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business
principles of auditing
Questions and Answers of
Principles of Auditing
a. What is the likely acceptable level of detection risk for payroll expense account assertions? Why?b. What effect does this have on the design of substantive tests for payroll assertions?
Identify several analytical procedures that may be applied to payroll balances and indicate the assertions to which the evidence pertains.
a. What procedures should be performed to obtain evidence about the reasonableness of management's accrued payroll liabilities?b. Why is officers' compensation audit sensitive and what tests should
Which of the following statements is generally correct about the competence of evidential matter?a. The auditor’s direct personal knowledge, obtained through observation and inspection, is more
Which of the following elements ultimately determines the specific auditing procedures that are necessary in the circumstances to afford a reasonable basis for an opinion?a. Auditor judgment.b.
An auditor should communicate to the audit committee all of the following matters excepta. The implication of errors discovered during the audit.b. Unexpected account variations discovered during
Ajax Company’s auditor concludes that the omission of an audit procedure considered necessary at the time of the prior audit impairs the auditor’s present ability to support the previously
The auditor should obtain a level of knowledge of the entity’s business, including events, transactions, and practices, that will enable the planning and performance of an audit in accordance with
When can auditors disclose unlawful acts to the police?
How does the auditors’ professional duty of confidence affect disclosures to third parties?
What should auditors do if they discover an unlawful act?
What are the circumstances in which auditors can make disclosures without permission from their client?
List some physical controls.
Winfred Metal Reclamation Ltd, a small company, buys scrap metal residues from local companies and treats the residues to recover the metal which is then sold to other local companies.The company is
Define an audit.
What are the time limits for laying and delivery of accounts?
What financial statements must be prepared?
Mainbrace Ltd is a book publisher and retailer which trades via the Internet. The company was formed using a kit bought from a legal stationer, start up capital was provided by the major shareholder,
What other services do accountants provide in addition to auditing?
What specific reports do directors have to ensure are included in the accounts under the UK Corporate Governance Code?
What should the Auditors’ Report state?
Define small and medium-sized companies.
What exemptions are available to them?
What is the true and fair override?
What are the rules on publishing accounts in abridged form?
What additional reports are required from an auditor?
What are the rules on sending out accounts in summary form?
What documents are issued by the APB?
What material is contained in a Statement of Auditing Standards?
What is aSORP?
What is the relevance of FREDs for auditors?
In the audit of small companies what accounting standard is particularly important?
Why are accounting standards important to auditors?
Tickitt & Run are auditors of McColl Holdings PLC, a chemical manufacturer. The financial director has left the company recently to take up another post and McColl have so far been unable to find a
What are the rules on accountants’ remuneration?
In Newtown there are three small firms of qualified accountants and registered auditors who, between them, have most of the large businesses, farmers and landowners and other service providers as
You are an audit manager in Tickett & Run, a firm of Chartered Certified Accountants. Your specific responsibilities include planning the allocation of professional staff to audit assignments. The
Juliet B a partner in Tickitt & Run, Registered Auditors, receives a telephone call from the managing director of Chateaubriand Ltd which runs a chain of restaurants and bars. They wish to appoint
Viswa is a company that provides call centre services for a variety of organizations. It operates in a medium-sized city and your firm is the largest audit firm in the city. Viswa is owned and run by
Flowers Anytime sells flowers wholesale. Customers telephone the company and their orders are taken by clerks who take details of the flowers to be delivered, the address to which they are to be
What kinds of access to assets and records are there?
List some management controls.
List suitable controls over a petty cash system.
List some possible wages frauds.
You are working on the audit of your client Sweetie Ltd for the year ended 31 March 2X11.The company employs one hundred workers in a doughnut manufacturing plant. Wages are paid weekly.The following
List some limitations of internal control.
You have been presented with the following draft financial information about Hivex, a very successful company that develops and licenses specialist computer software and hardware. Its fixed assets
Define materiality.
What are the components of audit risk?
What is inherent risk?
What is a walk-through test?
You have recently been appointed auditor of Donkey Aid, a small registered charity which raises funds to rescue dis-tressed donkeys. The charity makes payments to individuals who adopt rescued
Down Market Department Stores PLC sell a high proportion of their merchandise on hire purchase (HP).The system for dealing with HP sales is highly organized and well controlled. The HP receivables
Hermit Galleries PLC are international art dealers with a turnover of £30 million a year.They specialize in Impressionist paintings and have an inventory valued at £10 million. Recently it has been
There are a number of different methods of obtaining audit evidence. Methods include:(i) analytical procedures;(ii) audit sampling:(iii) tests of controls:(iv) detailed testing of transactions and
(a) Explain how analytical review procedures can contribute to an audit.(b) Explain how the results of analytical review can influence the nature and extent of other audit work.(c) Give THREE
Sheek Clothing PLC is a retailer with 200 branches throughout the UK. Most of the branches are small.The inventory is a very significant item in the financial statements. Inventory is counted
What is the difference between a compliance test and a substantive test?
What is meant by: representative, population; sampling units?
Define analytical procedures.
Tickitt & Run are in the process of completing the audit of their client Fredbare Ltd, a manufacturer of swim- wear and sports clothing.They have just carried out the interim audit and have
Your firm is the external auditor of Bestwood Engineering Ltd which manufactures components for motor vehicles and sells them to motor vehicle manufacturers and wholesalers. It has a turnover of
You are responsible for the statutory audit of Servit Ltd (Servit) for the year ended 30 November 2X10. Servit provides industrial maintenance services to companies operating in the engineering
Why is it important?
You are the manager responsible for prospective new clients and you have visited Bolington Publishing PLC which publishes a small range of fiction paperbacks. The chief executive is Daniel Dunbar and
Define business risk.
You are a manager in Costello, a firm of Chartered Certified Accountants, which has recently adopted a business risk methodology. You have been involved in briefing clients about this 'top-down
What is COSO and how does it assist risk management?
The implications of business risk for the audit?
Osocheep Supermarkets Ltd have a main depot and five large supermarkets. Their financial year end is Thursday 31 March 2X11 and inventory is to be evaluated as at the close of business on that date.
Movit Ltd (Movit) is a company which hires out heavy plant used in the construction industry. All plant is hired out with a driver who is responsible for ensuring that the plant is immobilized and
Harrier Motors deals in motor vehicles, sells spare parts, provides after-sales servicing and undertakes car body repairs. During the financial year to 30 June 2X11, the company expanded its
Tickett & Run LLP is a city firm of Chartered Certified Accountants. The firm’s accounts are produced by the administration partner but are subject to audit by Blanket, Mange, another firm of
Rapidrise Ltd is a firm of plumbers’ and electricians’ merchants which has expanded very rapidly to a turnover of some £3 million in five years. There are three founder director/shareholders and
Who owns an accountant's working papers?
Internal auditors often assist management in performing internal review assignments covering, for example, human resources, procurement (purchasing), marketing and treasury activities. Such reviews
Reports produced by internal auditors are different from audit reports produced by external auditors performing audits under International Standards on Auditing. The reports are produced for
The audit of Binkle Ltd for the year ended 31 December 2X10 was completed on 2 February 2X11. Materiality was judged to be £150 000. As all tests yielded satisfactory results, the auditors, Tickitt
What are the responsibilities of directors in connection with illegal acts?
Tickett & Run have recently been appointed auditors to Massive Holdings PLC, a group of ten companies based in the North of England. Massive has subsidiary companies, all of which are wholly owned,
Cuthbert Ltd outsources most of its accounting function to Speedy Accounting Services Ltd. They have found the relationship with Speedy very effective. However, recently it has come to Cuthbert’s
Tickitt & Run are conducting the final audit of Woodhood PLC who are importers and dealers in timber and manufacturers of packing materials. The accounts show results which are comparable to those of
An unqualified audit report normally states that the financial statements to which the report refers give a true and fair view of the state of the company's affairs at the Statement of Financial
Pingo Manufacturing Ltd imports electronic components and assembles them in a factory to make consumer gadgets which appeal to a younger market. They have traded successfully for many years because
After the year end, but before the Auditors' Report is signed, there is a big fire at Megablast plc and their biggest factory burns down throwing the future of the company into doubt. How should this
You are planning the external audit of Steady Eddy Ltd (Steady Eddy) whose principal activity is the provision of road haulage services. You have been provided with the following information in
List the auditors' procedures.
List the possible auditors' reports.
For each of the following statements indicate whether the statement is true or false.a. The procedures for a compilation of financial statements include inquiries concerning a company's accounting
The following questions relate to a public accountant's responsibilities for unaudited financial statements. Select the best response.a. In performing a compilation of financial statements of a
The following questions relate to specialized reporting circumstances. Select the best response. a. When reporting on financial statements prepared on a comprehensive basis of accounting other than
You have been asked to prepare unaudited financial statements for the Marek Company for the year ended December 31, 19X5. Marek does not want the notes to financial statements to disclose that the
You have prepared tax returns for the Hicks & Hocks Corporation for several years. Hicks called you and requested 50 additional copies of the return this year. You have never prepared audited or
W.E. Jolson, CPA, has issued the following report on the Bambino Lumber Company's balance sheet: I have audited the balance sheet of Bambino Lumber Co. for the period ended December 31, 19X1. Due to
The following report was prepared by M. Salvemini, CPA, to accompany unaudited financial statements: We have prepared the statement of net worth, dated November 30, 19X1, that is attached hereto.
Assume that you prepared Moore Corporation's federal income tax return. Shortly thereafter Moore came to your office and requested that you prepare financial statements for the corporation solely
R. Gilsdorf, CPA, has prepared the following report on the cash basis financial statements of the ABC Company. I have audited the balance sheet and income statement of ABC Company as of December 31,
May & Day CPAs are engaged by XYZ Company to audit the records of gross sales of ABC Stores Corporation. ABC Stores leases space in a shopping center owned by XYZ Company that is located on Island
The American National Bank has prepared an application form for long-term loans that must be prepared and signed by an independent CPA. The one-page form contains blanks for filling in financial
The Kohler Company, your client, is considering the acquisition of the Krunt Corporation. The assets of Krunt are composed primarily of receivables and inventory. Kohler is having its engineers
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