validity of the audit evidence they obtain. For the following questions, assume that the auditors have considered internal control
An auditor obtains audit evidence by one or more of the following evidence gathering techniques: inquiry, observation, inspection, reperformance, recalculation, confirmation and analytical
Define forensic accounting. Assume that you are working at a forensic accounting firm whose specialty was family law support (divorce and custody) forensics. What kind of evidence would you look for?
What should an auditor do if management refuses to provide a letter of representation (written representation of management)?
Because of the possibility of related party transactions, the auditor should perform audit procedures designed to obtain sufficient appropriate audit evidence regarding the identification and
Discuss circumstances involving related parties that contribute to higher risks of material misstatements than transactions with unrelated parties.
Explain the statement ‘All misstatements accumulated during the audit must be communicated to the appropriate level of management on a timely basis’.
The auditor must determine how management makes the accounting estimates, and an understanding of the data on which they are based. What must the auditor determine?
What issues arise in auditing accounting estimates?
What should an auditor do when she finds deviations or misstatements when sampling?
Define the objective of sampling and audit sampling.
If a confirmation is not returned to the auditor what alternative procedures can he perform?
Discuss the differences between positive and negative confirmation.
What are four key characteristics of confirmation?
What are the six audit tasks accomplished by file interrogation? Describe two in detail.
What is GAS and how does an auditor use it?
What techniques are used to corroborate an explanation for an analytical procedure finding?
Give the advantages and disadvantages of analytical procedures used as substantive tests.
Why is it useful to do analytical procedures during the completion of an audit?
Why are analytical procedures used in the planning stages? Why are they used again near the end of the audit?
In assessing going concern, list three financial indicators, three operating indicators and three other indicators.
What are the five types of analytical procedures? Briefly discuss each.There are five types of analytical procedures: (1) Those ratios that compare client and industry data; (2) Ratios that
Give an example of the nature of an account. Give an example of other characteristics of the data.
On what sources does an auditor base his expectations? Give examples of how the auditor may use each source.
Describe the four step theoretical approach and the four-phase process for analytical review.
When should the auditor use analytical procedures? What ISA standard states when they should be used?
Define analytical procedures and give the basic premise of using them.
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 eleven years thirty thousand unauthorised trades were
The audit firm of Abdel-Meguid, Okyere and Yildirim (AOY) is planning an audit of Dye Shipper Corporation of Cairo, a television documentary production company.AOY need to assess the control risk of
Luxury Auto Leases, Inc. of New Mexico, U.S.A., has offices in Tucumcari, Santa Fe and Albuquerque. Lisa Dockery, the company president has an office in Santa Fe and visits the other offices
Ambazam, an airline shuttle service operating out of the Tampa, Florida, USA, airport wishes to analyse the necessary controls required for their operation. They pick up arrivals at the airport and
Monitoring is done in two ways: through ongoing activities and individual evaluations.Required:A. From what sources does ongoing monitoring come? What issues might be considered? B. When doing
Aurello Pellegrini, Dottore Commercialista (CONSOB), is approached by his client who has just reorganised his medium-sized manufacturing company to make it more structured by giving responsibilities
The firm of Hayes & Hu, Ltd., personal financial advisors in the Notting Hill section of London, has asked Joseph Small man, Chartered Accountant (CA), to recommend a computer information system.
OK Yen, Ltd. is a Japanese electronics games and amusements company specialising in pachinko games. Pachinko parlours are a big industry in Japan, whose 18,000 pachinko parlours in 2012 accounted for
Hasse Nilsson, Statautoriseret, 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
Using the COSO criteria for assessing internal control environment (Illustration 7.5) describe a company with an effective control environment.
Internal control consists of five interrelated components. These are derived from the way management runs a business, and are integrated with the management process.Required:A. Name and define the
A. Information Technology benefits an entity’s internal control by enabling them to consistently apply predefined business rules and perform complex calculations in processing large volumes of
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
Internal control is geared to the achievement of objectives in one or more separate overlapping categories.
When planning an audit, in order to assess control risk the auditor undertakes a number of tasks. Discuss some of those tasks.
Discuss the four methods of obtaining audit evidence about the design and implementation of relevant controls.
Muel Kaptein distinguishes seven social-psychological factors which influence people’s behaviour within organizations. Discuss.
Discuss the Baring case and the Daiwa Bank case. How could similar problems be prevented in the future? What is your opinion of these cases?
Into what five categories do control activities fall?
What is the accounting system designed to do? What should be documented about an accounting system as part of the procedures to understand the internal control system?
Name and discuss one technique that has been developed to identify risk.
Can evaluation of the control environment be a key element in determining the nature of the audit work? Why or why not?
Define control environment. Why is it important to an entity?
What are the five interrelated components of internal control? Briefly discuss them.The five interrelated components of internal control are: 1. Control environment,2. Risk assessment, 3.
What are the things might an auditor consider when evaluating the information system of an entity? Does the quality and reliability of CIS provide adequate and reliable information on a continuing
IT controls may generally be grouped into two types. Define these two.
What is the difference between management risk assessment and auditors risk assessment?
Why is the auditor interested primarily in controls that relate to reliability of financial reporting – accounting and internal control systems?
Do corporations believe fraud to be a problem according to KPMG fraud survey reports? Explain.
Describe the four objectives of internal control.
Define internal control. Discuss the fundamental concepts in the definition: process, people, reasonable assurance and objectives.
What are the first two steps in the planning procedures?
Via internet, you have obtained the financial statements of an international manufacturer of portable telephones. The financial statements can be summarizes as follows (in millions of
In a California smart phone app company an employee discovered a flaw in the accounting system. The accounts payable clerk found she was able to change the names of vendors in the computer system to
Materiality and risk. Dag Nilsson, Auktoriserad Revisor (AR), considers the audit risk at the financial statement level in the planning of the audit of the financial statements of Lycksele Lappmark
List the six evidence gathering techniques in order of reliability and cost from highest to lowest.
Define and give an example of recalculation and reperformance.
Discuss the reliability of external documents as evidence.
What alternative procedures can an auditor do when he is unable to attend a physical inventory?
Why should an auditor corroborate evidence for inquiry? Name a famous court case and discuss.
Name transaction and supporting records that would be considered accounting records.
Define and discuss the differences between general evidence, audit evidence and legal evidence.

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