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business
auditing

Questions and Answers of Auditing

The following misstatements or omissions are included in the accounting records of Joyce Manufacturing Company Pty Ltd: 1. A sales invoice totalled was overstated by $1000 because of a key-entry
The customer billing and cash receipts functions of Robinson Company Ltd, a small paint manufacturer, are attended to by a receptionist, an accounts receivable clerk, and a cashier who also serves
Meyers Pharmaceutical Ltd, a drug manufacturer, has the following system for billing and recording accounts receivable.1. An incoming customer order is received in the order department by a clerk who
In Chapter 14 we discuss the need to obtain a representative sample of a population. How can this concept be reconciled with the statement in this chapter that the emphasis should be on confirming
Johnson Clock Company sells specialty clocks, watches and other time-keeping devices. Since its inception, the company has sold items through its home office store and at industry and collector trade
Adam James is responsible for the audit of Paperwate Stationery Supplies Limited. The company is a specialist printer of business stationery and has over 1000 clients throughout South Australia and
The following are the eight balance-related audit objectives, seven tests of details of balances for accounts receivable, and seven tests of controls or substantive tests of transactions for the
Niosoki Auto Parts sells new parts for foreign cars to car dealers. Company policy requires that a prenumbered shipping document be issued for each sale. At the time of pickup or shipment, the
Wellman, a public accountant, is auditing the financial statements of a manufacturing company with a significant amount of trade accounts receivable. Wellman is satisfied that the accounts are
Gloria Roberts, CPA, expresses the following viewpoint:I don't believe in performing tests of controls and substantive tests of transactions for the sales and collection cycle. As an alternative, I
Albring Ltd. sells electronics equipment, and has grown rapidly in the last year by adding new customers. The audit partner has asked you to evaluate the allowance for doubtful debts at 30 June 20X4.
You have been assigned to the first audit of Albany Company for the year ending 30 June 20X1. Accounts receivable were confirmed on 31 March 20X1, and at that date the receivables consisted of
You have audited the financial statements of Heft Company Ltd for several years. Internal controls for accounts receivable are satisfactory. The Heft Company operates on a calendar-year basis. An
In the confirmation of accounts receivable for Reliable Service Company Ltd, 85 positive and no negative confirmations were mailed to customers. This represents 35% of the dollar balance of the
What are the main differences in the 14 steps used to do non-statistical sampling for tests of details of balances versus for tests of controls and substantive tests of transactions?
When the CUDR exceeds the TDR, what courses of action are available to the auditor? Under what circumstances should each of these be followed?
Distinguish between the TDR and the CUDR. How is each determined?
Identify the factors an auditor uses to decide the appropriate TDR. Compare the sample size for a TDR of 6% with that of 3%, all other factors being equal.
North Queensland Supply Company Ltd is a medium-sized distributor of wholesale hardware supplies. It has been a client of yours for several years and has instituted excellent internal controls for
The questions below relate to determining the CUDR in audit sampling for tests of controls, using the following table:REQUIRED a. Using non-statistical sampling, calculate TDR - SDR for each of
Carole Wever is testing sales as part of the audit of Carbald Ltd. Her audit procedures include the following:1. Foot and cross-foot the sales journal and trace the balance to the general ledger.2.
What are the two types of simple random sample selection methods? Which of the two methods is used most often by auditors, and why? Discuss.
Describe systematic sample selection, and explain how an auditor would select 35 numbers from a population of 1750 items using this approach.
Give reasons why companies provide online access to descriptions of inventory products and on hand quantity levels to key inventory suppliers. Discuss risks associated with making that information
Included in the 30 June 20X9 inventory of the Wholeridge Supply Company are 2600 deluxe ring binders in the amount of $5902. An examination of the most recent acquisitions of binders showed the
JIT Manufacturing has a 31 December balance date. The physical inventory for JIT Manufacturing was taken on 30 December 20X9, rather than 31 December, because the client had to operate the plant for
In an annual audit at 31 December 20X8, you find the following transactions near the closing date:1. Merchandise costing $1822 was received on 3 January 20X9 and the related purchase invoice recorded
The following are sales, cost of sales, and inventory data for Aladdin Products Supply Company, a wholesale distributor of cleaning supplies. Dollar amounts are in millions.a. Calculate the following
You are assigned to the 30 June 20X8 audit of Sea Gull Airframes Pty Ltd. The company designs and manufactures aircraft superstructures and airframe components. You observed the physical inventory at
As part of the audit of McGree Plumbing & Heating, you have responsibility for testing the payroll and personnel cycle. Payroll is the largest single expense in the client's trial balance, and
In the audit of Larnet Manufacturing Pty Ltd, the auditor concluded that internal controls were inadequate because of the lack of segregation of duties. As a result, the decision was made to carry
Why is it that when auditors are conducting tests of accounts payable, they are more concerned with understatement than overstatement of the balance?
How would the approach to verifying repairs and maintenance expense differ from that used to audit depreciation expense? Why would the approach be different?
Evaluate the following statement: 'The corporate constitution of a company is a legal document; therefore, it should not be examined by the auditors. If the auditor wants information about this
You are auditing general cash for Pitt Supply Company for the financial year ended 30 June 20X9. The client has not prepared the 30 June bank reconciliation. After a brief discussion with the owner,
In connection with an audit you are given the following worksheet:Cheques drawn but not paid by bankNo.
Hardware Manufacturing Company Pty Ltd, a small private company, has operated since 20X2 but hasn't had its financial statements audited. The company now plans to issue additional shares to be sold
Brian Day, a staff assistant, has been asked to analyse interest and legal expenses as part of the first-year audit of Rosow Manufacturing Limited. In searching for a model to follow, Day looked at
You are doing the audit of Ute Corporation for the year ended 31 December 20X9. The following schedule for the property, plant, and equipment and related accumulated depreciation accounts has been
ABC Limited is a national fertiliser manufacturer with factories in every State of Australia. The company owns freehold property, plant and office equipment in each State, and maintains a large fleet
In performing tests of the acquisition and payment cycle for Orlando Manufacturing Company, the staff assistant did a careful and complete job. Because internal controls were evaluated as excellent
Explain the term 'kiting'. Describe audit procedures that can be used to uncover this type of fraud.
In obtaining representations from lawyers, Jill Malano's aim is to receive the representation letters as early as possible after the balance sheet date. This provides her with a signed letter from
Miles Lawson, a registered auditor, believes the final summarisation is the easiest part of the audit if careful planning is followed throughout the engagement. He ensures that each segment of the
Describe matters the auditor should communicate to the audit committee.
In an examination of Marco Company Ltd as of 31 December 20X0, the following situations exist. No entries in respect to them have been made in the accounting records.1. Marco Company Ltd has
The fieldwork for the 30 June 20X0 audit of Tracy Brewing Company Ltd was finished on 19 August 20X0 and the completed financial statements, accompanied by the signed audit reports, were mailed on 6
Mike Adams is an audit partner in a medium-sized public accounting firm and takes an active part in the conduct of every audit he supervises. He follows the practice of reviewing all working papers
Beverly Morgan has prepared a letter of representation for the managing director and chief accountant to sign. It contains references to the following items:1. Inventory is fairly stated at the lower
In a management letter to Cline Wholesale Company Ltd the company's auditor, John Schwartz, informed management of its deficiencies in the control of inventory. He elaborated on how the deficiencies
In the audit of O'Brian Tools for the year ended 30 June 20X2, Mary Ellen Vercon lists the following items that she considers material for review by the engagement manager.1. A $26 000 sale on 14
In your audit of Aviary Industries for calendar year 20X0, you found a number of matters that you believe represent possible adjustments to the company's books. These matters are described below.
Ralph Pyson is auditing Merrill Manufacturing Company Ltd. Through his discussions with client personnel, reading company minutes and reviewing correspondence files, he has become aware of four legal
Distinguish between the three types of opinions other than unmodified and explain the circumstances in which each is appropriate.
Explain how materiality differs for misstatements of the financial report and inability to obtain sufficient appropriate audit evidence.
Explain the purpose of an emphasis of matter paragraph. Give examples of circumstances where an emphasis of matter paragraph is required.
Explain what is meant by 'uncertainties'. List three examples of uncertainties.
Explain the appropriate type of audit report when a significant uncertainty exists.
What responsibility does the auditor have for information on the company's website that may be linked to electronic versions of the company's annual financial statements and auditor's report? How
Under what circumstances should an unmodified opinion be issued?
The following are independent situations for which you will recommend an appropriate audit report: 1. Subsequent to the date of the financial statements as part of his post-financial report date
The following audit opinion was issued for the 30 June 20X1 financial statements of National Distributors Ltd:In our opinion, except for the effects of such adjustments, if any, on the financial
The following is the audit report, except for the opinion paragraph, of Excelsior Products Ltd:Independent Audit ReportTo the MembersExcelsior Products LtdWe have audited the financial report ... as
List the sections of an unmodified audit report and explain the meaning of each part. How do the parts compare with those found in a report other than unmodified?
P. Industries Pty Ltd carries on a crop-dusting business. Its financial statements for the year ended 30 June 20X0 disclose by way of note a claim for compensation of $750 000 from a customer's
Following are the financial statements of Young Manufacturing Company Ltd and the auditor's report for the year ended 30 June 20X0. The examination was conducted by John Smith, an individual
What are the purposes of the sections preceding the opinion section in the auditor's report? Identify the most important information included in these sections.
What are the purposes of the opinion section in the auditor's report? Identify the most important information included in the opinion section.
Compare the content of a standard unmodified audit report with a report that meets the requirements of the Corporations Act 2001.
The audit opinion given on consolidated financial statements is the responsibility wholly of the chief entity auditor. Where consolidated statements contain amounts relating to controlled entities
What is an assurance engagement? How does it differ from an audit?
Distinguish between the following types of performance audit: functional, organisational and special assignment. Give an example of each for a public hospital.
In what ways are the ANAO's auditing standards consistent with private sector auditing standards, and what are some differences?
Give two examples of special reports that a public accountant may be asked to issue on specified components, accounts or items. Explain why these reports would be requested.
What are the main challenges for independent auditors in providing assurance services in relation to greenhouse gas emissions?
Why are greenhouse gas emission assurance engagements necessarily multidisciplinary in their nature?
How do existing assurance standards apply to greenhouse gas emission assurance engagements?
Jones, a chartered accountant, has completed the audit of Sarack Timber Supply Company Ltd and has issued a standard unqualified report. In addition to a report on the overall financial statements,
Carl Monson, the owner of Major Products Manufacturing Company Pty Ltd, a small, successful longtime client of your firm, has requested you to work with them in preparing three-year forecasts of
Saint Gabriel Hospital has an extremely reputable research department that employs several renowned scientists. The research department operates on a project basis. The department consists of a pool
Bancroft Corporation has an internal audit department operating out of head office. Various types of audit assignments are performed by the department for the eight divisions of the company.The
What is an engagement to report on internal control structure? Explain how the requirements differ from the responsibilities the auditor has for internal control understanding and testing in a
What steps should a public accountant take if, during a compilation engagement, he or she becomes aware that the financial statements are misleading?
What procedures should a public accountant use to obtain the information necessary to give the level of assurance required of reviews of financial statements?
Under what circumstances can a public accountant be involved with forecast financial statements? What specific items should be included in his or her report on forecast financial statements?
Describe what is meant by a 'performance audit'.
In 2018, Usher Sports Shop had cash flows from investing activities of -$4,364,000 and cash flows from financing activities of -$5,880,000. The balance in the firm's cash account was $1,615,000 at
You are considering an investment in Fields and Struthers, Inc., and want to evaluate the firm's free cash flow. From the income statement, you see that Fields and Struthers earned an EBIT of $62
Tater and Pepper Corp. reported free cash flows for 2018 of $39.1 million and investment in operating capital of $22.1 million. Tater and Pepper incurred $13.6 million in depreciation expense and
Mr. Husker's Tuxedos, Corp. began the year 2018 with $256 million in retained earnings. The firm earned net income of $33 million in 2018 and paid dividends of $5 million to its preferred
Use the following information to find dividends paid to common stockholders during 2018?
You are evaluating the balance sheet for Goodman's Bees Corporation. From the balance sheet you find the following balances: cash and marketable securities = $400,000, accounts receivable =
The Dakota Corporation had a 2018 taxable income of $33,365,000 from operations after all operating costs but before(1) Interest charges of $8,500,000;(2) Dividends received of $750,000;(3) Dividends
Use the balance sheet and income statement below to construct a statement of cash flows for Clancy's Dog Biscuit Corporation.
Use the balance sheet and income statement below to construct a statement of cash flows for Valium's Medical Supply Corporation.
The Fitness Studio, Inc.'s 2018 income statement lists the following income and expenses: EBIT = $538,000, interest expense = $63,000 and net income = $435,000. Calculate the 2018taxes reported on
The 2018 income statement for Duffy's Pest Control shows that depreciation expense was $197 million EBIT was $494 million, and the tax rate was30 percent. At the beginning of the year, the balance of
The 2018 income statement for Egyptian Noise Blasters shows that depreciation expense is $85 million, NOPAT is $246 million. At the end of the year, the balance of gross fixed assets was $655
Thelma and Louie, Inc., started the year with a balance of retained earnings of $543 million and ended the year with retained earnings of $589 million. The company paid dividends of $35 million to
Listed below is the 2018 income statement for Tom and Sue Travels, Inc.Tom and Sue Travels, Inc.Income Statement for Year Ending December 31, 2018(In millions of dollars)Net

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