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auditing international approach
Questions and Answers of
Auditing International Approach
How can auditor independence best be defined?
What are the reasons for auditor independence in a capital market economy?
What are the threats affecting auditor objectivity and independence, and the possible safeguards to eliminate such threats or reduce them to an acceptable level?
In the context of compliance with ethical standards in auditing, define the policies and procedures that should be established by audit firms to promote a strong control environment.
What are the features of the economics of auditor independence?
To what extent can auditor independence affect the quality and credibility of corporate financial statements?
What are the reasons affecting the change in attitude of regulators to ethics and the independence of external auditors?
In your opinion, to what extent can non-audit services fees compromise auditor independence?
What definitions of auditor independence are provided by different capital market regulators and professional bodies (European, US, international)? What are the recent developments in defining
Discuss the effect of the corporate failures of recent years on public confidence in terms of ethics and auditor independence.
What are the steps that have been taken by the European Commission, and why have they been taken, to reinforce auditor independence in recent years?
What are the objectives and elements discussed in the IFAC Code of Ethics?
In your opinion, to what extent can the presence of an audit committee affect auditor independence?
Discuss the US regulators’ position on (a) non-audit services provided by external auditors of publicly listed companies and (b) partner rotation within audit firms.
Explain the differences between US and EU approaches towards auditor independence.
What are the responses of the audit profession in the EU and the US to regulatory measures in the area of auditing? Discuss these.
In your opinion, what are the important issues affecting auditor independence in a capital market economy? Why is the inquiry into auditor independence becoming increasingly important?
What are the characteristics of the rules adopted in the EU environment governing auditor independence? Discuss this question with reference to (a) the Sarbanes-Oxley Act of 2002 and (b) the SEC
‘The relationship of “management-auditor-shareholder” is potentially conflicting and in today’s society the independence of auditors is considered a major issue. In addition to the problems
‘The audit committee is usually responsible for supervising the relationship between the auditors and the company and of the conduct of the audit process. As the shareholders’representatives, the
Auditor independence and non-audit services The following statement relates to some of the potential conflicts that impair auditor independence when auditors perform audit and non-audit services for
What is the relationship between materiality and the phrase obtain reasonable assurance used in the auditor’s report?
Define the control risk and the basis of its assessment.
Define auditors’ responses to material misstatements and assessed risk.
Define the ‘occurrence risk’ in the context of the audit risk model.
Discuss the effect of the company’s internal control system on the auditor’s risk assessment.
Discuss the term ‘significant risks’ and how auditors should deal with them.
Define the terms ‘material misstatements’ and ‘uncorrected misstatements’. What are the auditor’s actions when such misstatements exist?
Define the terms ‘risk assessment procedures’ and ‘analytical procedures’.
Explain the main sources of business risk and their influence on a company’s risk assessment process.
Discuss the characteristics of the IFAC audit risk model.
Regulatory bodies are concerned that auditors consider the qualitative aspect of materiality judgements. Explain the meaning and the importance of ‘qualitative’ aspect of materiality.
The audit risk model operationalizes a risk-based approach of selecting the amount of detailed testing necessary for an audit to be effective.Discuss the following:(a) The components of the audit
How are risks and controls related? Why is it important to assess risks before evaluating the quality of an organization’s controls?Discuss the auditor’s risk assessment procedures and the
The risk model from the chapter can be restated as follows:AR = IR × CR × DR Where:AR = audit risk IR = inherent risk CR = control risk DR = detection risk Using the audit risk model, compute the
Distinguish between sampling risk and non-sampling risk. How can each be reduced?
Explain the characteristics of statistical sampling in auditing.
What are the principal methods of selecting sample? Explain each of them briefly.
Discuss the factors influencing sample size for (a) tests of control and (b) substantive procedures.
What are the main characteristics of the population?
What are the features of (a) attribute sampling, and (b) variables sampling? Identify their differences in terms of objectives.
What type of actions should an auditor take when errors are detected in the sample results?
Discuss the application of probability-proportional-to-size sampling (PPS) in auditing.
Explain the evaluation of the sample results in the PPS method. What is tainting age and how is it determined?
When using non-statistical sampling, what are the steps to follow? Why is the auditor’s professional judgement important in determining sample size and sample selection method?
Assume that you are auditing a random sample of 100 sales vouchers and find one improperly authorized error. The achieved upper limit of control failures is 4.7 percent at a 5 percent risk of
The risk that an error is not identified through sampling is generally considered as sampling risk. This relates to the probability that a misstatement exists in the population but is not selected in
Discuss the advantages and disadvantages of the PPS method. How does this method differ from the classical methods in terms of audit objective? How does the selection of a sample differ between the
In evaluating the results of the sample in the PPS method, the auditor calculates an upper misstatement limit (UML) from the sample data and compares it with the tolerable misstatement specified in
What are the characteristics of reliable audit evidence?
Describe the assertions used by the external auditor in the audit of financial statements.
Provide some examples of the audit evidence in different stages of audit process.
Describe the sufficiency and appropriateness of audit evidence.
List and describe the procedures used in gathering audit evidence.
Discuss the importance of electronic audit evidence in the audit process.
To what extent is the knowledge of the company’s activities and operations important in the audit process?
Provide some examples of the areas in which the auditor uses professional judgement.
What types of judgement biases affect the availability heuristic?
Describe the term ‘anchoring heuristic’.
Discuss the relationship between the concepts of reliability of evidence and audit risk.
Talk in detail about the role of evidence in audit decision-making.
Discuss the effect of information technology on evidence-gathering in auditing. Under what conditions is electronically stored evidence as reliable as paper-based evidence?
What are the characteristics of audit evidence in theoretical terms? Evaluate the arguments put forward by Mautz and Sharaf (1961).
Define bounded rationality and heuristics in auditing.
What is the pattern of the audit process proposed by Flint (1988)?
Describe knowledge structures and memory in auditing. Provide some examples of the questions related to the audit function in this area. Provide your answers with references to research studies in
Provide a comprehensive evaluation of the role of business knowledge in auditors’ professional judgement and the matters taken into consideration throughout the course of audit.
Define ‘tone at the top’ or control environment.
Discuss the auditor’s understanding of control environment (internal and external).
Explain the relationship between the objectives an organization intends to achieve and the internal control components.
How have computerized systems influenced the auditor’s understanding of internal control?
What are the main features of the COSO report on internal controls?
What are the essential points included in the COSO report with regard to IT systems?
Explain the importance of ‘transaction integrity’ in audit procedures.
To what extent does a computerized information system affect the auditor’s assessment of control risk?
Describe the features of Auditing Standard No. 2 of PCAOB, particularly with regard to IT controls.
What are the constraints on internal control effectiveness?
Discuss the features and benefits of a ‘top-down approach’ to the audit of internal control over financial reporting. What are the reasons for its effectiveness and efficiency in audit process?
A company’s security infrastructure and related controls are important features of its internal control system. Discuss this issue with regard to the auditor’s consideration when examining the
How does the auditor’s assessment of the risk of financial statement misstatement affect the work that must be performed in an audit of internal control over financial reporting?
In the aftermath of a series of high-profile business scandal, efforts were made to enhance corporate governance and risk management with the establishment of new regulations. In the US, the
Auditors generally employ a ‘risk-based’ approach to auditing financial statements. The auditor’s assessment of the risk that a financial statement amount or disclosure is misstated affects the
The identification of significant accounts plays a central role in the scoping of an audit of internal control over financial reporting. What role do qualitative factors and an assessment of risk
At many companies, management identifies and tests what it describes as ‘key’ or ‘significant’controls as a part of its assessment of internal control over financial reporting. Is the auditor
How does the auditor’s assessment of risk affect the auditor’s decisions about the nature, timing and extent of testing of controls? (Adapted from PCAOB, 2005)
The auditor’s opinion on the effectiveness of internal control over financial reporting is rendered at a point in time (e.g. at year-end), whereas the auditor’s opinion on the financial
Public companies are expected both to improve their processes and procedures for monitoring the operation of controls, and to make more use of control self-assessments. Management also plays a role
It has been stated that information technology systems are an essential part of the overall financial reporting process. Discuss the place of information technology within the organization and how it
How should the auditor evaluate a company’s internal control over financial reporting when a company has implemented a significant change to information technology that affects the company’s
The Committee of Sponsoring Organizations of the Treadway Commission has discussed in its document entitled ‘COSO ERM Framework (2004)’, a comprehensive approach to Enterprise Risk Management.
What are the possible auditor’s actions when a company’s management is unwilling to make the suggested modifications or extend its assessment?
Describe the term ‘substantial doubt about going concern status’ and the auditor’s responsibility in this respect. What are the different forms of audit opinions with regard to going concern
Provide examples of events or conditions that underpin the going concern assumption under ISA 570 (IFAC) and SAS 59 (AICPA). How can an external auditor judge the validity of this assumption in
In what areas might an auditor and management disagree? When would an adverse opinion become necessary?
What words and phrases in the standard audit report imply a risk that the financial statements might contain a material misstatement?
What are the objectives of a review of interim financial statements by external auditors and how would this review be beneficial to users of corporate financial reporting?
What are the objectives of an audit of internal control over financial reporting and the content of the auditor’s opinion?
In your opinion, to what extent could a lack of auditor independence affect the auditor’s performance and how this should be expressed in the audit report?
What are the characteristics of audit reports in the European countries? How do these differ from reports prepared in the US?
The standard audit report is the most common report issued by an independent auditor. It contains an unqualified opinion stating that the financial statements ‘present fairly, in all material
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