Questions and Answers of Principles of Auditing

Swartz Platten BV, sells chemicals in large, costly returnable containers. Its procedures in accounting for the containers are as follows:1. When containers are purchased, their cost is charged
As part of systematic process of gathering and evaluating evidence regarding assertions about economic actions and events, tests of balances and tests of transactions are essential in obtaining audit
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
Reliability and cost of evidence gathering techniques. The financial statements of Utgard Company of Drammen, Norway, a new client, indicate that large amounts of notes payable to banks were paid
Sufficient appropriate audit evidence. The auditor finds it necessary to rely on audit evidence that is persuasive rather than conclusive and will often seek audit evidence from different sources or
Tests of balances. Your client is Nicholas van Myra Central, a shopping centre with 30 store tenants. All leases with the store tenants provide for a fixed rent plus a percentage of sales, net of
Substantive tests – Analytical procedures, balances and transactions. Substantive tests include (1) Tests of the details of transactions; (2) Tests of the details of balances; test of
Tests of controls. Explain what types of control tests an auditor should do in each of the following circumstances and why:1. The auditor tests controls that contribute to the reliability of
Tests of controls. Auditors generally begin tests of controls by interviewing appropriate personnel who either perform or monitor control procedures. During these interviews, the auditors may also
Management assertions and audit objectives. The following are management assertions (1 through 9) and audit objectives applied to the audit of accounts payable ((a) through (h)).Management
List and define at least ten kinds of electronic evidence that an auditor may review.
Brack and Kabrac Corporation (BKC) of the United Arab Emirates sells financial services to clients who put up a minimum investment of €1,000,000. Abdel-Masoud, Ahrens and Spence, an auditing firm,
Why does an auditor prefer persuasive evidence as opposed to conclusive evidence?
Differentiate between the most reliable evidence and the least reliable evidence.
What factors influence the auditor’s judgement as to what constitutes sufficient appropriate audit evidence?
A substantive test usually performed on accounts payable is a search for unrecorded liabilities. Discuss this test.
Discuss what is meant by direction of testing.
What is the difference between test of transactions and test of balances?
What are substantive procedures? Describe the different types of substantive procedures.
If the auditor hopes to rely on prior audit evidence, evidence is needed in the current audit about what areas?
Define ‘test of controls’. What are ‘indirect controls?’
Define management assertions and discuss how they may be grouped?
Define evidence. How is Audit evidence unique?
In what ways may an auditor’s respond to an ineffective control environment when planning evidence gathering procedures?
What might overall responses to address the assessed risks of material misstatement at the financial statement level include?
Using ACL or Idea software perform the following procedures:Required:A. Open the Accounts Receivable file then (1) Determine the number (count) of customers. (2) Find the customers who owe more than
To meet this objective of obtaining sufficient appropriate audit evidence, what must the auditor do?
The extent of reliance that the auditor places on the results of analytical procedures depend on the materiality of the items involved, other audit procedures performed by the auditor, the accuracy
Start Microsoft Access and open the Northwind Traders Sample Database (File → New → available templates → sample templates → Northwind).Required:A. Sort the Product table by unit price,
Analytical procedures. Analytical procedures are extremely useful in the initial audit planning stage.Required:A. Explain why analytical procedures are considered substantive tests.B. Explain how
Analytical procedures. Analytical procedures are typically done during the planning phase.Required:A. Define analytical procedures.B. Other than during planning, when does an auditor do analytical
When an auditor discovers a significant change in a ratio when compared with the prior year’s ratio, the auditor considers the possible reasons for the change.Required:A. Give the possible reasons
At the beginning of the annual audit of Porster, BV, wholesale distributor of Valkenburg, the Netherlands, Lynna Heijn, Registeraccountant, was given a copy of Porster’s financial statements as
Based on the comparison of a recent year€™s results from Wal-Mart, Costco, Target and the retail industry, what would your expectations be about Target€™s revenue growth, gross
Four Phase Analytical Review Process. Based on Concept and a Company 8.2 ‘Peregrine Systems – the 31 December’, discuss what you would imagine each phase of the four phase analytical review
What should an auditor do if analytical procedures show significant fluctuations?
What should an auditor do if he finds significant fluctuations when performing analytical procedures?
Describe two data mining methods.
Define data mining. How is it used for verification and discovery in the audit process?
Four tasks are required to assess the risk of misstatement. They are (1) identify risk by developing an understanding of the entity and its environment, (2) relate the risk to what could go wrong in
When an auditor has accepted an engagement from a new client who is a manufacturer, it is customary for the auditor to tour the client’s plant facilities.Discuss the ways in which the auditor’s
To get information about the core processes of the entity an auditor examines its business operations, investments, capital structure and financing activities and financial reporting
Constantijn & Nianias, Soma Orkaton Logistons (SOLs), have been hired to audit Eidola Company, a biochemical company listed on the Athens Stock Exchange. Constantijn & Nianias is auditing the
Type 1 and Type 2 internal control reports from service organizations may be critical to understanding the service organization. Discuss the difference between Type 1 and Type 2 reports.
Define auditor’s expert. What must the auditor consider when evaluating the work of an auditor’s expert?
Describe the difference between financial statement fraud and misappropriation of assets.
Define fraud and give the ISA standard on fraud.
What guidelines or ‘rules of thumb’ related to a financial statement base such as net income, total revenues, etc. are commonly used in practice?
What four factors are generally considered in determining materiality? Briefly discuss them.
How is materiality defined in the ISAs (specifically ISA 320)?
Distinguish between business risk and significant risk.
What components of the audit risk exist independently of the audit? What does an auditor do in this situation?
What are the definitions of the three audit risk components?
How can understanding a certain industry help an auditor?
ISA 315 provides an overview of the procedures that the auditor should follow in order to obtain an understanding, sufficient to assess the risks and consider these risks in designing the audit plans
List the planning procedures.
What is the objective of audit planning?
Compu Group Corporation designs, develops, manufactures and markets a wide range of personal computing products, including desktop personal computers, portable computers, network servers and
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
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 statements audit.
Juao Castelo, Revisor Oficial de Contas (ROC), is required to write a client audit proposal for two clients, one continuing (Jinne) and one new (Autodafe).Required:A. Based on the proposal for a
Preparation and Planning. Roger Buckland was recently appointed auditor of Waterfield, Ltd, a public company. He had communicated with the company’s previous auditor before accepting the audit.
Use of Other Auditor. Rene Lodeve, Reviseur d’Entreprises, has been hired by BelleRei, N.V., a Liege, Belgium, company. Lodeve will audit all accounts except those of a subsidiary in Spain, which
The audit firm of Guiseppe Mulciber, Dottore Commercialista, has been asked to bid on an annual audit of the financial statements Mammon, a publicly traded gold jewelry manufacturer. The Mulciber
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. Inter lewd, an internet company, whose website features explicit images
List the ISAs used in this chapter and briefly define them.
Under what circumstances will an auditor send a new engagement letter each year to a continuing client?
What should be included in an engagement letter? What are some reasons a client might change the terms of the engagement?
Briefly list the four items found in a continuing client audit proposal. List and define the items that may be found in an audit proposal for a new client.
Define a contingency fee. Why should a contingency fee not be used? What are the two exceptions for using contingency fees?
List four things an auditor must consider when establishing professional fees. What is meant by ‘low balling’?
To what extent can an existing auditor discuss the affairs of their client with a new auditor?
How is an ‘expert’ defined according to ISA 620? When should an auditor bring in an expert?
What is a group auditor? What must he consider when the work of another auditor is used?
Consideration of whether the firm has the competencies and resources to undertake a new engagement includes reviewing existing partner and staff competencies. What competencies are these?
What are the major sources of client information auditors have available? Which source would prove the best for new businesses? Why?
What is the difference between acceptance of the client and acceptance by the client?
Scott London, an ex-KPMG partner in Los Angeles, has been charged in a federal complaint with one count of conspiracy to commit securities fraud through insider trading.The complaint alleges that
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
Use the same facts as given in 4.20 above on JP Morgan Chase’s London Whale.Required:Use the facts of this case to illustrate how the auditors would use professional scepticism to discover the
In early 2012, J.P. Morgan Chase’s Chief Investment Office (CIO), charged with managing $350 billion in excess deposits, placed a massive bet on a complex set of synthetic credit derivatives, lost
Primo Promo, an advertising and public relations firm headquartered in Llubljana, Slovenia, owned by Arnold Rikli, III, wishes an assurance report in accordance with ISAEs on the prospective
Discuss the differences between assurance conclusions expressed in the positive (reasonable assurance) form, versus the negative (limited assurance) form. Give examples of assurance engagements that
Kolitar Corporation offers a unique service to telecommunication companies in South America. For a fee they will review the telecom’s telephone transactions for calls from outside their country
Halmtorvet, a Copenhagen, Denmark, company that manufactures security devices, has contacted Christian Jespersen, Statautoriseret Revisor, to submit a proposal to do a financial statement audit.
Why is there a need for an ethics guideline for professional accountants? Explain. In what ways should the ethics code for accountants be different from that of other groups such as physicians or
Discuss the differences between a conceptual framework and a rules based approach to ethics.
For each of the following situations involving relations between auditors and the companies they audit indicate whether it violates IESBA’s Code of Ethics for Professional Accountants and the
Galati and Brambila formed a corporation called Financial Fitness Systems, each woman taking 50 per cent of the authorized common stock. Galati is a Dottore Commercialist (CONSOB), a public
Auditors must not only appear to be independent; they must also be independent in fact.Required:A. Explain the concept of auditor’s independence as it applies to third-party reliance upon financial
Samantha Seekineau, Soma Orkoton Logiston (SOL), is in charge of the audit of Olympic Fashions. Five young assistant accountants are working with Seekineau on the engagement, and several are avid
Jemmy Le, CPA, worked for BarrelOn corporation, a manufacturer of wine and beverage oak barrels. He has been a good employee, so when he got married the CEO of BarrelOn loaned him the down payment
he following situation involves Kevin Smith, staff accountant with the local CPA firm of Hobb, Mary and Khang (HM&K). The bookkeeper of Mirage Manufacturing Company resigned three months ago and
Name IAASB’s two engagement frameworks and the audit and practice standards that apply to these two frameworks
What are audit related services? List the major categories (except for consulting) of auditor’s related services.
What is an assurance engagement? Name the five elements exhibited by all assurance engagements.
Define subject matter and subject matter information. Give some examples of common subject matter in assurance and related service engagements.
Discuss the difference between a reasonable assurance and a limited assurance engagement.
What are the basic elements required to be included in the assurance report according to International Standards on Assurance Engagements 3000 Assurance Engagements Other Than Audits or Reviews of
Are the criteria given in the assurance report always based on established criteria? Explain.

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