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

At what point should an engagement letter be prepared?
Explain the purpose of the engagement letter. Who prepares it, and why should there be a copy of it in the audit working papers?
What three characteristics define the scope of an engagement?
Why is it important that the ‘scope’ of the engagement be clarified early in the engagement? What could happen if there are misunderstandings as to scope?
Distinguish between the role of the ‘audit manager’ and of the ‘audit partner’.
SUBSTANTIVE AP: Using the financials presented in Table 9.11, create a model to predict the expected:a costs of sales b sales returns and allowances c interest expense.Required: Design three different models for use as substantive APs. Specify what account(s)you are trying to predict. Explain the
RATIO ANALYSIS: Review Exercise 8.8, which has an extensive set of working papers before and after audit-recommended adjustments.Required: Carry out a substantive ratio analysis on both working trial balances and:a identify any issues of concern in both sets of WTBs b determine whether the AJEs
RATIO ANALYSIS: In connection with your analytic review of 2021 operations, you are presented with a summary of certain data prepared by an employee in your client’s accounting department, as shown in Table 9.10.a On the basis of this information, which ratios should the auditor investigate
VARIATIONS: If an auditor discovers that there has been a significant change in a ratio when compared with the prior year(s), they should consider the possible causes.Give possible reasons for the following and determine which the auditor should investigate further.a The ratio of cost of sales to
SPECIFIC AP: Assume that you have been presented with the statements of profit and loss and the balance sheets for the past four years of a public company engaged in retailing. Your client has requested that you provide him with the relevant ratios and comparisons you used in SpAR procedures’
AUDIT PROCESS: Describe at what point in the audit you would conduct each of the audit procedures shown in Table 9.9 for an auto rental company and explain why.
AUDIT PROCESS: You are a new member of a small audit firm that has been run by its three senior partners for 30 years. The partners are looking forward to you sharing your knowledge of current practice and have asked you the following questions:1 The firm has an ongoing audit client it has audited
AUDIT APPROACHES: One of your senior audit partners insists on using the‘systems approach’ to audit engagements. As he says, ‘This is what we used in the 80s, and it’s as good for complicated systems of today as it was then.’ How might you tactfully respond to this claim?
AUDIT PROCESS COMMUNICATIONS: Describe what potential effect each of the following events, considered independently, may have on the audit and discuss what conversations you would have, and with whom, when these events occur:a During the test-of-control process, it is discovered that controls
AUDIT STEPS: A number of events have occurred during the recent audit of Shifty Ltd (a retailer). Your task is to put the following eight scenarios in the order in which they would have occurred, explain what each is trying to accomplish, and why.a The audit manager prepares a schedule detailing
AUDIT ACCEPTANCE: You recently established an accounting practice with another chartered accountant whom you first met when you were both at university.Your partnership has been approached to take over the audit of a medium-sized manufacturing company. To decide whether you are capable of tackling
Describe how Australian/New Zealand auditing standards address the issue of APs for substantive testing and what they expect from the auditor.
What three characteristics would lead to the lowest level of assurance from a specific AP?
Confidence from APs can be determined from the data’s source, sensitivity and reliability. Define each of those terms and provide examples.
List basic recommended substantive APs for most audits (and reviews).
How can APs provide information not available elsewhere?
How can ‘regression’ be used to model sales?
What are ‘neural networks’, and how can they be used for specific APs?
List methods of performing substantive APs and sources of data for each.
Where else in the audit process are APs used? Why?
Define substantive APs and explain their purpose. How are they distinct from the broader category of APs?
What is the difference between the two types of ‘qualified’ report?
Name the two types of ‘modified’ audit report that would be issued should a fundamental problem exist.
When is the audit report prepared, and what is its purpose?
What is a ‘letter of representation’? Describe its purpose for audit.
Name and describe activities in the completion process. Describe what each of these activities is intended to accomplish.
Define ‘verification’ as used for audit.
Describe how the audit risk model serves decisions about substantive testing.
Describe an ‘audit detailed plan’ and its purpose.
How is an understanding of the client acquired? Describe the type of information such methods may provide.
What role do a company’s shareholders play in these processes?
Name and describe the steps in the initial planning process, and detailed planning processes.
Why does the risk approach serve today’s audit?
Distinguish between possible approaches to audit work.
TEST STRATEGY RESPONSES: Each row in Figure 8.7 sets out different overall, inherent and control risk assessments, and a corresponding test strategy response.Each response calls for some combination of ‘high’ and ‘low’ testing levels for substantive and control tests.Required: Explain why
WORKING PAPERS Required: Complete the working paper (see Table 8.10) by: Vouching and re-performing calculations. Note evidence of your re-performance with an ‘x’ in the boxes. During testing, you find that the equipment used as collateral is worth only a scrap value of $22 000. In spaces
WORKING PAPERS: DeBoy Parts Ltd has prepared an accounts receivable schedule that you downloaded from their system (see Table 8.9). On confirmation of each account, you find the following:a Pink Zebra claims that products were faulty, returned them and refused to pay.b Blue’s Drilling could not
WORKING PAPERS: The auditor is preparing working papers for tests completed and evidential matters collected on the client’s accounts receivable account. Fill in the hierarchical framework in Figure 8.6 with a reasonable set of working paper titles for this account. Use headings and codes as
WORKING PAPERS: The working trial balance (see Table 8.8) is filed in the auditor’s completed working papers.Required:a Prepare a working paper showing recommended AJEs and explanations. Assume adjustments > $5000 net profit or > $9000 in balance sheet accounts are material.b Explain what
EXPERT SYSTEMS: From the following list, choose where you think expert systems will be of most value in the future. See if you can deduce where expert systems were seen to be of most and least value, and why.a planning b internal control evaluation and compliance tests c substantive testing d
EVIDENCE AND RELIABILITY: During your audit of Backlash Ltd, the following evidential matter has been included in your working papers:a flowcharts of the company’s payroll routine prepared by your audit assistant and backed up by compliance tests b an oral statement by the production director
EVIDENCE: The audit client, Rivets Ltd, manufactures nails, screws and similar products. The auditor wants to determine whether the inventory of nails and screws is valid. Answer the following questions:a Is the auditor concerned with overstatement or understatement?b If the auditor wishes to
TESTING: Listed below are a number of audit procedures that are applied to supporting documentation, together with an indication of the purpose of the procedure.a A sales order is examined for evidence of credit approval.b A voucher is examined to see if supporting documentation is attached.c The
TESTING: Use the following case to answer the questions below:R. Eka Ltd is a research and development lab whose primary assets are its employees.Controls over the manual payroll system include appropriate segregation of duties,reconciliations of the ledgers to journals, authorised pay rates and
TESTING:Required: Describe the test of control you would use for each of the following and what management assertion you would be testing:a The client claims that they have passwords giving only one employee access to the credit system.b The doors on the warehouse are said to be locked any time the
TESTING:Required: Describe appropriate testing procedures for the following situations. Use audittesting terms as much as is reasonable:a Testing stock items for existence – the items are nails and screws in small boxes.b Testing payroll expense adjusting journal entries conducted at the end of
How can auditors use ‘expert systems’? Can they replace audit judgement?
With what sampling functions can data-extraction tools assist?
Describe six different ways in which data-extraction tools can be used to test client data.
What do data-extraction tools do, and what are their benefits to the auditor?
What aspects of the audit process would suggest the benefit of audit tools?
Name four audit tools and describe how they serve efficiency and effectiveness.
What is the difference between ‘hard-coded’ and ‘template’ working papers?
Why are LANs useful for the auditor in the field?
How do computerised audit assistance tools serve the auditor?
What is ‘computerised audit assistance’? It is owned and used by whom?
Name and explain why three items are found in the current file.
Name and explain why three items are found in the permanent file.
What is the difference between the ‘current’ and ‘permanent’ working papers?
What are the ownership rights around working papers in Australia/New Zealand?
Name six purposes that working papers serve.
Why are audit working papers so important to the audit firm?
What is the difference between ‘statistical’ and ‘non-statistical’ sampling, and why is that difference important for an audit?
What three conditions would be present to make audit sampling appropriate?
What is the meaning of a ‘corollary test’ and why is it useful?
Provide an example of ‘dual testing’ and an example of ‘directional testing’.
What is the difference between ‘dual’ and ‘directional’ testing? Why are they used?
What are the three major categories of audit tests?
What does it mean to ‘cast and cross-cast’?
Define ‘substantive tests’.
Define ‘tests of controls’.
Define ‘walk-through procedures’.
What are the premises, implied or otherwise, that professionals test in an audit?
When would it be possible to rely on tests conducted only midway through the year?
What is the difference between the ‘extent’ and ‘timing’ of audit testing?
What is a characteristic of ‘confirmations’ as to evidence quality?
What is the difference between ‘tracing’ and ‘vouching’?
What is the difference between the ‘sufficiency’ and ‘nature’ of audit evidence?
Define ‘testing’. How does this apply to audits?
EVIDENCE AND PERSUASIVENESS: On a scale of 1 (low level) to 3 (high level), where would you place the following sources of evidence in regards to their persuasiveness?Explain why.a watching the end-of-year stock count b re-adding a page of the client’s sales journal, which an employee has
JUDGEMENT: Design a training program for new audit trainees. It should be designed to improve their audit judgement. Decide what elements it should include, how teams may be structured for learning, and the sort of content it might include.
JUDGEMENT: How might each of the following approaches identify a concern as to the potential for fraud, or an auditor’s failure to find it, in Interface Ltd:a intuitive approach b analytical approach c image theory d structuration theory.
JUDGEMENT: What heuristic (of those discussed in this chapter) may be indicated by each of the following independent situations:a Leanne received a request only last month to conduct a ‘Balance sheet only’ audit.She produced the engagement letter with that restriction on scope and completed the
JUDGEMENT: Apply the judgement processes in the left-hand column of Table 7.1 to the aforementioned situation. Assume no further changes are made by the client.Where does this lead Leanne? What, as a result of her evaluation, will she be doing next?
MATERIALITY: Consider examples (in this chapter) for Basil Ltd. What would be the effects on overall materiality, the base used for overall materiality, disaggregation decisions or tolerable misstatement (if any) for each of the following independent decisions:a Net sales turns out to be a
MATERIALITY: Address the steps posed in Figure 7.1 for an organisation such as:a a public primary school b a smart phone provider c rail (government-owned)d online payroll record provider e a large fishing corporation.
MATERIALITY AND TOLERABLE ERROR: An auditor finds the following errors in the books of Jonas Industries:a $10 000 provisions for doubtful debts not recorded b $8000 payable to a supplier accrued twice c $23 000 of recorded sales are in next year’s invoices d $5000 should be written off as a bad
MATERIALITY AND ALLOCATION: You are performing the current statutory audit for a company identified by your instructor. You are asked to calculate a tolerable error for each balance sheet account. Assume that an overall materiality level of 5 per cent of net income before taxes has been chosen.
MATERIALITY: Assume the following information about your audit client, Te Wanui Ltd, a wholesale boat products firm. The industry has prospered this year, but you are concerned about Te Wanui’s generous credit policy. Ending account balances are as follows:Assets ($)Cash 18 000 Receivables 1 450
List five factors that influence the reliability of audit evidence.
Define the meaning of management assertions as to ‘presentation and disclosure’.
Name and define the additional management assertions as to balances in the accounts.
Name and define the management assertions as to transactions and control systems.
What is the difference between ‘sufficient’ and ‘appropriate’ evidence?
Distinguish between evidence that is persuasive, scientific and legal. Why are these differences important to the auditor?

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

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