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auditing assurance services

Questions and Answers of Auditing Assurance Services

When conducting tests of details of transactions for property, plant, and equipment, there are three types of transactions that need to be substantiated. These transactions are additions, disposals,
What steps can the auditor take to ensure that the disposal of fully depreciated assets is properly recorded? What are the implications if such assets are retained in the accounts?
What are the problems confronting the auditor in verifying both the rate and method of depreciation?
Discuss procedures that would be useful in ensuring that all disposals of property, plant, and equipment have been recorded.
Why does the auditor usually adopt a substantive audit strategy for property, plant, and equipment assertions?
You are the audit senior in charge of the audit of Blackburn Ltd., and you are auditing the company?s trade creditors at December 31, 2020. A junior member of the audit team has been checking
Greystone Co. is a retailer of women’s clothing and accessories. It operates in many countries around the world and has expanded steadily from its base in Canada. Its main market is 15- to
Blake Co. assembles specialist motor vehicles such as freight trucks, buses, and delivery trucks. The company owns four assembly plants where parts are delivered and assembled into the motor
MO has a high volume of casual staff who work during peak season to support the increase in workload in the following main areas:1. distribution: warehouse staff to pack, store, and receive goods2.
You are reviewing the audit work for Online Ltd., a large Canadian company. Online uses a service bureau to process all wages. Time sheets are authorized by the appropriate supervisor, batched, and
You are the audit senior for the audit of Grosse Ltd. and have been given the audit file to review. The reporting date is December 31, 2020, and the materiality for the client has been set at
Figure 10.6 is a copy of the auditor’s working paper for auditing accounts payable for the client New Millennium Ecoproducts.Requireda. Explain the nature of the test being documented in the
Venture Volunteers for Troubled Teens is a not-for-profit entity that provides counselling services to troubled teens and adolescents. While the majority of its funding comes from the government, the
You are the auditor of Sofasellers Ltd., which buys furniture from manufacturers for sale to the public. You have been asked to audit certain aspects of the computerized purchasing and accounts
Trillite Ltd. has had strong growth over the past three years. The company is involved in mining in northern Canada. While revenues have been increasing, the costs of mining at its remote locations
Diamond Construction is an owner-managed entity with contracting revenues of $20 million in 2020. As construction is a labour-intensive industry, one of Diamond’s largest expense accounts is labour
Management of Tarnawski Ltd. has requested a review of internal controls over cash payments for parts and supplies purchased at its various manufacturing plants. Cash payments are centrally processed
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 sales of $25
Key documents are used throughout the purchases, payables, and payroll process, and each supports an internal control function.RequiredFor each of the following documents, describe its purpose and
For each of the following statements, identify the audit assertion that it relates to:a. All purchases transactions that occurred during the period have been recorded.b. Accrued payroll liabilities
Discuss the cut-off implications of the inventory count being before or after the year end and closing inventory being determined by adjusting the count by reference to purchases and sales records in
Overhead is to be absorbed into the cost of inventory on the basis of the normal level of activity. What evidence is available to the auditor in verifying management’s determination of that level
Many companies use standard costing as the basis for inventory costing. What audit procedures may be appropriate for establishing the fairness of the standard costs, for testing the maintenance of
What steps should the auditor perform when observing the inventory count? Why should the auditor take test counts?
Describe the alternative methods entities use to determine their inventory at the end of the reporting period and the possible effect of each method on audit strategy.
A generally accepted definition of earnings management is the planned timing of revenues, expenses, gains, and losses to smooth out earnings over a number of accounting periods. Generally speaking,
Cut-off procedures can be applied to receiving reports issued before the year end or to liabilities recorded after the year end. Consider the separate merits of each approach in assuring the
Explain why an unexpected change in the gross profit ratio leads the auditor to suspect a wide range of possible misstatements in recorded transactions and balances.
It is increasingly common for companies to program their computer information system to print and distribute cheques without further authorization. As an auditor, describe controls you would expect
Describe the performance of the purchases cut-off test.
Explain why the assessment of control risk for the occurrence of payment transactions affects the assessed level of control risk for the completeness of the accounts payable balance.
Your client is BigC Ltd., a large private firm with offices in all major cities of Canada. BigC specializes in selling concentrated fruit juices to Canadian and overseas buyers. This is the first
Ally Bobyk is conducting the audit of a wholesale electrical goods distributor, Electra Ltd. Electra supplies appliances to hundreds of individual customers in the Toronto area. It maintains detailed
You have been assigned to perform tests of controls on the sales system at EDB Ltd. as part of the December 31, 2020, audit. EDB is a wholesaler of bathroom supplies such as vanity units, toilets,
Bestwood Ltd. is planning to replace its computerized sales accounting system. The managing director has asked for your advice on certain matters relating to the new system.The existing system uses
Venture Volunteers for Troubled Teens (VVTT) is a not-for-profit entity that provides counselling services to troubled teens and adolescents. While the majority of its funding comes from the
Soak City Waterpark is a family-owned business just outside of Winnipeg. The waterpark is only open for business from May to September. During the winter months, the waterpark undergoes repairs and
As the internal auditor of the Sellanything Group of companies, you have been asked to investigate the cash sales system of Stationery Ltd., one of the subsidiaries. Stationery sells office supplies
Key documents are used throughout the sales process and each supports an internal control function.RequiredFor each of the following documents, describe its purpose and how it contributes to internal
For each of the following statements, identify the audit assertion that it relates to:a. Sales are made to customers that do not have approved credit.b. Goods not ordered by the customer are
CAS 530 Audit Sampling distinguishes between sampling and other selective testing procedures. Explain the application of the requirements of this standard to the selection of accounts receivable
Explain what is meant by “cut-off ” and why it is important to auditors in establishing the fairness of the financial statements.
Explain the kinds of fraud that could be expected in sales, cash receipts, and sales adjustment transactions in the absence of adequate internal control procedures. Consider the importance of the
Identify situations leading to an inherent risk that an entity may wish to(a) Overstate sales revenue(b) Understate sales revenue.
Discuss situations in which sales adjustments may be necessary. Identify necessary controls to ensure that the accounting system recognizes only genuine adjustments.
If the auditor does not receive a response after sending a letter to confirm a customer’s account balance, what alternative audit procedures may be performed?
Outline the procedures involved in performing accounts receivable confirmations.
Why is the auditor likely to adopt a combined audit approach to accounts receivable wherever practicable? Why are substantive procedures more likely to be based on the accounts receivable balance
Why is the control risk assessment of the completeness of cash receipts and sales adjustment transactions associated with the control risk over the existence of the accounts receivable balance?
Describe the inherent risks specific to sales and receivables the auditor needs to consider.
Describe computer-assisted audit procedures that can be used in testing controls over purchasing.
Describe programmed application controls you would expect to find in a computerized payroll system. Explain the audit procedures for testing those controls.
Explain the importance of segregating the personnel function from the payroll preparation.
State the main audit objectives for:(a) Purchases and payroll transactions(b) Accounts payable balances.
In the early 2000s, several large corporations such as Enron, WorldCom, and Nortel collapsed because of corporate greed, bad business practices, and accounting irregularities. Others, such as
Tinkerbell Toys Co. (Tinkerbell) is a manufacturer of children’s building block toys. It has been in business for more than 35 years and it sells to a wide variety of customers including large and
James Bach is a CPA student working on the confirmations working paper from one of his clients, Dunstan Electric Co. He has so far summarized the results of his testing as shown in figure
You have been assigned to audit the sales and accounts receivable balances of Coppero Engineering Ltd. for the year ended September 30, 2020. Coppero Engineering is a major manufacturer of steel
Your firm is the external auditor of Southwood Trading Ltd. and you are auditing the fi nancial statements for the year ended June 30, 2020. Southwood Trading has sales of $25 million and the
Figure 9.5 is a copy of the auditor’s working paper for auditing accounts receivable balances for the client New Millennium Ecoproducts. It shows the details of the cut-off tests.Requireda. Find
The following items are documented in the audit working papers:1. Sales transaction included in the year ended December 31, 2020, but evidence from the cut-off procedure suggests that the sale should
Ann Marcus, CPA, is performing an audit for one of her clients, Artistcraft Ltd., a glass factory, for its December 31, 2020, year end. The audit program requires a substantive analytical procedure
James Wu has been assigned the audit planning for the property, plant, and equipment section for a large manufacturing audit client. The client built a new factory during the first six months of the
Hilltop Partners is planning the audit for one of its clients. Jake Hilltop is performing the risk assessment at the assertion level for the accounts payable account to determine the nature and
What does ITGCs stand for? Explain their purpose.
Explain each of the seven objectives of internal control.
What is internal control? Why is an auditor interested in a client’s internal control?
a. Identify and explain the potential type of threat to Fellowes and Associates’ independence in situations (1) and (2) below.b. What action should Fellowes and Associates take to eliminate the
Describe the audit expectation gap. What causes the gap?
What does reasonable assurance mean?
What are the limitations of an audit?
Why do auditors use sampling? Explain the advantages and disadvantages of using sampling instead of testing every item in a population.
Define what is meant by sufficient and appropriate evidence.
Identify the audit risks associated with the installation of the new IT system for patient revenue for Gardens Nursing HomeFellowes and Associates is a successful mid-tier accounting firm with a
You are the audit senior of Rhino & Co. and you are planning the audit of Kaine Construction Co. for the year ended March 31, 2020. Kaine specializes in building houses and provides a five-year
Tom’s Trailers Ltd. (TTL), located in London, Ontario, manufactures industrial trailers that are used to ship goods across the country. Originally, Tom Tran owned 60 percent of the common shares of
Gold Explorers Inc. is a major Canadian gold mining corporation. Gold Explorers has mines and development projects in Canada (Northern Ontario and British Columbia), the United States, and South
Atlantic Academy is a private school that offers education to children from Kindergarten to Grade 7. The school operates as a not-for-profit entity and oversight of the school is performed by the
You are the audit supervisor of Seagull & Co and are currently planning the audit of your existing client, Eagle Heating Co., for the year ending December 31, 2020. Eagle manufactures and sells
Define audit risk and its components.
Expansion Aviation has installed a new payroll module for its existing accounting system that integrates with the general ledger application. The new payroll application is more complex than the old
Sax Co. sells insurance, and it has recently become a listed company. In accordance with corporate governance guidelines, the finance director of Sax is reviewing the company’s corporate governance
Fellowes and Associates Chartered Professional Accountants is a successful mid-tier accounting firm with a large range of clients across Canada. During 2020, Fellowes and Associates gained a new
Sisters Inc. beauty salon is a 100% subsidiary of Benefit Beauty Supply Inc., a beauty supply company. As a result of this relationship, there were several transactions between the two entities
You have access to the following information for Featherbed:• prior period financial statements• anticipated results for the current year• industry comparisonsRequiredExplain how you would use
Ivy Bishnoi is preparing a report for the engagement partner of an existing client, Scooter Ltd., an importer of scooters and other low-powered motorcycles. Ivy has been investigating certain aspects
Stokes Ltd. operates in the steel fabrication industry. Its business is organized into domestic and international sales and it has many clients in each area. It obtains most of its raw materials from
What are the audit activities in the risk assessment phase of a financial statement audit?
Explain the relationship between the risk assessment, risk response, and reporting phases of an audit. Why is risk identification in the first phase?
Salt & Pepper & Co is a firm of Chartered Professional Accountants that has seen its revenue decline steadily over the past few years. The firm is looking to increase its revenue and client
HHH Corporation manufactures automobile engines. In 2018, the treasurer at HHH decided to invest the company’s surplus funds in the commodities market. She intended for it to be a short-term
You are the audit manager of Currant & Co and you are planning the audit of Orange Financials Co (Orange), who specialize in providing loans and financial advice to individuals and companies.
Explain why Tania Fellowes should have reservations about accepting the HCHG engagement to provide an opinion with respect to the laser machines. Make appropriate reference to fundamental ethical
Identify and discuss any professional conduct issues in the following independent scenarios.a. Jason Crane became a CPA in 2020. He is now glad to be finished his education as he does not plan to
Identify and discuss any professional conduct issues in the following independent scenarios.a. Adnan Hussein is a CPA working for a national firm. He is at his desk when he overhears his colleague
You are a recently designated accountant. As a result of having your designation, you have been hired as the controller at a national manufacturing company. Due to a recent economic slowdown, the
What are some ways an auditor can avoid litigation?
How can accounting firms put in place safeguards to independence?
Fellowes and Associates Chartered Professional Accountants is a successful national accounting firm with a large range of clients across Canada. In 2020, Fellowes and Associates gained a new client,
Bravo Bags is a luggage retailer that operates out of a shopping mall. As required by the landlord, Bravo Bags has hired Brad Pope, CPA, to provide a report to the landlord as to whether Bravo Bags

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