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auditing international approach
Questions and Answers of
Auditing International Approach
Helpful Company, a nonprofit entity, prepared its financial statements on an accounting basis prescribed by a regulatory agency solely for filing with that agency. Greer audited the financial
Which of the following statements concerning prospective financial statements is correct?a. Only a financial forecast would normally be appropriate for limited use.b. Only a financial projection
An examination of a financial forecast is a professional service that involvesa. Compiling or assembling a financial forecast that is based on management's assumptions.b. Limiting the distribution of
When an accountant examines a financial forecast that fails to disclose several significant assumptions used to prepare the forecast, the accountant should describe the assumptions in the
Accepting an engagement to examine an entity's financial projection most likely would be appropriate if the projection were to be distributed toa. All employees who work for the entity.b. Potential
An accountant's compilation report on a financial forecast should include a statement that thea. Compilation does not include evaluation of the support of the assumptions underlying the forecast.b.
The objective of a review of interim financial information of a public entity is to provide an accountant with a basis for reporting whethera. Material modifications should be made to conform with
An accountant's standard report on a review of the financial statements of a nonpublic entity should state that the accountanta. Does not express an opinion or any form of limited assurance on the
Baker, CPA, was engaged to review the financial statements of Hall Company, a nonpublic entity. Evidence came to Baker's attention that indicated substantial doubt as to Hall's ability to continue as
Which of the following statements is correct concerning letters for underwriters, commonly referred to as comfort letters?a. Letters for underwriters are required by the Securities Act of 1933 for
Which of the following statements is correct concerning both an engagement to compile and an engagement to review a nonpublic entity's financial statements?a. The accountant does not contemplate
Which of the following procedures is ordinarily performed by an accountant in a compilation engagement of a nonpublic entity?a. Reading the financial statements to consider whether they are free of
An accountant may compile a nonpublic entity's financial statements that omit all of the disclosures required by GAAP only if the omission is I. Clearly indicated in the accountant's report.II. Not
Which of the following statements should be included in an accountant's standard report based on the compilation of a nonpublic entity's financial statements?a. A compilation consists principally of
When an independent CPA assists in preparing the financial statements of a publicly held entity, but has not audited or reviewed them, the CPA should issue a disclaimer of opinion. In such
Jordan \& Stone, CPAs, audited the financial statements of Tech Co., a nonpublic entity, for the year ended December 31, 19X1, and expressed an unqualified opinion. For the year ended December 31,
You have been engaged by the trustees of Roger Trust to audit the trust as of December 31, 19XX. The audit is for the purpose of assuring the trustees and beneficiaries that trust assets,
Steam Clean, Inc., produces unique washing machines under a license agreement with Tom Nessinger, who invented the unique process. Nessinger has engaged you to audit the sales of Steam Clean, Inc.,
The auditors' report below was drafted by a staff accountant of Baker and Baker, CPAs, at the completion of the audit of the comparative financial statements of Ocean Shore Partnership for the years
Sam Sheppard, CPA, has been asked by the management of his client, Indian Togs, Inc., to examine the financial forecast of the company for the coming year.a. What is a financial forecast, and how
Your client, Byrd and Byrd, Inc., a regional trucking company, has prepared a financial forecast for the coming year and has asked you to examine it and issue a report to accompany it. Management's
John Wilguess, CPA, has been engaged to review the financial statements of Lucky Oil Company, a nonpublic company, for the year ended June 30, 19X4. The previous year's financial statements of Lucky
In connection with a review of the December 31, 19X5, financial statements of Quick Profits Real Estate, a nonpublic company, Hilton and Hilton, CPAs, noted that certain parcels of land were recorded
The following report was drafted by a staff assistant at the completion of the review engagement of GLM Company, a continuing client, for the year ended September 30, 19X8. The financial statements
John Alvis, CPA, has completed his review of the interim financial information of Wilson and Love, a public company, for the six months ended June 30, 19X5.a. Discuss the form of report that Alvis
As a condition for a public offering of securities by your largest and most important audit client, the underwriter requires a comfort letter containing the following items.1. An unequivocal
Keith Sellers, a new CPA, is establishing an accounting practice and has decided to specialize in performing compilations. He stated, "Because CPAs provide no assurance in compilation reports, they
Becky Maupin, CPA, has been asked to compile the financial statements of George's Diner, a nonpublic company, for the year ended April 30, 19X5.a. What understanding should Maupin establish with
The following report was drafted on October 25, 19X0, by Major, CPA, at the completion of the engagement to compile the financial statements of Ajax Company for the year ended September 30, 19X0.
Steve White, CPA, has completed the compilation of the financial statements of the Elbow Macaroni Factory, a nonpublic entity, and is now considering the form of report that he should issue.a.
Easecom Company is a manufacturer of highly specialized products for networking videoconferencing equipment. Production of specialized units is, to a large extent, performed under contract, with
Slow Burn Candle, Inc., a public company, asked its CPA, Parker Granger, to assist it in preparing footnotes for unaudited financial statements as of June 30, 19X5. Granger has previously audited the
Atlas Company is a small refinery owned by several individuals who are not active in its management. To supply them with reliable information about the company's operations for the year, you are
Differentiate between financial and operational auditing.
What is the purpose of a compliance audit?
How do government auditing standards differ from generally accepted auditing standards?
If an auditor finds no reportable conditions during an audit of a government entity, how is this reported under Government Auditing Standards?
What governmental entities are subject to the Single Audit Act?
Name and describe the general requirements that are tested for compliance in a single audit.
What specific requirements applicable to major programs are tested for compliance in a single audit?
What types of expenditures are classified as questioned costs in a compliance audit?
An operational auditor is most likely to be concerned with whether a transaction wasa. Necessary.b. Reasonable.c. Properly approved.d. Properly supported with documentation.
When planning an operational audit, the auditor should consider the risk ofa. Misleading financial statements.b. Inadequate internal controls.c. Inefficient operations.d. Lawsuits for inadequate
When performing a preliminary survey an auditor woulda. Assess control risk.b. Review flowcharts of operations.c. Compute sample sizes for tests of operations.d. Prepare a draft of the audit report.
Which of the following deviations from company policy would an operational auditor consider to be the most critical?a. Several late payments to vendors resulted in loss of discounts.b. The sales
The benefits of an operational audit generally include all of the following excepta. Increased revenue.b. Increased reliability of the financial statements.e. Increased productivity.d. Decreased
An operational audit report is not likely to be addressed to thea. Department supervisors.b. Audit committee.c. Stockholders.d. Top management.
In an operational audit of the tax department, you found that certain officers were abusing some of their executive perquisites and that this abuse may have a tax effect for the company. The tax
In a compliance audit, an auditor is concerned with whether an entity's transactions are in conformance witha. Management objectives.b. Board of director directives.c. Laws and regulations.d.
Organizations that issue standards affecting government audits include all of the following except thea. OMB.b. AICPA.c. SEC.d. GAO.
Government auditing standards require external quality reviews toa. Demonstrate independence.b. Assure investors of audit competence.c. Increase competition among accounting firms.d. Assure that
When engaged to audit a government entity in accordance with Government Auditing Standards, an auditor prepares a written report on internal controla. In all audits, regardless of circumstances.b.
Reporting on internal control under Government Auditing Standards differs from reporting under generally accepted auditing standards in that Government Auditing Standards requires aa. Written report
All of the following are general requirements for compliance with laws and regulations excepta. Civil rights.b. Political activity.c. Freedom of information.d. Cash management.
When auditing an entity's financial statements in accordance with Government Auditing Standards, an auditor should prepare a written report on the auditor'sa. Identification of the causes of
Wolf is auditing an entity's compliance with requirements governing a major federal financial assistance program in accordance with Government Auditing Standards. Wolf detected noncompliance with
An auditor performing a single audit would issue all the following reports excepta. Opinion on the financial statements.b. Report on management objectives.c. Report on internal controls over federal
Operational auditors use measures to evaluate performance, to identify and correct problems, and to discover opportunities. To assist in measuring achievement, a number of performance measures are
Brock Company is a manufacturer of children's toys and games. The company has been experiencing declining profit margins and is looking for ways to increase operating income. Because of the
Avery Research is a department of Northern Valley Hospital that is affiliated with a leading university. Avery operates on a project basis and consists of a pool of highly respected scientists and
You have been assigned to perform an operational audit of the Palmer Division. The division management had recently been told to implement a management by objectives (MBO) system and to increase
You have just received the following draft audit report that was prepared by one of your staff auditors. 1 Audit of the purchasing department 2 Introduction 3 The purchasing department is responsible
Your audit of a United Fund agency that received a grant of federal funds included tests of transactions for compliance with applicable laws and regulations. Indicate whether or not and why you would
Toxic Waste Disposal Company, Inc. (TWD) is a not-for-profit organization that receives grants and fees from various state and municipal governments as well as grants from several federal government
You have completed your audit of State College. As required by GAS, you tested compliance with laws and regulations that could have a material effect on the financial statements. You found no
Modern Widgets, Inc. manufactures various types of widgets in its Ames, Iowa, plant. Management recently completed an expansion that will permit the manufacture of super widgets, for which a large
Which of the following questions would an auditor ask while auditing accounts receivable to add value to an audit?a. Are accounts receivable pledged?b. Are customers satisfied with your billing
What are some inquiries an auditor can make when examining the long-term debt account to add value to the audit?
Beta, Inc., is an affiliate of an audit client and is audited by another firm of auditors. Which of the following is most likely to be used by the auditor to obtain assurance that all guarantees of
Briefly describe six reasons why the auditor's approach to obtaining an understanding of internal control is different when a computer is used rather than manual processing.
In obtaining an understanding of the control environment that affects computer processing, the auditor will often consider several matters. Briefly describe these matters.
What is batch processing?
What function is performed by an edit program?
What is online processing?
What is the difference between a minicomputer and a microcomputer?
What three methods or audit techniques are used to obtain an understanding of the computerized elements of an accounting system?
Define each of the general controls.
Define each of the application controls.
Describe the three most common types of batch totals.
Describe five potential control problems in an independent minicomputer or microcomputer system
Describe six controls that an auditor should look for in an independent minicomputer or microcomputer system.
Name two factors that determine the extent of knowledge that auditors need to obtain about computer control procedures.
Why might an auditor use a primarily substantive approach for the operation illustrated in Figure 11.3 ? FIGURE 11.3 Use of Microcomputer in a Partial Computer System The sales representative
Which of the following is a systems flowchart?a. A description of the sequence of operations and logic in a computer program.b. A description of the sequence of major processing operations and the
Which of the following is not an application control?a. Input controls.b. Processing controls.c. Output controls.d. Organization and operation controls.
Which of the following procedures would not improve internal control in a computer system?a. One computer operator running all programs.b. Limited access to computer programs.c. Programmers not
Which of the following is not a batch control?a. Control total.b. Hash total.c. Record count.d. Parity check.
Which of the following best describes a fundamental control weakness often associated with computer systems?a. Computer processing equipment is more subject to systems error than manual processing is
Matthews Corporation has changed from a system of recording time worked on clock cards to a computerized payroll system in which employees record time in and out with magnetic cards. The computer
Internal control procedures are ineffective when computer department personnela. Participate in computer software acquisition decisions.b. Design documentation for computerized systems.c. Originate
Which of the following is an example of application controls in computer processing systems?a. Hardware controls.b. Input controls.c. Documentation procedures.d. Controls over access to equipment and
Which of the following would most likely be a weakness in internal control of a client that utilizes microcomputers rather than a larger computer systema. Employee collusion possibilities are
Some computer processing internal control procedures relate to all computer activities (general controls), and some relate to specific tasks (application controls). General controls includea.
Program controls in a computer processing system are used as substitutes for human controls in a manual system. Which of the following is an example of a program control?a. Dual read.b. Echo check.c.
Which of the following employees normally would be assigned the operating responsibility for designing a computer processing installation, including flowcharts of data processing routines?a. Computer
When an online computer system is in use, internal control can be strengthened bya. Providing for the separation of duties between data input and error listing operations.b. Attaching plastic file
When erroneous data are detected by computer program controls, such data may be excluded from processing and printed on an error report. The error report should probably be reviewed and followed up
Which of the following would increase control risk in a computer processing system?a. The custodian of computer records maintains custody of computer program instructions and detailed listings.b. The
The computer system most likely to be used by a large savings bank for customers' accounts would bea. A batch processing system.b. An online system.c. A generalized utility system.d. A direct-access
Which of the following would an auditor most likely use in obtaining an understanding of internal control?a. Systems flowcharts.b. Record counts.c. Program listings.d. Record layouts.
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