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

Describe the auditor’s obligation with respect to audit evidence as set out in the standards.
Using the allocation-to-accounts method:a Describe the difference between the ‘preliminary’ allocation and the ‘adjusted’allocation.b Describe how each is arrived at? By whom?c What criteria are used?
What is the meaning of tolerable misstatement, and how does it apply to the disaggregation process?
What is the allocation-to-accounts method of disaggregation, and why is it useful?
What does it mean to say that the auditor wishes to ‘disaggregate’ overall materiality?
When might one base be more appropriate than another?
What are the bases usually used to set overall materiality?
When overall materiality is set at a low level, what does this mean for testing?
Define overall (planning) materiality.
Why are standard-setters reluctant to set fixed materiality levels for the auditor to use?What do current standards say about the auditor’s role with respect to materiality?
How is ‘auditing materiality’ different from, or similar to, ‘accounting materiality’?
Explain how company policies and education can improve auditor judgement.
Describe each of the following decision theories and name their proponents:a image theory b structuration theory.
Define and describe each of the following types of heuristics or biases:a anchoring and adjustment b availability c representativeness.
Describe the relationship between audit judgement and professional scepticism.
RISK: Consider the information in Table 6.4 and identify:a why each of the distortion or fraud occurrences might occur in the situation described b why the auditor response may (or may not) be reasonable in all circumstances.
RISK TYPES: Review Figure 6.6.Required: Explain what has occurred in the analysis of each situation and what this means for substantive testing.
RISK DECISIONS: Figure 6.5 illustrates possible outcomes of different audit decisions related to risk:Required:a Explain why each box on the right is classified as ‘high’, ‘medium’ or ‘low’.b If later tests of controls reveal that controls over the completeness of transfers from
BUSINESS AND INDUSTRY RISK: Use Table 6.3, and the risk examples within it, to:a conclude why each type of risk is classified as either a ‘business’ or ‘industry’risk b describe how these types of risks are different from each other, and what that may mean for determining how they should be
RISK: For each of the situations below, determine whether it would lead the auditor to increase, decrease or not change the nature, timing and/or extent of their testing:a Anyone in the business can enter sales information into the accounting information system.b The manager is under pressure to
RISK MODEL: For the client being audited, and due to the implications of audit failure, an auditor requires a very low OAR, and assesses their CR as very low (45 per cent) and the inherent risk as high (90 per cent). To what level of confidence must they conduct their substantive tests? Explain.
RISK TYPES: What types of risks, of all possible kinds, are suggested by the following events occurring for the audit of Bybee Ltd:a The company produces aeroplane parts that may soon become obsolete.b It relies on the high-level skills of its engineering team.c There is no lock or protection on
RISK TYPES: What type of inherent risk might be indicated by each of the following for an auto repair shop:a The CEO is trying to increase the products completed per day to meet board incentives.b Some of the customers have been paying later than usual.c The senior manager has noticed that cash
RISK TYPES: What type of inherent risk might be indicated by each of the following for Laundry Ltd, a dry-cleaning and clothing repair business:a It is venturing into financial investment activities.b Customers are finding it cheaper to ship their clothing offshore for repair, as the South-East
RISK TYPES: What risk is most closely affected by each of the following?a A client has implemented a subroutine in their payroll records program that casts and cross-casts all daily journal entries and postings.b Unfortunately, the company’s senior systems manager has a habit of overriding this
RISK MODEL: Your audit client is a metal parts manufacturer of significant interest to the community. They fill a unique local market niche but have been hurt by the effects of a falling dollar on raw materials imports. Gross profit margins have held steady.Required:a Determine whether the
RISK MODEL: Four types of risk are used in the ARM. If you could choose to add‘sampling risk’, ‘non-sampling risk’ or ‘technology risk’ for a next-stage ARM, what might you add to the model and why?
RISK: You must apply your knowledge of risk in relation to a company you have audited previously, when it had strong systems and no problems, but which currently faces challenges because its low-tech market has disappeared and sales have declined. Identify what you believe to be the areas of
Describe how audit risk and audit confidence will inform the planning of an audit.
Distinguish between the meanings of each of the following, and describe why these differences may be relevant to the auditor – misstatements from:a errors b employee fraud c distortion.
Is ‘sampling’ risk or ‘non-sampling’ risk controllable by the auditor?
Explain the difference between risks associated with integrity and situational pressures. What larger category do they fall within?
Explain how each of the other risks in the ARM is determined.
Explain why we tend to solve for STR.
Identify some limitations to the extent to which an auditor can, or should, reduce each of the following risks:a substantive testing risk b internal control risk.
Define and distinguish between each of the following. Include in your analysis the‘type’ of risk each one is:a analytical procedures risk b substantive testing risk c business risk d industry risk e management risk.
Define and distinguish between each of the following:a detection risk b inherent risk c control risk.
The audit risk model is an approximate mathematical model. Why would it be used, and at what point in the audit? Is it precise regarding actual risk?
Name and describe five reasons for moving to the audit risk approach.
Distinguish between audit risk at the ‘financial’ and ‘assertion’ levels as defined in auditing standards.
Describe the nature and source of guidance provided to the auditor with respect to the auditor’s responsibility for applying the risk approach.
What does it mean to apply a risk approach to an audit? How does this differ from past practice?
ONLINE CASE RESEARCH: HIH, HARRISSCARFE, ONETEL OR FONTERRA:Consider one of the following cases: Australia’s HIH, HarrisScarfe or OneTel; or New Zealand’s 2005 Fonterra case.Required:a Conduct library or online research to see what you can find on the selected case.b From your findings, see if
FUJI XEROX CASE: A financial scandal involving Fuji Xerox New Zealand (FXNZ) and Australia (FXA) emerged on the disclosure by KPMG to Japanese shareholder FujiFilm that revenues and valuations were incorrect. It was estimated that accounts were overstated by NZ$450 million (2011–16). The case had
AUDITOR’S LIABILITY: The auditor, having completed the audit for Company R, was unaware that the company’s senior manager was misappropriating funds of a material amount by creating false purchase invoices, a process that led to the authorisation of cheques. These cheques were not sent to
AUDITOR’S LIABILITY: The auditor completed their annual audit for Company R, and on the basis of the auditor’s opinion, Bill committed funds. Company R failed, and Bill lost all of his money. Determine under which, if any, of the following circumstances Bill may recover from the auditor.
AUDITOR NEGLIGENCE: The auditor declined to conduct an audit of the client’s financial statements because he did not have the audited beginning balances for the statements. The client was able to convince the auditor to conduct a ‘review’engagement, however. The auditor’s opinion was
THEORY AND LIABILITY: Aaron was the auditor for Business B. Those who relied on Aaron’s (clean) audit opinion included the existing partners of Business B, potentially new partners of Business B, and the CEO of Business B in regards to demonstrating to the partners what an excellent management
AUDITOR’S LIABILITY: T was the auditor for Company L, which wished to borrow money from a private investor: I. The financial statements received an unqualified(‘clean’) audit opinion, but Company L failed within three months of the end of the audit, and the private investor received none of
CASE LAW IMPACT: Describe how the outcome of the Pacific Acceptance case may have had an impact on audit practice and specific standards pronouncements in Australia, New Zealand and/or overseas.
AUDITOR’S LIABILITY: Consider the legal implications of the actions of the external auditor in the following circumstance. Indicate whether or not, in your opinion, the auditor is liable for negligence, and, if so, in what manner. Where relevant, state alternative actions that should have been
AUDITOR’S LIABILITY: AX Ltd advise you that they require your audited financial statements to support an application to the bank for a loan. Without your knowledge, the statements were shown to W, who, on the basis of the reports, invested a large sum in AX Ltd. AX Ltd subsequently became
Explain how selective cases since 1980 have addressed practice issues that may not have existed in the 19th or early 20th centuries.
Compare Australian and New Zealand common law history with respect to the auditor’s duty of care to third parties.
Explain the significance of, and points made in, the Pacific Acceptance case.
Explain how auditors may be able to reduce their liability by demonstrating contributory negligence by managers or directors of client entities.
Explain what constitutes reasonable skill and care. Identify key cases and their significance to this standard.
Name two important cases in relation to liability to foreseeable parties, and explain the significance of each case and findings relative to audit concerns.
Name two important cases in relation to liability to foreseen third parties, and explain the significance of each case and findings relative to audit concerns.
Describe the circumstances that could give rise to liability to third parties under the law of tort.
Describe the circumstances in which an auditor may be held liable to clients under contract law.
In some of the cases examined here, are we concerned with the auditor’s or the client’s ‘illegal or fraudulent’ behaviour?
In the cases examined here, are we concerned with the auditor as ‘plaintiff’ or‘defendant’?
Discuss whether the auditor should be a ‘watchdog’ or a ‘bloodhound’.
Who came up with the concept of ‘reasonable care and skill’?
PROFESSION AND ETHICS:PwC will lose its most lucrative audit contract among NZX-listed issuers when Fonterra ends a 15-year relationship that’s earned the auditor$94 million. This week Fonterra recommended KPMG be appointed the new auditor for the financial year ending July 2020. PwC’s
ETHICS: Name and describe each ethical situation below and how you might safeguard against it.a Your client offers to pay you a bonus if you get them out of a dispute with the NZ Inland Revenue Department.b You bid against a competing firm to obtain the audit of Client X, and you win the bid,
ETHICS: An auditor encounters the following situation. Her client is a partnership operated by a husband-and-wife team. The couple has struggled to pay their current debt over the last couple of years and are relying on the audit to obtain a loan from a second bank. This year, you have helped them
ETHICS: For each situation below, explain how these actions might indicate an‘independence in mind’ and/or an ‘independence in appearance’:a The auditor declines to accept an engagement in which his old friend is the CEO.b The auditor declines to accept an engagement with the managing
CONFIDENTIALITY: You have been in contact with potential shareholders for your audit client. They believe that the information and evidence you acquire should not be kept confidential, that they should know exactly what you have found and any problems you encountered when auditing the
PROFESSION: Explain why it is important that the organisation that promulgates standards for audit professional work is separate from the professional organisation itself. How does this relate to the ‘independence’ concept you have learned?
ETHICS: Your client does not understand why your profession is concerned with professional ethics. He believes that your job is simply to review what he has done and report on it – why are ethics required? Explain.
PROFESSIONS: In terms of whether a profession is likely to have the characteristics, and be seen to enjoy the characteristics, of a true ‘profession’, consider the following associations, then rank each of them on a scale of 1 (‘high’professionalism) to 3 (‘low’). Explain why and/or
ETHICS: While playing golf with Bill Sims, the manager of Traders Ltd, Tom Lurk(ACA) suggests to Bill that Traders Ltd would save money by appointing him (Lurk)as auditor. He promises to do just as good a job as the present auditor for half the fee. He also points out that, given his investment in
COMMUNICATION: A commercial bank employed a major audit firm to perform its annual financial audit on its 2021 statements. The firm concluded that the provision for doubtful debts was understated by a material amount. The firm and the board of directors came to an agreement as to a ‘true and
Explain the environment which places pressure on the auditor’s inclination to apply professional scepticism in a repeat engagement.
Compare and contrast ‘peer review’ and ‘quality control’.
Compare and contrast accounting profession and firm practices in: Australia, New Zealand, the United Kingdom, the United States and Canada.
Describe the different firm structure practices found in Australia, New Zealand and other countries.
Why are larger firms more active in performing statutory audits?
Describe commonly employed firm structures, as well as the advantages and disadvantages for the audit firm and for users-accountees.
Confidentiality is an expectation that can create issues. Provide examples of such issues and discuss the appropriate actions.
Define ‘management advisory services’, then provide three examples and describe the threats and acceptable safeguards (if any) for each.
Describe the following terms, distinguish between them, outline how they potentially compromise audit independence, and describe the restrictions around them for assurance services (threats and safeguards, if any):a commissions b contingent fees.
What is the meaning, in terms of these ethical codes, of an auditor’s:a financial interests b fee dependence c lowballing d incompatible occupations e personal relationships.
For each of the five threats to independence, identify one possible ‘safeguard’.
Explain the difference between independence ‘in appearance’ and ‘in fact’. Why is the distinction important?
Name all of the fundamental principles in the Code of Ethics and define them.
Name and define sources of pressure on the auditor to comply (or not comply) with professional ethical standards.
Auditors have a responsibility to behave in a professional manner. Explain why this is important.
Explain the role and positioning of the AUASB/NZAuASB.
Name and describe four statutes that are important with respect to the formation of the audit profession and its association(s) in Australia or New Zealand.
CONFIDENTIALITY: How is the auditor’s responsibility to retain the confidentiality of the client and their information challenged in statutory law? Should you discover a situation found in the statute which requires the disclosure of client information to a regulatory authority, how would you go
AUDITOR LIABILITY: Select one or two major companies in Australia/New Zealand and determine, from their websites, the form of business they currently employ for audit. What are the implications of their choices for auditor liability and obligations?
AUDITOR LIABILITY: Your senior partner has decided to incorporate the company under new legislation. What should the partner investigate, and how, before they make any assumptions about whether the resulting company can continue to perform statutory audits. What might they need to have or know?
STATUTE AND THEORY: In terms of economic and social accountability theories, provide separate explanations as to why it may be important to impose an audit under the statute. Be specific.
AUDITOR REMOVAL: Despite an auditor’s representations, shareholders pass a resolution to remove them and replace them with a new company. What actions should the departing auditor take? What actions should the new auditor take? Why?
AUDITOR REMOVAL: Consider what would occur, under Australian and New Zealand laws and regulations, in the following situations:a Directors recommend to their shareholders that an auditor be removed.b An auditor has performed the same engagement year after year for the last decade.c A professional
AUDITOR: A professional firm conducting a statutory audit is ‘registered’. However, the usual partner in charge is unwell and has asked you to conduct the audit. While the partner in charge is ‘qualified’, you have not yet achieved your qualifications. It is a medium-sized audit firm, and
REPORTING: The financial statement audit for your client for the year ended 30 June 2021 is almost complete. However, on contacting their legal adviser to obtain information about the client’s potential liabilities in late August, you find out that the adviser has just gone on holiday for the

Showing 400 - 500 of 795

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

Step by Step Answers