Principles Of External Auditing 2nd Edition Brenda Porter, Jon Simon, David Hatherly - Solutions

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An auditor suspects that fictitious sales may have been recorded during the year. Which of the following analytical review results would most likely indicate that fictitious sales were recorded? a. Uncollectible account write-offs increased by 10 percent, sales increased by 10 percent, and
The COSO organization has issued a document describing a com- prehensive approach to Enterprise Risk Management (ERM). Required a. What are the major elements contained in the definition of ERM? b. Identify the eight components of the ERM framework. c. Why is it important that an organization
Access the SEC home page at http://www.sec.gov. a. Identify the most recent Staff Accounting Bulletin that provides guidance to the profession. b. Identify the guidance given.
What role did the widespread use of stock options contribute to corporate fail- ures?
What is the PCAOB and what is its mandate?
What studies were conducted by the GAO as part of the Sarbanes-Oxley Act?
Sarbanes-Oxley contains certification requirements of management. What are they and how do they differ from the responsibilities that management previously had?
What are the whistleblowing provisions of the Sarbanes-Oxley Act? What is the organization's responsibility for establishing and monitoring a Corporate Code of Conduct?
What does it mean to have management certify that the financial statements are correct? How does this certification differ from the previously acknowledged re- sponsibility for the fairness of the financial statements?
The audit committee is supposed to be the external auditor's client. Explain what this means and how it is implemented.
What responsibility does the audit committee of a public company have regard- ing the selection of a chief audit executive for its internal audit activity? What role does the audit committee play in setting the scope and budget of the internal audit function?
Does the audit committee need to separately approve nonaudit services to: (a) the company, (b) management, or (c) members of the board of directors? Explain.
Explain the difference between the proposed standard for understanding the en- tity and its environment (including internal control) from the previous standard focusing on internal control.
What is the base of authority for each of the audit standard setters identified in question 2-33?
All of the following are parts of corporate governance except:a. Oversight of management by the board of directors.b. Established processes to provide accountability back to stockholders.c. Whistleblowing processes.d. Independent review of financial statements by the SEC.
Which of the following would not be a correct statement about a partial cause of corporate governance failures?a. Boards of directors approved stock option plans that did not align management and shareholder objectives.b. Audit committees met infrequently, only for an hour at a time.c. The AICPA
Which of the following is not a Sarbanes-Oxley requirement for audit commit- tees?a. The audit committee must be chaired by the chair of the board of directors.b. Audit committee members must be financially literate.c. Audit committee members must be outside directors.d. The audit committee should
In which way did the public accounting profession bring about the problems that resulted in Congress passing the Sarbanes-Oxley Act of 2002?a. Failed to detect material financial statement fraudsb. Emphasized generating revenues over audit qualityc. Viewed helping the clients find an accounting
Which of the following is an inappropriate description of management's role in preparing financial statements and reports on internal control over financial re- porting? Management has the primary responsibility for:a. Determining the scope of internal and external audit activities.b. Preparing
An audit committee should do all of the following except:a. Decide whether to retain or dismiss the outside auditors.b. Determine whether material fraud ought to be reported in the company's fi- nancial statements.c. Determine the budget for the internal audit department.d. Appoint, or concur with
Which of the following would not be required to be communicated to the audit committee by the outside auditor?a. Significant audit adjustments made during the course of the auditb. Significant disagreements with management regarding accounting principlesc. The auditor's knowledge of management's
The application of due professional care means that the auditor's work conforms with all of the following except:a. Current auditing standards as defined by Statements on Auditing Standards.b. The work that a reasonably prudent auditor would have performed in the same situation.c. The work that
The second standard of fieldwork requires the auditor to do all of the following except:a. Understand the business and its environment.b. Understand the risks related to financial reporting.c. Perform analytical procedures to identify potential misstatements in the finan- cial statements.d. Obtain
The auditor uses the following audit procedure as part of the audit of fixed assets:Take a statistical sample of all additions to property, plant, and equipment and trace to invoices received from the vendor.Which of the following outcomes would most likely alert the auditor to the pos- sibility of
Public accounting serves an im- portant role in corporate governance.Requireda. Describe the role that external auditing fills in promoting good corporate gov- ernance.b. What were the major criticisms of the public accounting profession and the AICPA as contributors to failures in corporate
The audit committee is required to evaluate the independence of both the internal and external audit function.Requireda. What factors would you suggest that an audit committee look at in evaluating the external auditor's independence?b. How can the audit committee influence the independence of the
The PCAOB has the authority to set audit standards for all audits of public companies. The AICPA suspended the activities of the Auditing Standards Board in 2002 pending further developments. However, there continues to be questions as to whether there should be differen- tial standard setting for
The Sarbanes-Oxley Act required numer- ous studies of the accounting profession to be made by the GAO and reported to the SEC within one year of its enactment.Required In consultation with your instructor, select one of the following GAO studies of the accounting profession:Consolidation of Public
The Sarbanes-Oxley Act of 2002 created the PCAOB and gave it the responsibility for setting auditing standards for public companies. However, it was silent on auditing standards for nonpublic companies.Requireda. Briefly describe the rationale for allowing different auditing standards for au- dits
Identify five users of audited financial statements. Briefly indicate why independ- ently audited financial statements are important to each user.
What is corporate governance and why is it important? What role does the audi- tor play in improving corporate governance?
What is the primary rationale for Congress to require mandatory reporting on internal accounting controls?
How has the public's expectations of the auditor's role differed from that which the audit function provided?
What are ElderCare Plus services?
In determining the primary responsibility of the external auditor for a company's financial statements, the auditor owes primary allegiance to: a. The management of the company being audited because the auditor is hired and paid by management. b. The audit committee of the company being audited
Which of the following would not represent one of the primary problems that would lead to the demand for independent audits of a company's financial state- ments? a. Management bias in preparing financial statements b. The downsizing of business and financial markets c. The complexity of
Assurance services involve all the following except: a. Improving the quality of information for decision purposes. b. Improving the quality of the decision model used. c. Improving the relevance of information. d. Implementing a system that improves the processing of information.
Internal auditing is viewed as an integral part of all of the following organizational functions except: a. Risk management. b. Governance. c. Control. d. Operations.
Which of the following statements is true regarding the provision of assurance services? I. The third party who receives the assurance generally pays for the assurance received. II. Assurance services always involve a report by one person to a third party on which an independent organization
Which of the following is the broader concept? a. Audits of financial statements b. Internal control audit c. Assurance services d. Attestation services
Which of the following statements are correct regarding the setting of auditing standards in the United States? a. The AICPA is responsible for the setting of audit standards only for audits of nonpublic entities. b. The GAO is responsible for setting audit standards for audits of governmental
Which of the following statements is correct? As a result of the Sarbanes-Oxley Act of 2002, a. Public companies must report on the quality of their internal controls. b. CPA firms cannot provide consulting services to any public company. c. CPA firms can provide tax services only to nonpublic
The GAO is responsible for all of the following except: a. Developing standards for audits of federal agencies. b. Developing standards for audits of state agencies. c. Performing special investigations at the request of Congress. d. Developing standards for external audits of public companies.
The AICPA is a private governing organization of the public accounting profes- sion that does all of the following except: a. Perform quality peer reviews of companies performing audits. b. Issue auditing standards dictating acceptable auditing practice for financial au- dits of public companies
All of the following require an audit communication to a third-party except: a. A review of financial statements of a nonpublic company. b. An attestation to the quality of a company's internal control. c. An assurance that a company's information system is reliable. d. An attestation of the
Olson Company, a medium-size manufacturer of products marketed in the Midwest, recently was persuaded by its banker to have its annual financial statements audited. The company has been growing at a rate of 20 percent per year, and the current year's sales volume is approaching $55 mil- lion. The
The AICPA and the IIA have positioned the au- diting professions to become "assurance professions." Required a. What is the difference between assurance services, attestation services, and au- diting services? b. What are the economic issues that drive the increased demand for assurance
You have been talking with one of your close col- leagues regarding graduate school. Your colleague has decided to go to graduate school to obtain additional training to become a bank loan officer. You have de- cided to go to graduate school to further develop your skills for entry into the
The structure of CPA firms has gradually changed over the past decade with less of a pyramidal shape. Required a. Briefly explain the rationale for the pyramid organization structure of public accounting firms as it has existed for many decades. b. What forces are causing this structure to
Briefly explain:(a) the advantage to external auditors and companies of external auditors relying (in part) on the work of internal auditors; (b) why internal auditors do not perform all of the support work for an external audit.
Give a comprehensive definition of auditing.
Under the provisions of the Companies Act 1985 an auditor's report must be attached to a company's financial statements. Is this true for all companies? Explain.
State the major changes which have occurred in auditing techniques during the last 160 years. Explain briefly how changes in technology have impacted on the changes in auditing techniques.
Outline briefly the development of corporate accountability over the past 160 years.
List reasons which help to explain why the detection of fraud and error lost its prominence as the primary audit objective during the 1920-1960s period.
(a) Distinguish between 'non-controllable' and 'controllable' risk.(b) Explain briefly the components of non-controllable and controllable risk.
List six factors that may result in an auditor's independence being compromised in fact or in appearance.
List the restrictions placed on auditors by the professional accountancy bodies which are designed to prevent auditors' independence from being impaired through: (i) financial involvement with an audit client; (ii) personal involvement with an audit client.
List the four principles that underpin the SEC's auditor independence rules.
Outline the principal responsibilities of audit committees and explain briefly how audit committees may help strengthen auditors' independence.
List the items which the Companies Act 1985 requires auditors to include in their reports to shareholders.
Distinguish briefly between the three types of corporate fraud.
Describe briefly the changes to auditors' responsibilities in respect of detecting fraud:(i) introduced in (revised) ISA 240: Fraud and error;(ii) indicated in the APB's Consultative Papers: Fraud and audit: choices for society and Aggressive earnings management.
Indicate the audit procedure(s) you would use to verify each of the following items. Briefly explain each procedure, indicating how it would be applied in the particular situation.(i) Value of office supplies on hand at year end.(ii) Value of a trade debtor's balance outstanding at year end.(iii)
Explain how an auditor might acquire evidence about each of the follow- ing transactions: (i) Equipment Cash 3,000 3,000 (ii) Equipment 4,000 Creditors 4,000 (iii) Depreciation expense 2,000 Accumulated depreciation-equipment 2,000 (iv) Insurance expense 1,000 Prepaid insurance 1,000
List three elements of the auditor's pre-engagement investigation.
List five topics which are usually referred to in audit engagement letters.
List five audit procedures which may be used to gain an understanding of the client, its business, and its industry.
Define the auditor's 'desired level of assurance'. Explain how this relates to the auditor's desired level of audit risk.
(a) Describe briefly what is meant by 'an audit programme".(b) State the two stages in which an audit programme is developed.
Explain the meaning of the term 'financial statement assertions' and list seven such assertions.
Describe briefly the 'stocksheet system' which may be used for a client's stocktaking.
Explain briefly the auditor's duty when (s)he has unresolved doubts about the ability of the auditee to continue as a going concern.
Explain briefly the difference between a scope limitation and an inherent uncertainty.
Distinguish between a material inherent uncertainty and a fundamental inherent uncertainty and explain how each is reflected in the auditor's report.
List six factors of the law relating to the liability of auditors to third parties that have emerged from cases settled subsequent to the Caparo decision, and identify the common theme that can be discerned from the courts' decisions.
List eight environmental quality control elements audit firms should implement to help ensure that high quality audits are performed by the firm.
Describe briefly the key features of the Joint Monitoring Unit's monitoring process.
List two ways in which monitoring by the Joint Monitoring Unit and the ACCA monitoring unit differ and give reasons to explain these differences.
Give two reasons to explain why a company usually seeks to manage rather than eliminate its risks.
State the key objectives of an internal audit.
Outline the steps involved in:(a) planning(b) executing(c) reporting(d) following up an internal audit.
Distinguish between a financial statement audit, performed by external auditors, and a financial audit, performed by internal auditors.
Briefly describe the key features of a Control Risk Self Assessment (CRSA) system.
State the advantages of a CRSA system for:(a) company managers(b) risk managers(c) internal auditors(d) companies as a whole.
Define the following terms:(i) an environmental management system;(ii) an internal environmental audit;(iii) an external verification (or assurance) engagement.
Explain briefly how the scope of internal environmental audits has developed over the past 20 or so years.
Outline the various forms in which a company may report its environ- mental performance and distinguish between an "environmental report' and a 'sustainability report'.
Discuss briefly the objective and requirements of the ISO 14001 scheme and Europe's eco-management and audit scheme (EMAS), and list the key differences in the requirements of the two schemes.
Explain briefly the difficulties for internal environmental auditors and external environmental verifiers that result from the absence of environ- mental reporting and verification standards.
List the professional requirements for internal environmental auditors and external environmental verifiers and identify the groups which may be equipped to undertake this work.
Outline the usual contents of:(i) an internal environmental audit report to management;(ii) a verification (or assurance) report attached to a company's published environmental report.
List and briefly explain the advantages that may accrue to companies as a consequence of conducting internal environmental audits and publishing independently verified environmental (or sustainability) reports.
List and briefly explain the disadvantages that companies may experience as a consequence of conducting internal environmental audits and publishing independently verified environmental (or sustainability) reports.
List four ways in which environmental factors may impact upon the statutory audit of companies' financial statements.

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Principles Of External Auditing 2nd Edition Brenda Porter, Jon Simon, David Hatherly - Solutions

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