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auditing international approach
Questions and Answers of
Auditing International Approach
Which of the following is not a characteristic of a batch processing computer system?a. The collection of like transactions that are sorted and processed sequentially against a master file.b. Keying
If a control total were to be computed on each of the following data items, which would best be identified as a hash total for a payroll computer application?a. Department numbers.b. Net pay.c. Hours
When computer programs or files can be accessed from terminals, users should be required to enter a (an)a. Parity check.b. Personal identification code.c. Self-diagnosis test.d. Echo check.
Misstatements in a batch computer system caused by incorrect programs or data may not be detected immediately becausea. Errors in some transactions may cause rejection of other transactions in the
Which of the following controls is a processing control designed to ensure the reliability and accuracy of data processing? Limit test Validity check test Yes Yes b. No No C. No Yes d. Yes No
For a number of years, the Keep Company had used a computer batch processing system for its credit sales transactions. As clerks made credit sales, a copy of the sales invoice was given to the
Talbert Corporation hired an independent computer programmer to develop a simplified payroll application for its newly purchased computer. The programmer developed an online, data-based microcomputer
Examine Figure 11.3 and describe as many control problems as you think exist. (Use the diagram and any other logical assumptions from the diagram.) Classify the controls according to the
Examine the systems flowchart shown and write a detailed narrative of the procedures shown in the flowchart.
Examine the program flowchart on pages 348-349 and write a narrative description of the computer processing shown. Include in your narrative a general description of the error messages. In the
Ineffective internal control may allow errors or fraud to occur. For each of the following situations, indicate the error or fraud that could occur.a. The computer operator, who has some knowledge
Mr. A. O. Steady, a programmer for One Corporation, had been employed in his job for a number of years. He was the only programmer. There was a separate computer operator and input data operator.The
George Beemster, CPA, is auditing the financial statements of the Louisville Sales Corporation, which recently installed a new computer. The following comments have been extracted from Mr. Beemster's
You are reviewing audit work papers containing a narrative description of the Tenney Corporation's factory payroll system. A portion of that narrative is as follows:Factory employees punch time cards
When auditing a computer accounting system, the independent auditor should understand how the use of computers affects the various characteristics of internal control. The indepen dent auditor should
Smaller Company is a manufacturer of plastic golf balls. Since the company was organized, it has used central processing for all of its computerized accounting operations. Early this year management
What is meant by "through the computer approaches" to performing tests of controls?
Contrast the purpose of and the methods of per- forming the four following tests of controls in a computer system.a. Test data.b. Integrated test facilityc. Online audit monitor.d. Parallel
What are some of the limitations of using test data?
Describe the advantages and disadvantages of using online audit monitoring.
Describe the use of parallel simulation to test the client's computer program.
Describe the guidelines for assessing control risk.
What are computer-assisted audit programs?
Give five examples of functions that can be performed by a computer-assisted audit program.
Name four types of spreadsheet working papers that can be produced with microcomputers.
What items should auditors consider when deciding whether to use computer-assisted audit programs?
Which of the following tests of controls require use of the computer?a. Observe the reconciliation of control totals with computer processing results.b. Design and process test data.c. Examine usage
Which of the following tests of controls do not require use of the computer?a. Compare computer output with source documentation.b. Test data.c. Integrated test facility.d. Parallel simulation.
Which of the following is a description of the integrated test facility?a. Simulated data and actual client data are processed with the client's computer program.b. Simulated data are processed on a
Which of the following is not performed by computer-assisted audit programs?a. Scanning or examining computer records.b. Checking computations.c. Comparing data on different records.d. Assessing the
Which of the following statements most likely represents a disadvantage for an entity that keeps microcomputer-prepared data files rather than manually prepared files?a. Attention is focused on the
An auditor most likely would introduce test data into a computerized payroll system to test internal controls related to thea. Existence of unclaimed payroll checks held by supervisors.b. Early
Assume that an auditor estimates that 10,000 checks were issued during the accounting period. If a computer application control that performs a limit check for each check request is to be subjected
The above flowchart depictsa. Program code checking.b. Parallel simulation.c. Test data.d. Controlled reprocessing. Trans- action file Client's program Auditor's program Master file Output Compare
The above flowchart depictsa. Program code checking.b. Parallel simulation.c. Test data.d. Controlled reprocessing.
Auditing by testing the input and output of a computer system instead of the computer program itself willa. Detect all program errors, regardless of the nature of the output.b. Not detect program
Which of the following is not among the errors that an auditor might include in test data when auditing a client's computer system?a. Numeric characters in alphanumeric fields.b. Differences in
When an auditor tests a computerized accounting system, which of the following is true of the test data approacha. Test data must consist of all possible valid and invalid conditions.b. The program
A primary advantage of using computer-assisted audit programs to audit the financial statements of a client that uses a computer system is that the auditor maya. Consider increasing the use of
An auditor would least likely use computer software toa. Access client data files.b. Prepare spreadsheets.c. Access control riskd. Perform parallel simulations.
An auditor using audit software probably would be least interested in which of the following fields in a computerized perpetual inventory file?a. Economic order quantity.b. Warehouse location.c. Date
Johnson, CPA, was engaged to audit the financial statements of Horizon Incorporated, which has its own computer installation. While obtaining an understanding of internal control, Johnson found that
Refer to Question 11-44 in Chapter 11. For each weakness noted in the question, indicate a general control or an application control that would overcome that weakness and how that control could be
During an audit of a company that uses computers, Mr. Sure, the auditor, decided to process test data with some of the client's computer programs. The computer output matched his predesigned output.
Two auditors for the CPA firm of Alford \& Alford were engaged in a discussion about the best way to test the computer controls of their client, Mod-Comp., Inc. Jane Tester contended that the
Refer to Chapter 11 and review Figures 11.1 through 11.3. Then review Figure 12.6 in this chapter.Figure 12.6a. The auditor decided to use the following audit strategies.(1) A lower control risk
The auditors of Update Company were considering the use of a computer-assisted audit program to gather and document evidence from their client's computerized files. Most of the transactions,
The following is a list of tasks performed by auditors in gathering evidence to support their opinion. For each task, indicate whether a computer-assisted audit program could be used. Indicate the
In many cases, the auditor uses the output of a computer-assisted audit program for the same purpose as if the output were obtained through manual means. For each of the following examples of
An auditor accesses a magnetic disk file that contains the dollar amounts of all client inventory items by style number. The information on the disk is in no particular sequence. By use of a
An auditor's client has a magnetic disk that contains the detail of its customers' insurance policies by policy number. Unknown to the auditor is the fact that many of the policies are for
In the past, the records to be evaluated in an audit have been printed reports, listings, documents, and written papers, all of which are visible output. However, in fully computerized systems that
After determining that computer controls are valid, Hastings is reviewing the sales system of Rosco Corporation to determine how a computer-assisted audit program may be used to assist in performing
How does the auditor evaluate the competency of audit evidence obtained from outside sources?
Describe the relationship between reliability of accounting data and internal control.
Differentiate between the competency of audit evidence gained through personal knowledge of the auditor and evidence obtained indirectly.
What is the difference between convincing and persuasive audit evidence?
How does the cost of obtaining evidence affect its sufficiency?
How does an auditor make an objective evaluation of audit evidence?
List and describe seven techniques for gathering audit evidence. State how each could be applied to the audit of inventory.
List the characteristics of audit evidence and give an example of each.
By what three means may an auditor evaluate the reasonableness of the amount of an accounting estimate?
Describe four guidelines that affect the use of analytical procedures as substantive tests.
What is the "business approach" to substantive testing
How does an auditor gain knowledge of his or her client's business operations?
How is ratio analysis used in an audit?
How does the auditor use regression analysis?
List six pairs of accounts on which audit work is often performed simultaneously.
What records does an auditor review to detect related party transactions?
Describe five transactions or events that may create substantial doubt as to the ability of an entity to continue as a going concern.
Explain the review process for audit working papers.
Differentiate among known, projected, and likely misstatements.
Describe nine matters about which the auditor should determine that the audit committee is informed.
Which of the following statements is generally correct about the competence of evidential matter?a. Competence of evidential matter refers to the amount of corroborative evidence obtained.b. The more
Although the validity of evidential matter is dependent on the circumstances under which it is obtained, there are three general presumptions that have some usefulness. The situations given below
In testing the existence assertion for an asset, an auditor ordinarily works from thea. Financial statements to the potentially unrecorded items.b. Potentially unrecorded items to the financial
An auditor audits an accounting estimate by any of the following means excepta. Testing the process used by management to develop the estimate.b. Obtaining a confirmation from an independent
When analytical procedures are used as substantive tests, some account relationships are more predictable than others. For which of the following accounts is the prior-year balance likely to be the
For audits of financial statements made in accordance with generally accepted auditing standards, the use of analytical procedures is required to some extent As a substantive test a. Yes b. Yes c. No
Which of the following best describes the most important stage of an auditor's statistical analysis of significant ratios and trends?a. Computation of significant ratios and trends.b. Reconciliation
Which one of the following items is not a measure of a company's liquidity?a. Accounts receivable turnover.b. Acid test ratio.c. Debt-to-equity ratio.d. Operating cycle.e. Days' sales in inventory.
An auditor may use regression analysis to predict an account balance. In the regression equation \(E(Y)=B_{0}+B_{1} X, B_{1}\) represents thea. Account being audited.b. Fixed cost in the account
Audit work is often performed simultaneously on all the following pairs of accounts excepta. Cash and common stock.b. Inventories and cost of goods sold.c. Property and depreciation expense.d.
An auditor searching for related party transactions should obtain an understanding of each subsidiary's relationship to the total entity becausea. This may permit the audit of intercompany account
If related party transactions are detected, the auditor cannot complete the audit until he or shea. Sends confirmations to all parties.b. Determines what the comparable arm'slength transaction would
An auditor has a responsibility to evaluate the going concern status of an audit client for \(\mathrm{a}(\mathrm{an})\)a. Period of one year from the balance sheet date.b. Period of one year from the
All the following may indicate substantial doubt as to an entity's ability to continue as a going concern excepta. Work stoppages.b. Legal proceedings.c. Purchase of catastrophe insurance.d.
If an auditor has substantial doubt as to an entity's ability to continue as a going concern, he or she shoulda. Discontinue the audit.b. Consider management's plans for generating additional cash
Analytical procedures used in the overall review stage of an audit generally includea. Gathering evidence concerning account balances that have not changed from the prior year.b. Retesting control
In the course of an audit, the auditor will normally prepare a schedule of unadjusted differences for which the auditor did not propose adjustment when they were uncovered. What is the primary
In the audit of accounts receivable an auditor sends confirmations to all customers with balances of \(\$ 50,000\) or more and to a sample of 25 percent of the customers with balances of less than
An auditor would least likely initiate a discussion with a client's audit committee concerninga. The methods used to account for significant unusual transactions.b. The maximum dollar amount of
An auditor is considering whether the omission of a substantive procedure considered necessary at the time of an audit may impair the auditor's present ability to support the previously expressed
For each description, match the term or terms that relates to the description. Each term may be used once, more than once, or not at all. Description 1. Sufficient competent evidential matter is to
In each of the following cases, rank the various items of evidence on a scale from most persuasive to least persuasive. Furnish support for your rankings.a. Evidence to support the cash account.(1)
One of the audit clients of Brown and Brown, CPAs, is We-Fit Manufacturing Company, makers of shirts, sweaters, and other clothing items. The finished goods inventory consists of merchandise placed
One of the clients of Cain, CPA, is a local financial institution. As part of the standard audit procedures, Cain sent notes receivable confirmations to 50 of the 2,000 customers.Although a return
Classify the following items of audit evidence from most reliable (1) to least reliable (17). Discuss the reasons for your classifications.a. Canceled payroll check.b. Copy of client sales invoice.c.
Mary Smith, a new staff auditor, has been assigned to interview Mad Dog Clancy, controller, about variations between expected and book amounts noted in performing analytical procedures as substantive
You are the auditor of Star Manufacturing Company. A trial balance taken from the books of Star at year-end follows.Required:a. Which accounts should be confirmed with outside sources?b. Describe by
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