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business
auditing

Questions and Answers of Auditing

Use the information related to ELM's payment and discount policy (referenced earlier) to analyze the company's discount program and late payments. All dates for payments are based off the date the
Why is inherent risk for the existence assertion for accounts receivable often set higher than inherent risk for the completeness assertion?
How should an auditor test for proper authorization in the expenditure cycle?
Where would an auditor find the proper authorization that indicates it is okay to pay a vendor?
You are in the final stages of your audit of the financial statements of Ozine Corporation for the year ended December 31, 2017, when the corporation's president consults you. The president believes
Maine Construction builds office buildings. The buildings generally cost between $5 million and $8 million to build, and the plumbing can cost between $300,000 and $600,000 depending on the building
Why is a service expense a good account for recording a fictitious expense?
If an account payable is left off the end of the period balance, what are the possible other accounts that may be misstated?
What population of documents would an auditor examine to determine whether(a) All authorized production was completed and placed in inventory or recorded as scrap and(b) Finished goods inventory was
Why should receiving reports be pre numbered? What assertion would an auditor test using the receiving reports, and how would the auditor do this?
What characteristics should be considered in reviewing a client's inventory-taking instructions?
What is an inventory roll-forward? What roll-forward tests should be performed?
How might an auditor use a client's sales forecast for general familiarity with the production cycle or for evaluation of slow-moving inventory?
What information is used in the cost accounting department to calculate cost of goods sold for a production operation? What are the significant risks that would make this calculation inaccurate?
The balance sheet of a company lists $25 million of inventory. What assertions is management making regarding inventory?
What makes the recording of inventory at its proper amount difficult on the financial statements?
Why do auditors consider inventory errors pervasive?
What documents would a company need to correctly account for its investment securities, and what information would they obtain from these documents?
Describe the activities a company should perform to ensure appropriate reconciliation of marketable securities?
Sorenson Manufacturing Corporation was incorporated on January 3, 2016. The corporation's financial statements for its first year's operations were not examined by a CPA. You have been engaged to
You have been engaged to audit the financial statements of Broad wall Corporation for the year ended December 31, 2017. During the year, Broad wall obtained a long-term loan from a local bank
What are some specific transactions that an auditor would expect to be approved by the board of directors? How would it affect the audit if these transactions were not required to be approved by the
What are auditors' responsibilities for subsequently discovered facts if these are identified(a) Prior to the audit report release date and(b) Following the audit report release date?
During the audit of the annual financial statements of Amis Manufacturing Inc., the company's president, Vance Molar, and Wanda Dweebins, the engagement partner, reviewed matters that were supposed
Each of the following statements is a communication from management. Indicate whether the inclusion of each statement in written representations is appropriate. Provide your rationale for any
The firm of Cole & Cole, CPAs, is auditing the financial statements of Consolidated Industries Co. for the year ended December 31, 2017. On March 6, 2018, C. R. Brown, Consolidated's chief
Aaron Rivers, CPA, is auditing the financial statements of Charger Company, a client for the past five years. During past audits of Charger, Rivers identified some immaterial misstatements (most of
Pat Colt is auditing the financial statements of Manning Company. The following is a summary of the uncorrected misstatements that Colt has identified during the past three years. These
Michael Ewing is auditing the financial statements of Dallas Company for the year ended December 31, 2017. In concluding the process of gathering sufficient appropriate evidence, Ewing has asked to
The following are independent situations that have occurred in your public accounting firm, Arthur Hurdman7:Case 1During the internal inspection by a regional office of Arthur Hurdman, one of its
Jay Ralph completed the December 31, 2017, audit of Raider Company on February 3, 2018; Raider's financial statements and Ralph's reports on Raider's financial statements and internal control over
For each of the following independent situations, describe the most appropriate course of action that the auditors should take.a. Drew Allison is conducting the audit of Anderson Inc. as of December
Central City was involved in litigation brought by Mexican American Legal Defense and Educational Fund (MALDEF) over the creation of single-member voting districts (which require candidates to
What are going-concern uncertainties? What is the auditors' responsibility for evaluating going concern uncertainties?
What type of report should be issued when auditors are not independent with respect to the entity?
Assume that Stanford CPAs encountered the following issues during its various audit engagements in 2017:1. It conducted the audit of Luck, a new client this past year. Last year, Luck was audited by
On September 23, 2018, Betsy Ross drafted the following report on Continental Corporation's financial statements.To Whom It May Concern:We have audited the accompanying financial statements of
The board of directors of Cook Industries Inc. engaged Brown & Brown, CPAs, to audit the financial statements for the year ended December 31, 2017.Independent Auditor's ReportTo the President of
An assistant drafted the following auditors' report at the completion of the audit of Cramdon Inc. on March 5, 2018. The partner in charge of the engagement has decided the opinion on the 2017
Following is Rex Wolf's report on Bonair Corporation's financial statements. Bonair publishes general-purpose financial statements for distribution to owners, creditors, potential investors, and
Your partner drafted the following auditors' report yesterday. You need to describe the reporting deficiencies, explain the reasons for them, and discuss with the partner how the report should be
The following auditors' report was drafted by Quinn Moore, a staff auditor with Tyler & Tyler, CPAs, at the completion of the audit of the financial statements of Park Publishing Company for the
What are the major differences in the auditors' report for nonpublic and public entities?
AOW has completed the audit of the financial statements of Musgrave Company for the year ended December 31, 2017, and is now preparing the report.AOW has audited Musgrave's financial statements for
AOW is the group auditor for the December 31, 2017, consolidated financial statements of Ferguson Company and subsidiaries. However, component auditors perform the work on certain subsidiaries for
What makes accountants qualified to perform the assurance services discussed here?
M. Jordan & E. Stone, CPAs, audited the financial statements of Tech Company, a non issuer, for the year ended December 31, 2016, and expressed an unmodified opinion. For the next year, ended
Dodd Manufacturing Corporation has engaged you to attest to the reasonableness of the assumptions underlying its forecast of revenues, costs, and net income for the next calendar year, 2018. Four of
Henry Horkheimer, MD, is considering expansion of his office as a result of adding a new doctor to his family medical practice. Dr. Horkheimer knows that his business is profitable, but he does not
The following abstracted report is a report on a trust fund that refers to a statutory basis of accounting (special-purpose framework) as well as to generally accepted accounting principles
A. Jones, CPA, performed a review service for the Independence Company in 2017. He wants to present comparative financial statements. However, the 2016 statements were compiled by Able and
Baker & Baker, CPAs, prepared the following report on the interim financial information of Micro Mini Company. The interim financial information was presented in the first quarterly report for
Brooklyn Life Insurance Company prepares its financial statements on a statutory basis in conformity with the accounting practices prescribed and permitted by the Insurance Department of the State
In 1997, a disagreement arose between Livent Inc. and its auditor, Deloitte and Touche. Livent, which operated several theaters for live stage production, had sold the naming rights to one of its
According to the BarChris decision, how did auditors violate generally accepted auditing standards?
For what type of actions can clients bring suit against auditors under common law? What must clients prove prior to bringing suit in each case?
In terms of tort liability, what level of responsibility do auditors owe clients under common law?
Risk Capital Limited, a Delaware corporation, was considering the purchase of a substantial investment in Florida Sunshine Corporation, a closely held corporation. Initial discussions with the
Chriswell Corporation decided to raise additional long-term capital by issuing $20 million of 12 percent subordinated debentures to the public. May, Clark & Company, CPAs, the company's auditors,
Anderson, Olds, and Watershed (AOW) have been the independent auditors for Accord Corporation since 1990. Accord is a public entity obligated to file periodic reports under the Securities Exchange
Adam, an Illinois resident, was interested in purchasing stock in Joshua Foods Inc. Joshua Foods has corporate headquarters in Fond du Lac, Wisconsin, and is incorporated in Delaware. Adam accessed
What additional defenses can accountants use in lawsuits related to compilation and review engagements?
Why is prosecution of fraud perpetrators generally a good idea?
External auditors usually calculate inventory turnover (cost of goods sold for the year divided by average inventory) and use the ratio as a broad indication of inventory age, obsolescence, or
How does the scope of practice differ for governmental audits?
This module provided a detailed example of the use of sampling to determine whether individuals could reduce their resting heart rates through an aerobic exercise program.Required:Indicate whether
For each of the following independent cases, identify the missing value(s).
Fournette, CPA, is studying and evaluating Tiger Inc.'s internal controls over cash disbursements. In planning the engagement, Fournette has identified the requirement that vendor invoices are
Henry, CPA, is performing substantive tests of Crimson Company's accounts receivable (which have a recorded balance of $200 million) and decided to confirm customer account balances. Because of the
What is the ULRD? What information does the ULRD provide to the audit team?
Describe the general process used to determine the ULRD using AICPA sampling tables?
Aubrey Marblehead is conducting tests of controls on the control that quantities on Rock's receiving reports are appropriately verified. In so doing, Marblehead has inquired of Rock's receiving
Your audit team has established the following parameters for the examination of ELM's control over the authorization of sales:Population size ............................... 388 shipmentsRisk of
Your audit team has established the following parameters for the examination of ELM's control over the authorization of sales:Population size .................. 388 shipmentsRisk of overreliance
Based on a population size of 388 shipments, a 10 percent desired risk of overreliance, an expected population deviation rate of 1 percent, and a tolerable rate of deviation of 6 percent, the audit
Define classical variables sampling and non statistical sampling. Are these methods viable options to monetary unit sampling?
The law firm of Spade & Associates hired Dylan Sayers to review the audit of the 2017 financial statements that Hammer & Wimsey, CPAs, had completed for Golden Sound and Records Company.
Assume that your audit team has established the following parameters for the examination of ELM's sales transactions:LO G-3Risk of incorrect acceptance
Assume that your audit team has established the following parameters for the examination of ELM's sales transactions:Risk of incorrect acceptance
Assume that your audit team has established the following parameters for the examination of ELM's sales transactions:Risk of incorrect acceptance
Assume that your audit team has received the electronic file of sales transactions from ELM and is preparing to use monetary unit sampling in evaluating the fairness of ELM's sales
Briefly describe how mean-per-unit estimation, ratio estimation, and difference estimation are used to provide an estimate of the recorded account balance or class of transactions?
Once the audit team estimates the balance of an account balance or class of transactions using classical variables sampling, how can they evaluate the fairness of that account balance?
Are auditors responsible for searching for fraud while "reviewing" a public company's quarterly financial statements? Explain. If so, what specific fraud risk factors should the Grant Thornton
Define the phrase "earnings management" and distinguish between earnings management and fraudulent accounting. Under what circumstances, if any, is it acceptable for corporate executives to employ
What are the key factors that should be considered in determining whether a financial statement amount is "material"? Should auditors apply the same materiality guidelines or benchmarks as financial
Identify the primary audit objectives for an accrued liability account such as Bankrate's SEM accrual. What circumstances relevant to accrued liabilities can prove to be particularly challenging for
Assuming that the SEC's allegations are true, the parties principally responsible for the Bankrate fraud were DiMaria, Gamsey, and Lerner. What other parties bear some degree of responsibility for
In your opinion, was Saks' zero tolerance policy for employee theft reasonable? Was the policy likely cost-effective? Defend your answers.
Did Saks' anti-harassment policy and the related complaint procedure qualify as internal controls? Explain.
Identify five control activities that you would commonly find in a men's clothing department of a major department store. Identify the control objective associated with each of these activities.
Should a company's independent auditors be concerned with whether or not a client provides a non-hostile work environment for its employees? If your answer is "yes," identify the specific audit
Do you believe that Daniel Slater would have reacted differently if the auditor in question had been a female rather than a male? Explain.
Do you agree with Daniel Alanis that auditors are not entitled to make "honest mistakes"? Defend your answer.
Do you agree with the assertion that any and all associations that SEC registrants have with SSTs qualify as "material information" for financial reporting purposes and thus should be disclosed in

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