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business
auditing

Questions and Answers of Auditing

Under what circumstances is a customer most likely to complain to the seller regarding an error in a bill or statement? Why is this a problem since the seller will have the opportunity to correct the
Explain the different formats and information of shipping documents. Why is a shipping document created?
What are important characteristics of the credit approval process?
What is lapping? Discuss.
What segregation of duties exists in a well-designed cash receipts process?
What are the advantages of a lock box system, including aspects of recording transactions?
What are the main audits concerns regarding sales returns and allowances?
What audit procedures are used for sales returns and allowances?
What account balances within the current year might be used for analytical procedures? How might balances between years be used for analytical procedures?
What conclusions can the auditor make from a negative confirmation?
Explain the difference between positive and negative formats for confirmations and when each format is likely to be used.
In what ways do client personnel participate in the confirmation process?
Why might the auditor choose to NOT confirm accounts receivable?
How is the population from which a sample is selected for confirmation of accounts payable different from that used for confirmation of accounts receivable?
Under what circumstance might an auditor decide not to confirm a bank account?
What audit procedure does the auditor use to examine the valuation of accounts receivable? Specifically, what steps does the auditor perform related to the aged accounts receivable trial balance?
Why is the Contractual Discount account important to service revenue for a health-care provider? How does the auditor examine the contractual discount transactions and balances?
How are computer-assisted audit techniques likely to be used when auditing accounts receivable of a retail entity?
What types of audit reports are issued for financial statement audits? Are all of those types of reports likely to be issued for audits of public companies? If not, which ones are not likely used and
Refer to the audit report for Asyst Technologies in exhibit. The report is presented as an example of an adverse opinion on ICFR. Answer the following questions regarding the other contents of the
Assume you are a senior who has been assigned to the audit of Overkill Motor Yachts, when the senior previously assigned to the engagement left the firm for another position. Most of the audit
In completing the Simpson Company audit for the fiscal year ended, December 31, 2010, the following events occurred after the close of the fiscal year but before all members of the audit team left
What types of transactions and entries are considered unusual year-end entries? Why does the auditor pay particular attention to them?
What is a contingent liability? A commitment? A claim? An unasserted claim? What is the auditor’s primary concern regarding commitments and contingencies?
What is the purpose of obtaining management’s representations? What impact does the management representations letter have on other audit steps that need to be performed?
What are the two types of subsequent events that affect a financial statement audit? What subsequent events affect an ICFR audit? How does each of these impact the audit findings?
What is substantial doubt about going concern? How is the audit report modified when the auditor concludes there is substantial doubt about an entity’s ability to continue as a going concern? When
What audit procedures does the auditor perform when the audited financial statements and audit report are included in a document that contains other information? What is the auditor looking for?
What steps are appropriate to audit other financial statements and financial statement disclosures?
People who work around radioactivity wear ﬁlm badges to monitor the amount of radiation that reaches their bodies. These badges consist of small pieces of photographic ﬁlm enclosed in a
To what individuals does an auditor make communications? For an ICFR audit, briefly explain how the communications required to go to the various individuals differ.
What is a management letter?
What is an audit completion document? How is it useful?
What is an engagement quality review of an audit, and why is it performed?
What different forms of audit reports may be used as the result of a financial statement audit?
When is the audit report dated?
When are the different forms appropriate?
What specific words are characteristics of the different types of audit reports?
If an individual’s job is purchasing agent, and that person is allowed to purchase from whatever vendor he or she chooses – in other words, the purchasing agent does not have to comply with an
How are the auditors’ concerns regarding purchase discounts different from those of management? Why?
Perform analytical procedures for accounts payable of J & J Auto Repair Service in the following manner:a. Calculate and list all necessary figures and comparisons.b. Explain what the result of
Using the information provided in the example and the results of analytical procedures performed in problem 12-32, explain the substantive audit procedures, audit evidence, and related management
How does encumbering funds help keep a government entity’s spending within its budget?
How are fixed price contracts used to mitigate risk?
What does it mean when a financial instrument is used to hedge the cost of items that must be purchased for the manufacturing process?
Why do companies in the automotive industry need extensive IT systems linked to purchasing to manage their inventory?
What is important regarding the organizational authority of the person who creates a purchase requisition?
What should happen when discrepancies exist among supporting documents for a purchase or when the goods received are not what was ordered or arrive damaged?
Some businesses extend purchasing department employees the authority to perform a broader range of activities than do other businesses. What activities do all purchasing departments perform? What
What are the different ways cash disbursements can be reviewed and authorized before disbursement occurs?
Why and how is cutoff important to acquisitions and payments?
What is an imprest petty cash fund, and how does it work?
Related to purchases, what are important concerns addressed by controls? What are the control concerns that are more universal in nature, but also apply to purchase activities?
How do auditor’s and management’s concerns differ regarding purchase discounts?
What are important detective controls for cash disbursements?
What control purposes and management assertions are supported by reconciling vendor invoices and statements to accounts payable subsidiary ledger records?
What control purposes and management assertions are supported by bank reconciliations?
How is underlying information (used for substantive analytical procedures) tested, and why?
Why do analytical procedures help whether they confirm or dispute other findings?
What is involved in most common analytical procedures? What is compared?
What is the purpose of sending confirmations to vendors with small or zero balances?
What is a “blank” confirmation? Why is this format often used for accounts payable?
What are common sources of discrepancies between responses on blank accounts payable confirmations and the audit client’s accounts payable subsidiary ledger?
What audit procedures fall under the label Search for Unrecorded Liabilities? What management assertion do these audit procedures address?
What does SAB 108 say regarding the financial statements for which materiality must be considered?
What audit steps are typical for prepaid assets and accrued liabilities?
What are the steps to account analysis for a prepaid or accrual account?
How does authorization for the purchase of property, plant and equipment differ from authorization for other purchases?
Why is the impact of poor ICFR related to the disposal of fixed assets not usually important to the financial statement?
Why is the auditor concerned about the impact of possible impairment of value on the fixed assets of audit clients? Summarize the accounting guidance regarding impairment. What are the related
What are identifiable intangible assets? Give examples. What audit procedures will the auditor likely apply to intangible assets?
What characteristics of the purchasing, receiving, and payment activities in the automotive industry make ICFR very important? What ICFR are important, and what does the auditor do to test them?
Why is the audit of warranties challenging?
How does the auditor come to an audit conclusion regarding presentation and disclosure for acquisition and payment activities and related accounts?
Why do public accounting firms require their salaried employees to submit time and expense reports? Would these same reasons exist in a law firm? How would this differ from the situation for salaried
How do management reports produced by a public accounting firm’s engagement management system for the current year engagement assist them in bidding on the job in subsequent years? In justifying to
Why would a service organization choose to hire an accountant to perform a SAS 70 engagement and issue a report? Would the clients of the service organization (in other words, the user organizations)
Assume the role of a senior auditor on Genetech Corp, a large public corporation that performs evaluations of lab results submitted by physicians and hospitals. You have been assigned the task of
Once again, assume the role of senior auditor on the Genetech engagement assigned to perform tests over the Human Resources Cycle. In designing tests, you are concerned with management’s objectives
You are in an operations management class working on a team project. Your team is designing a new manufacturing floor for a cardboard processing company. The company uses large rolls of cardboard as
Flat World Systems is a startup company that develops computer games. As the company has grown it has hired new programmers and processing payroll has become a chore for the owners. Flat World
A service provider has historically engaged a large CPA firm with significant experience in performing SAS 70 engagements to provide its Type II SAS 70 report. To reduce costs, in the current year it
Sam is a senior auditor on the integrated audit of the Patriots Dynasty Corporation and is in charge of designing tests for the ICFR and financial statement audits. You are the staff auditor on the
John is about to start on the audit of Bourdain Restaurants, a local restaurant chain. In reviewing last year’s work papers, John discovers that Bourdain Restaurants uses an outside service
For each item listed below identify:(a) The answer that establishes appropriate control(b) The problem or misstatement that exists if the control is missing(c) A test to see that the control is
You have requested and received the following information from your audit client:Number of people employed at the beginning of each month throughout the current and prior year, and their positions in
For each of the following situations, draft an audit procedure appropriate to address the audit concern. Include any documents you need and describe the direction of the test.(a) You are auditing an
Tatum and Almer Inc. is a fashion design firm specializing in the original sketches used by several major clothing manufacturers of women’s business apparel. The company has a tangible product,
List steps performed and documents that could be used by an auditor in a walkthrough of the following human resources processes:
Professional Payroll Plus: On a single day in May 2007 six businesses filed complaints against Professional Payroll Plus (PPP). The Florida-based payroll provider filed for bankruptcy and is under
Apple’s Backdating Scandal: Backdating entails dating an employee stock option grant prior to the date the company actually granted the stock options. It was an action undertaken by some companies
Morrison Company is a manufacturing company. The senior auditor described the essential characteristics of Morrison Company’s internal control system for new staff auditors during a pre-audit
Ryan Rogers is auditing the payroll of Hampton Industries. A majority of Hampton Industries’ employees are Hispanic. Ryan sees that at the end of each pay period an employee gets two checks. One
You are beginning your first audit of Suncoast Network Systems, Inc., a company that develops network security software. During your investigation of internal controls you learn that the company’s
You are the independent auditor for Towson, Inc. Towson’s CFO, Richard Moore, contacts you for information. Towson’s audit committee has requested that he present a report on benefits of
You are performing the audit of Erwin Corporation. You audit team has begun to brainstorm about the fraud of claiming workers as independent contractors, rather than as employees. In addition to the
Your client, Techno Products, Inc., requests that you conduct a feasibility study that will be used to advise management on the best new system to install that will be used to handle the company’s
Go to the PCAOB website and access Interim Standards, AU 324, Reports on the Processing of Transactions by Service Organizations. The standard covers important aspects of when and how an auditor
Perform an internet search and identify two payroll service providers. Research the two companies. Compare and contrast the types of services they provide. Include in your research any financial
Go to the SEC Edgar website and search for any company with which you are familiar that manufactures products. Read the company’s financial statement note disclosure for inventory, both in note 1

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