Auditing Theory And Practice 1st Edition Karen Van Peursem - Solutions

How can sampling risk be reduced?
Why is ‘random’ sampling important for statistical sampling? Name three types of random sampling used in an audit and explain how they differ.
What are the usual audit procedures?
What ‘statistical plans’ are used for:a tests of controls b substantive tests?
How is the ‘confidence level’ used in sampling, and how is it related to the risk model?
How is ‘tolerable misstatement’ applied to the sampling process?
What does it mean to extrapolate to the population, and how is it used in sampling procedures?
Name the three conditions in audit that, together, would suggest the need for sampling.
Would sampling be performed as part of:a walk-through procedures b analytical procedures c an examination of all items in the account?For each, explain why or why not.
On what types of tests can sampling be employed: tests of controls or substantive tests?
perform tests of controls and substantive tests using these methods and evaluate the results.
explain audit-sampling procedures
identify the judgements necessary to carry out audit sampling
describe audit situations where sampling is appropriate and distinguish between types of sampling
CONTROL EVALUATION: You are new to your small firm and have been asked to design an internal control questionnaire for the sales cycle. Key questions are set out below. Go ‘online’ to find example formats and prepare an ICQ. Explain why each question may be important.a Can any goods be
CONTROL EVALUATION: Your audit client, LowGear Ltd, is a wholesaler and retailer of automotive parts. Eighty per cent of total annual sales of $2 000 000 are made to other retail outlets, and 20 per cent of sales are made directly to the public from the company’s four warehouses. LowGear Ltd
CONTROL TESTING: Your client has a number of controls that you wish to test.Required: For each situation below, describe how you would test that control and clarify what management assertion is being tested.a The client’s system performs a record check to ensure that no more than one payment is
CONTROL WEAKNESSES AND COMMUNICATION: You have recently discussed the internal control weaknesses you observed in Biggles Aircraft Supplies Pty Ltd with senior management.Required: For each of the weaknesses listed below, come up with and explain a recommendation to overcome the problem.a Sales:i
FUNDAMENTAL CONTROLS: The client operates food concessions from caravans that they, or their employees, move from town to town. Customers pay with cash or direct debit. Most of the concessions are operated by a single person or by a married couple. Food supplies are purchased centrally, although
FUNDAMENTAL CONTROLS: A school requires an audit. Its sales are from bake sales and local fundraisers, all primarily in cash. Identify a potential fundamental control that could be absent in such a situation, and offer ways by which the auditor could:a prevent the situation from occurring if they
INTERNAL CONTROL WEAKNESS: The purchase officer of an energy wholesaler authorises and orders oil and gas from qualified suppliers. Identify one possible way in which the purchase officer could carry out a fraud from which he financially benefits. Indicate how the auditor could potentially have
DOCUMENTATION: Look back to DFD diagrams for levels 0, 1 and 2 and answer the following questions about them:a What is being explained in the circles? What do they have in common with each other?b What in the level 0 diagram is drawn from the context diagram? How is it different?c What circle from
DOCUMENTATION: Look back to the context diagram for DFDs in Figure 12.6 and do the following:a Define the system being studied.b Explain why customers and suppliers are outside the system.c Explain why the accounting and shipping departments are outside the system.d Explain whether the information
DOCUMENTATION: Look back to the flowchart partially pictured in Figure 12.4 and do the following:a Identify four controls and what they may prevent.b Identify three ways in which the duties are usefully segregated.c Identify the number of documents used in this system.d Explain the circumstances in
Who owns the flowcharts and data flow diagrams?
What is the difference between auditing ‘through’ and auditing ‘around’ the computer? When would one or the other be employed?
What procedures might the auditor use to conduct tests in a continuous audit?
The client produces a log of data-entry attempts that were not successful. What risk concern(s) does this raise?
Most businesses today use externally developed and managed programs, or apps, algorithms or data storage. If material, what six issues should the auditor consider about them?
What does it mean for the auditor to be involved in ‘system development testing’?Why might it be important to do so?
What controls might be audit-useful for portable devices made available to staff such as mobile (smart) phones?
Name and describe the ways in which a client’s system can be used to test their controls.
What is the difference between a context, level 0 and level 1 diagram?
What purpose do the ‘columns’ in the flowchart serve?
What is the difference between a ‘data item’ and a ‘data structure’?
What testing options are available to the auditor if they are unable to manually trace a transaction through a client’s system because it is fully computerised?
Describe how each of the following methods of documenting a client’s system of internal controls is conducted and when each might be used:a narrative notes b internal control questionnaires (ICQs)c flowcharts d data flow diagrams
Describe governing body controls about which auditors may be concerned.
Explain how a reliance on internal control can influence audit effectiveness.
Explain how internal control influences audit testing.
Relative to all of the client’s controls, what controls are of interest to the external auditor?
Define and describe the two strategy categories the auditor may employ, and state when one or the other is more likely to be employed.
Under what conditions are auditors likely to rely on the client’s internal controls?
Identify 2–3 fundamental controls and describe why they are fundamental.
What are the limitations to internal control?
What controls belonging to the client are of interest to the auditor?
select and describe tests of controls in response to the auditor’s evaluation of the client’s internal control system.
prepare and evaluate documentation methods such as system flowcharts and data flow diagrams using the procedures introduced
describe an appropriate strategy to evaluate a client’s control system for audit
ACCOUNTING CONTROLS: Identify controls to prevent or detect the following unrelated computerised system problems.a A sales administrator enters the selling price as $46.90 instead of $469.00. No product for the company sells for less than $200.b Desk staff work three eight-hour shifts in a resort
COMPUTERISED ACCOUNTING SYSTEMS: Vita-Link Health Services is a business that uses Zoom to consult with customers as to their medical concerns. In the first stage, the customer enters their symptoms into Vita-Link’s diagnostics, and a potential range of diagnoses are output to that customer. If
COMPUTERISED CONTROLS: Identify the internal controls (or the lack of a needed internal control) in each of the items listed below for a university health centre. For each, determine whether that control is: (1) an internal check; (2) segregation of duties; or (3) another type of control.a The
ACCOUNTING CONTROLS: You are the auditor of a company that processes most of its accounting records on a computer. The business is medium-sized and employs a manager, a senior systems analyst, three junior systems analysts, three programmers, an operations supervisor, two operators and two control
SEGREGATION OF DUTIES: For the sales receipts system described below for SHS, a pharmacy and retail store, come to a conclusion as to the nature of ‘risk’ that could occur in this system in terms of the potential for misstatements in the financial statements. What could happen?a Beth is the
SEGREGATION OF DUTIES: Lewis and Associates is considering whether to develop a manual purchases system or a computerised purchases system for its new division in property repair supplies. It anticipates over $1 million in annual purchases for the new division, and it plans to employ four staff
CONTROLS AND ASSERTIONS: One of the examples of an accounting (procedural)control follows: ‘Daily data batch number sent – batch numbers input for occurrencevalidity and completeness.’Required: Identify two different versions of this control, one of which would identify occurrence-validity
CONTROL TYPES: Name three specific controls that would fall under each category of control listed in the accounting (procedural) controls section of this text for a travel agency client. The travel agency employs one manager, five agents and one bookkeeper, and it has a chartered accountancy firm
CONTROL TYPES: Distinguish between accounting controls and administrative controls in a properly coordinated system of internal control. Apply this general understanding to the operations of your local bookstore by preparing a list of administrative controls and a separate list of accounting
What are ‘exception reports’? What are ‘error reports’? What purpose do they serve?
Name and describe five processing controls.
How can ‘employment policies’ be considered a control?
What is meant by a ‘loss of audit trail’? Describe five ways in which such a loss could occur.
Describe five ways in which the auditor may gain assistance from a client’s computerised accounting system.
What is the difference between ‘establishment’, ‘maintenance’ and ‘verification’controls, and how do each of these serve the business and the auditor?
Define ‘embedded controls’ and provide three examples of types.
List the categories of duty that should be kept segregated and describe how they differ between a manual and a computerised system.
Identify five different ways in which passwords can restrict those who have access to components, software or data.
Distinguish between organisational, management, system development and accounting controls. Provide examples of each.
Define ebusiness and explain the characteristics of it that the auditor should consider.
Define ‘real time’ processing.
Identify the challenges to auditors of clients’ computerised systems.
Name the benefits to auditors of clients having computerised systems.
Explain how controls could potentially reduce distortion, fraud or error as to:a occurrence-validity assertions b completeness assertions c accuracy assertions d classification assertions.
Explain why internal control is significant to the auditor.
explain the audit implications of a client’s internal control system.
describe the characteristics of a computerised/digitised information system
explain and provide examples of ICFR system objectives and controls
explain and provide examples of internal controls over financial reports (ICFR)system levels and controls
define and explain the nature of internal control systems
OVERALL ANALYTICAL REVIEW: Conduct an overall analytical review of the information on your client Dave’s Caves Ltd, provided in Table 10.7. Identify the indicators of risk.Account Dr Cr Cash 3 200 Accounts receivable 94 300 Provision for BD 1 000 Inventory 264 600 Notes receivable 20 000 Fixed
OVERALL ANALYTICAL REVIEW: You have discovered the information shown in Table 10.6 by conducting an overall analytical review ratio analysis for your client.The current audit is for the year 2023.Required: Consider what this information may imply about areas worthy of further evidence.
AUDIT PLANNING PROCESS: Prepare, describe and justify a detailed audit plan for a listed company’s audit for the current fiscal year. Prepare questions for management, where appropriate, and assume that you receive answers to them (so that you can proceed). Assume you have no knowledge of the
AUDITOR APPOINTMENT: The directors of Loopy Ltd, a newly formed company, are seeking to secure your services as an auditor. Regarding their letter, you note the following comments:‘Your duties and rights as an auditor will be determined by the board of our company. In the main, these duties are
ENGAGEMENT LETTER: Explain what modifications may be required, if any, to an engagement letter prepared for your client TopShelf Ltd, a limited liability company.TopShelf Ltd is a brand-new client, and you only agreed to the engagement two months after the 31 December 2023 (ending) balance date.
ENGAGEMENT LETTER: You are preparing an engagement letter for the statutory financial statement audit of a government-owned Roads Division. The manager of the Roads Division also asked you to conduct an audit of their cost systems.a Compare the scope of the two engagements.b In what respect should
AUDIT PLANNING PROCESS: The audit firm wishes to allocate functions to senior and junior staff members according to their complexity.Required: Put the following events in order of ‘most’ complex to ‘least’ complex.a Test client’s finance derivatives.b Conduct fixed asset existence
AUDIT PLANNING PROCESS: Jerome is assigned to manage the financial statement audit of a local subsidiary of an international finance company. He is under pressure to keep audit costs down, so he is considering one of the following options.Required: For each option, consider the implications on
AUDIT PLANNING PROCESS: Talia is the audit manager for a new client, Sleepbnb, a local online competitor to the international Airbnb practice. The client, a oneperson sole trader, primarily arranges accommodation for international travellers.Sleepbnb has been operating for three years, taking a 1
AUDIT PLANNING PROCESS: Jerome, who is new to the audit practice, managed a small audit firm and decided – for cost reasons – to dispense with one of the planning processes. He is auditing a small clothing retail business. The business is an international franchise located on a busy Brisbane
Explain:a why tests of controls are not in the planning process b where in the planning process it is particularly important for the senior partner to be involved, and why.
Why is the audit budget important for the firm and the client?
What is the meaning of conducting a ‘basic review’ of accounts? Provide examples where doing so may be appropriate.
Explain why ‘materiality’ determinations are needed at this stage of the audit.
Define ‘fundamental controls’. Explain why they are important.
Provide two examples of each of the following categories of ratios appropriate to review at this stage of the audit, and explain how they may be useful to the auditor:a liquidity ratios b solvency ratios c profitability ratios.
What is the purpose of ‘overall analytical procedures’ at this stage of the audit?
Provide five examples or categories of business risk that could be reviewed at this point.
Provide three examples for each of the potential misstatements that could arise from:a inherent integrity risk b situational integrity risk c management integrity risk.
Name types of ‘risk’ that should be evaluated during the initial planning stage.
What points should be set out in the engagement letter?

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Auditing Theory And Practice 1st Edition Karen Van Peursem - Solutions

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