Auditing Concepts For A Changing Environment 5th Edition Larry E. Rittenberg, Bradley J. Schwieger - Solutions

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STANDARDS AND STATUTE: What if the partnership client in Exercise 3.2 wanted a compilation of the financial statements rather than a review? What would change?Why and how?
STANDARDS AND STATUTE: The client, a small partnership, wishes you to perform a review engagement of their financial statements for the year ended 30 June 2021.They want the review because the bank from whom they wish to borrow will accept a review, and you have advised them to proceed.a What
STANDARDS: The local audit professional association is accustomed to setting standards for New Zealand auditors. The firm’s founding partner, who has been conducting audits since 2005, says there is no need to change to the new standards.The prior standards are adequate as they allow more
Why is it useful to have an audit committee should you have concerns that senior management is committing fraud?
There are certain roles which the statutory auditor must avoid under the statute.Name four.
How can the auditor be removed from performing an audit for a client?
How is an auditor selected? What is the process?
To conduct an audit of a reporting entity, what requirements must the auditor meet?
For what types of organisations is audit required in Australia/NZ? Under what conditions?
Who regulates non-assurance professional services?
What determines the organisational form which audit companies may take?
What is the standard-setting body for Australian/NZ assurance services?
For each of the statutes named, describe the general purpose.
Name the relevant statutes affecting Australian/New Zealand audit.
HISTORY: Your client is the CEO and owner of a family-owned business who does not understand why he, as well as his employees, should be subject to audit(and professional scepticism). The CEO’s understanding is that the audit is for the purposes of seeing the financial position so that he can
ROLE SENDERS: Using Figure 2.9, identify all role senders relevant to the audit of a public utility which is partly government owned and partly private shareholder owned.
HISTORY: Auditing, to maintain its important role in society, must be capable of adjusting to society’s demands. What adjustments have auditors made to the audit process over time, and what inspired these changes? Apply this to Australia/New Zealand.
ROLE: What has brought about the increase in the auditor’s social accountability?Provide a case law example. How might this apply to an audit of, for example, Air New Zealand or Qantas.
ROLE SENDERS: The auditor is a pivotal aspect of the conceptual framework. Discuss the role of the auditor in society and highlight some expectations of the auditor as a‘role sender’.
PERFORMANCE AND GOING CONCERN: The auditor has discovered that their client, Near Misses Ltd, has filed a lawsuit against them because one of their outdoor equipment devices failed and caused a fatal accident. What is the issue here and do you think the auditor should have identified the problem?
DISCLOSURE: Evaluate how disclosure legislation, or ethics requirements, might impact the following situation. The auditor discovers that their audit client is employing overseas labour at $5 per hour. These individual employees are brought into the country illegally and they are being paid less
AUDIT HISTORY: You have just encountered Rip Van Winkle, who has woken up from a 200-year sleep. He was an ‘auditor’ in his day, and he claims that the only thing he needs to do for an audit is to ensure that the money given to his client by the government, and a few large shareholders, was
ILLEGAL ACTS: The auditor has a growing obligation with respect to anti-moneylaundering expectations in the current environment. Investigate the Australian/New Zealand auditor’s current obligations. On that basis, decide what the auditor should do if they discover that their client’s chief
EXPECTATION GAP: Take and defend a position as to whether the following situations represent deficient performance by the auditor, deficient standards, or unreasonable expectations on the part of the non-auditor:a Loan receipts from an overseas financier were recorded as sales.b Inventory (stock)
CONCEPTUAL FRAMEWORK FOR AUDITING:Explain why the structure shown in Figure 2.13 would not work well. Consider the purpose of each element, and why placing them ‘out of order’ might have particular effects on the auditor’s frame of mind or their logic.
CONCEPTS AND PRACTICE: Your audit client has asked you to complete the preparation of his set of financial statements before you audit them, because he is not well versed in accounting and does not know how to prepare the adjusting entries.He also explains to you that, as the audit is just for his
AUDIT STANDARDS: Review the standards currently set out for ‘other engagements’(including any currently under review or development on a professional website or the AUASB or XRB websites). Do you think the standards are relatively complete in terms of the conceptual framework, or in terms of
STANDARDS AND GUIDELINES: You are conducting a review engagement for a business client who repairs watches and makes keys in a shopping mall. She needs the assurance for a bank loan. The client has already looked at the standards which you follow and has asked you to explain how the evidence for a
AUDIT STANDARDS: As shown in Chapter 1, there are distinct differences between standards for ‘audits’ and those for ‘other engagements’. Consider and evaluate the following:a In terms of audit scope/user or assurance (see Chapter 1), why are such differences needed?b In terms of the
STANDARDS: Evaluate the following audit standards, guidelines, guidance statements or exposure drafts (i to vii) in detail to determine which of the following they relate to:a philosophical guidance b postulates or unprovable assumptions, conceptual in nature c standard-like d guideline-like.i
What has been the emphasis for audit in each of the following eras?a formative years b Industrial Revolution – 18th–19th centuries c early 20th century d post–world wars era.Exercises
State four potential causes of the ‘audit expectation gap’.
What is the auditor’s responsibility for reporting each of the issues of:a predicting company failure b management fraud c other illegal acts.
What is the auditor’s responsibility for predicting other illegal acts?
What is the auditor’s responsibility for detecting management fraud?
Name and describe three different statutes that have influenced audit today. Describe those influences.
Describe how the ‘scope’ of audit has changed over time and why.
Compare early ‘clients’ (and users) with those of today.
Compare early ‘events’ with ‘events’ affecting audit today.
What is the auditor’s responsibility for detecting fraud? What is their responsibility for reporting fraud?
Explain why each of the formal role senders named fits that description.
Describe the difference between ‘formal’ and ‘informal’ role senders, using examples.
Certain expectations are attached to social positions and are referred to as ‘role senders’. Provide three examples with respect to Australian/New Zealand statutory audit.
If the client pays the auditor for their services, explain why there is an accountability to:a the firm b the professional association c the public.
Provide three examples of ‘disclosure’ required through or within the audit engagement.
How are ‘materiality’, ‘risk’ and ‘evidence’ related to each other?
What is the meaning of the ‘cost–benefit’ of audit evidence? What are the implications for the audit process?
What is the meaning of ‘independence’ in terms of the relationship between the external financial statement auditor and their client? Why is it important?
Detail why ethics is important for professional auditors.
Drawing from Flint’s work, concepts are classified into four broad groups. How might the absence of these concepts affect practice?
Discuss the importance of auditor accountability and highlight the importance of this to the audit company, client, profession and the public.
Using the Pratt-Van Peursem conceptual framework:a Name and describe the four categories of concepts.b Identify the ‘concepts’ within each category and describe why they are in that category.c Name and describe the ethical standard categories in the framework (and also in current auditing
Discuss why each of the postulates may, or may not, apply to today’s environment.
Name and describe the postulates modified from Mautz and Sharaf, and Flint.
Why do we need a philosophy of auditing?
AUDIT STANDARDS: Review the standards currently set out for ‘other engagements’(including any currently under review or in the development stage on the AUASB or XRB websites). Do you think the standards are relatively complete in terms of the conceptual framework? Identify two or three
AUDIT STANDARDS: As shown in Table 1.3 and Table 1.4, there are distinct differences in standards for ‘audits’ and those for ‘other engagements’. Consider and evaluate the following:a In terms of audit scope/user or assurance, why do such differences exist?b In terms of the conceptual
CONDITIONS CALLING FOR AUDIT: Explain whether or not, and why or why not, each of the following has, or does not have, the conditions calling for audit:a A husband-and-wife partnership has been in business (and the pair have been married) for 30 years. Their business partnership has grown, and they
AUDIT PARTICIPANTS: Your audit company is negotiating an audit for TiDee Laundry, which needs the audit to borrow money from its bank. The firm has a hardworking set of owner-directors and has been a successful business. However, the owners know nothing of accounting or finance. The owners prepared
THEORY CASE: Your former audit client, Tall Capital Ltd, has gone into liquidation 18 months after the end of an audit. Tall Capital’s shareholders lost their entire investment. They believe that you should have discovered the solvency problems that existed in regard to Tall Capital and
THEORY PERSPECTIVES: Discuss the merits of the following statements and their theoretical sources:a Audit regulation is an aberration in a market economy.b If the government eliminated all statutes and regulations affecting audit regulations, this would not affect demand.c Regulatory mechanisms
THEORY APPLICATION: New Zealand’s national rail company owns the country’s tracks as well as the land beneath the tracks, some of which is leased to power companies for transmission lines. While the government supported its purchase, the rail company must be operated on a profitable or
AGENCY THEORY: Although the shareholders appoint the auditors, the main discussions all take place between directors (members of the audit committee) and auditors. Later in the audit process, the primary communications are between the auditors and the client’s managers. A bank, known to the
SCOPE, ASSURANCE, CLIENT: Discuss what type of engagement may be most appropriate for each of the following situations (none include the statutory financial statement audit) and the implications of that choice:a A manager is concerned with whether, and how, revenue, relative to costs, can be
SCOPE, ASSURANCE, CLIENT: Discuss how you would classify each of the following in terms of the scope of the engagement, the assurance (if any) and the accountees targeted. Identify other relevant issues as appropriate. Assume that no other services are performed and that each service is independent
Audit professionals may be employed in several contexts. What are they? Which of those contexts is likely to be that in which the external financial statement auditor is employed? Why?
Identify and define the four conditions that, together, create a need or call for a financial statement audit.
How do each of the following theories help explain the call for audit?• neoclassical economic theory• social accountability theory• critical theory.
Does the financial statement auditor prepare the material they audit? Why or why not?
How does the assurance provider share their opinion on what they have found?
Name a professional accounting service that does not provide assurance.
How does a ‘financial statement audit’ relate to ‘all assurance services’?
Playful Ltd manufactures children’s toys. It prides itself on being an innovative company, regularly developing new products. At the end of 19X8, it has 30 different lines in stock. Green & Co., Playful’s auditors, are currently planning the audit approach for the year ending 30 September
Golden Foods (GF) Ltd makes pies, pastries and pizzas, which it sells to retailers under its own brand-name and also supplies to a major supermarket chain. It has two sites: the bakery and its head office at Darlington, and a distribution depot in Wolverhampton.GF’s year-end is 31 March 19X9 and
Massive Motors Ltd (MM) is part of the Massive Group plc, which has a consolidated turnover of £200 million. MM operates a chain of garages throughout the UK which sell petrol and carry out repairs and services.Three of the garages also deal in new and second-hand cars. MM is a UK dealer for Eagle
Holiday Holdings Ltd (HH) is a group of companies in the leisure industry.Its subsidiaries include Lyndon Hotel Ltd and the Park Leisure Complex Ltd.Because of pressure on audit fees, the auditors of HH are anxious to reduce the time taken to carry out their substantive audit testing during the
Fantasy Fashions Ltd (Fantasy) is a private company manufacturing clothes which it sells wholesale. It has few accounting systems, so the audit by Pinkerton & Co. tends to be largely substantive. The accounts are prepared by Paul Stevens, who is accurate and conscientious, but tends to leave any
Brighter Alloys Ltd (BA), a company based in the city of Bruddersford, deals in alloys used in the steel industry. It was founded in 1969 by Jack Brightman. In 1979 he and his family sold their shares in the company to Dickens Steel plc, and BA is now a wholly owned subsidiary of Dickens.Parker &
Sunrise Holdings ple was formed in 1980 by Ted Stainer. The group has expanded through acquisitions of chains of shops, including women’s and children’s clothes shops. In July 1994, Sunrise acquired Glamour Ltd, a private company which owned four shops selling jewellery and fashion accessories.
Homejoy Products is the UK subsidiary of the European Schoenheim Group, whose headquarters are in Frankfurt. Homejoy’s UK sites and operations are summarized below:Bletchley factory employing 600 people. Manufactures washing-up liquid and household cleaners which are sold via shops and
Tick & Co. are auditors of Pen & Paper ple (P&P), a chain of 32 stationery shops located throughout the UK, and is currently planning the 19X7 audit.The management of P&P has made it clear that it expects the audit fee to be lower than it was in 19X6, and the audit partner and manager are currently
Finch & Co. is a six-partner firm of chartered accountants, with an office in the small town of Bulhampton. Since the firm was founded in 1950, it has provided audit, tax and accountancy services to local private companies. The gross fee income of the partnership in 1994 was £450,000. The partners
Kemico Ltd manufactures a variety of chemicals which it supplies in bulk to industrial customers. Its factory at Gritborough employs 50 people, and its annual turnover in 1995 was £7.5M. During 1995, Kemico began to manufac- ture a new product, Zappo, for Immense Stores Ltd. Zappo’s main
Gwynn & Co. is a small firm of chartered accountants in Cardiff. The audit partner has been asked to make a proposal to Alhambra Bingo Clubs(ABC), a Cardiff-based company, which wants to change from its present auditors.I was introduced to Simon Kramer at the golf club on Saturday. He is a
Elliott Transmitters (ET) imports and sells special telephone equipment such as portable telephones and car phones and also walkie-talkies. Its customers include chain stores, mail order companies and wholesalers. ET’s year-end is 31 December. It is early July and the audit team is carrying out
Luca and Co. are the auditors of Softdream Limited, which owns a frozen food warehouse and a chain of three retail outlets in the town of Glory. The warehouse supplies a wide range of frozen foods to the shops, who do not obtain supplies from anywhere else. Luca and Co. have been the auditors for
Esparto Ltd (E) is a paper and cardboard manufacturing company whose year-end is 31 March 1989. The auditors are visiting the company early in January 1989 in order to plan their audit approach for the 1989 year-end.They have obtained copies of the 1989 management accounts and are comparing these
The Enormous Electrical Company Ltd (EE) was formed in March 19X8 by the merger of two smaller companies. It retails household electrical appliances of all kinds through a chain of thirty shops which it owns all over the UK.These are supplied from three warehouses, in Bristol, Birmingham and
Technical Wizardry Ltd (TW) was originally set up in 1937 as the Typewriter Wholesaling Co. Ltd. The change of name reflects its strategy of moving into a new market in response to the decline in demand for typewriters and the increasing use of word processors and microcomputers in business. TW
Warehousemasters Ltd (W) specializes in the design, manufacture and installation of tailor-made storage equipment. Its products and services range from a few yards of shelving to the design and installation of major warehouses.Until recently, all W’s sales were in the UK, but in the financial
Britlings Brewery (BB) is a relatively small, independent brewing company based in Sheffield, where the brewery and head office are located. Britlings owns 270- public houses in Yorkshire and Lincolnshire, all of which are run by managers. Its year-end is 31 December and its auditors are carrying
Mrs Beeton’s Kitchens Ltd (MBK) specializes in the design and installation of fitted kitchens. Fitting consultants visit a customer’s home, measure the kitchen and quote a price based on the type of units and electrical appliances selected by the customer. MBK buys in the appliances —
How often are registered public accounting firms required to undergo a PCAOB quality review?
Are nonregistered public accounting firms required to have external peer reviews? Explain.
Use the same facts as in question 17-28. Under proportionate liability, the auditor would be responsible for damages of:a. $$1$ millionb. $$750,000 $c. $$270,000 $d. $$150,000 $Data From Question 17-28In a suit for damages, the jury awards the plaintiffs $$1$ million. The jury also
Identify the different parties that might perform internal audit work. Why might there be so many different parties performing internal audit work?a. Consulting activities, by definition, impair the independence of the auditor and therefore should be performed only in areas the internal audit
Which of the following statements regarding assurance services is/are true with respect to internal auditors? I. Assurance services by internal auditors can be provided only to internal man- agement and the audit committee; that is, they cannot be provided to outside entities.II. Assurance
Which of the following statements is/are true regarding independence and ob- jectivity as applied to internal auditing? I. Independence is a departmental feature that affects the scope of audits.II. Only the audit committee can determine independence.III. Objectivity is a personal feature that is
The Public Company Accounting Oversight Board now has the responsibility for issuing standards for audits of public companies. At the time of writing this edition of the text-book, it had just issued Auditing Standard No. 1-References in Auditors' Reports to the Standards of the Public Company
A company keeps its fixed-asset records on a computer system. A unique, nine- digit, fixed-asset identification number identifies each record in the file. The re- maining fields describe the asset, its acquisition date, cost, economic life, depreciation method, and accumulated depreciation. Which

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Auditing Concepts For A Changing Environment 5th Edition Larry E. Rittenberg, Bradley J. Schwieger - Solutions

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