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auditing

Questions and Answers of Auditing

The following long-term debt documentation (indexed K-1) was prepared by client personnel and audited by AA, an audit assistant, during the calendar year 2011 audit of American Widgets, Inc., a
Consider the situation outlined at the beginning of the chapter in the Professional Judgment in Context feature. The situation described concerns the aggressive growth strategy pursued by former CEO
Moehrle, S. R. (2002). Do Firms Use Restructuring Charge Reversals to Meet Earnings Targets? The Accounting Review 77(2):397-413. i. What is the issue being addressed in the paper? ii. Why is this
Why should the auditor exercise heightened professional skepticism concerning accounting estimates? What are the major factors that might affect the amounts that are primarily accounting estimates?
Describe the alleged fraud that Dell, Inc. top executives committed that related to inaccurate financial statement disclosures and management representations?
According to the UK's Financial Reporting Council (FRC), what are the five key drivers of audit quality?
List three examples of Type I subsequent events, and list three examples of Type II subsequent events?
What are some factors outside the control of auditors that are likely to make a positive contribution to audit quality?
A high-quality audit is one performed: a. In accordance with the engagement contract signed by both the auditor and the client, and one in which all audit procedures are performed efficiently. b. In
Refer to the Biltrite financial statements in the Biltrite Practice Case (Exhibits BR.3 and BR.4 in the introduction to the Biltrite case). Required a. Calculate the Altman Z-score for Biltrite for
An alfalfa co-op has an agreement with its farmers to purchase alfalfa at a price that is currently 5% above the existing market price. In addition, the co-op has agreed to pay the farmers interest
Milton Green, CPA, is auditing the financial statements of Taylor Corporation for the year ended December 31, 2011. Green plans to sign the auditor's report on March 10, 2012. He is concerned about
The auditor is auditing financial statements for the year ended December 31, 2011, and is completing the audit in early March 2012. The following situations have come to the auditor's attention: 1.
Consistent quality in the performance of an audit is one of the major concerns of all public accounting firms. However, internal inspections by audit firms themselves, along with external inspections
Cole & Cole, CPAs, are auditing the financial statements of Consolidated Industries Co. for the year ended December 31, 2011. On February 20, 2012, Cole asked the client to draft an inquiry letter
The text talks about the case of Dell receiving payments from Intel in return for a pledge by Dell that they would not use computer chips from a major Intel competitor (AMD). The payments were large,
What are client continuance decisions, and why are these decisions important to the ability of an audit firm to ensure audit quality?
What is audit firm portfolio management? Describe the process by which clients move into and out of an audit firm's portfolio of clients.
What are some of the risk factors that an audit firm should consider when making the client continuance decision?
Epps, K. K. & Messier Jr., W. F. (2007). Engagement Quality Reviews: A Comparison of Audit Firm Practices. Auditing: A Journal of Practice & Theory 26(2):167-181. i. What is the issue being addressed
How would the auditor's opinion differ if the financial statements of a company that was a foreign private issuer were prepared in conformity with IFRS and filed with the SEC rather than prepared in
Compare audits, reviews, and compilations in terms of: a. The types of procedures performed. Consider the following types of procedures in your response: • Assessing control risk. • Performing
Describe the nature of the audit opinion in the auditors' reports on: a. Prospective financial information b. Pro forma financial information c. Compliance engagements d. Agreed-upon procedures
What types of audit opinions are not accepted by the SEC? How do the SEC's requirements affect the conflicts that may arise between the client and the auditor? Discuss potential ethical implications
Use the Internet to locate the financial statements (and associated audit report) of one company reporting using U.S. accounting standards and another company reporting using international
You are a senior auditor working for Rittenberg & Schwieger, CPAs. Your staff assistant has drafted the following audit report of a publicly traded U.S. company. You believe the scope limitation is
You are in charge of the audit of the financial statements of Parat, Inc. and consolidated subsidiaries covering the two years ended December 31, 2012. Another public accounting firm is auditing
The following auditor's report was drafted by a staff accountant of Turner & Turner, CPAs, at the completion of the audit of the financial statements of Lyon Computers, Inc. (a nonpublic company)
On February 28, 2012, Stu & Dent, LLP completed the audit of Shylo Ranch, Inc. (a nonpublic company) for the year ended December 31, 2011. A recent fire destroyed the accounting records concerning
Russ Major, CPA, drafted the following report on October 25, 2011 at the completion of the engagement to compile the financial statements of Ajax Company for the year ended September 30, 2011. Ajax
You have been assigned to perform a review of a client's inventory containing electric motors, parts for motors, and raw materials used in making the motors. Required a. What inquiries and analytical
A staff auditor of Erwachen & Diamond, CPAs, has prepared the following draft of an audit report on cash-basis financial statements: Accountant's Report to the Shareholders of Halon Company: We
Young & Young, CPAs, completed an examination of the financial statements of XYZ Company, Inc., for the year ended June 30, 2012 and issued a standard unqualified auditor's report dated August 15,
Krishnan, J., Raghunandan, K., & Yang, J. S. (2007). Were Former Andersen Clients Treated More Leniently Than Other Clients? Evidence from Going-Concern Modified Audit Opinions. Accounting Horizons
What are some of the defensive approaches used by auditors that might cause concern to investors about audit quality? Why would investors be concerned?
What are the main elements of any audit firm's programs to assure auditor independence?
Describe the liability issues and uncertainties for large U.S. CPA firms that are affiliates of international organizations?
1. Which one of the elements is necessary to hold a CPA liable to a client for negligently conducting an audit? a. Acted with scienter. b. Was a fiduciary of the client. c. Failed to exercise due
Brandon, D. M. & Mueller, J. M. (2006). The Influence of Client Importance on Juror Evaluations of Auditor Liability. Behavioral Research in Accounting 18:1-18. i. What is the issue being addressed
The auditor performs a statistical test of inventory and has done enough work such that the upper misstatement limit and most likely misstatement are determined. When determining whether or not the
When is an asset impaired? Explain and give an example of an asset that requires frequent impairment testing.
What do the two investor letters in the opening Professional Judgment in Context feature say about materiality and what auditors should know about what investors need?
What is sustainability? What is the difference between sustainability reporting and sustainability assurance?
What frameworks exist to assist companies in producing sustainability reports? What frameworks exist to assist third parties in providing reliable assurance over sustainability disclosures?
Is it unethical for a company to provide a sustainability report, but provide no assurance on the reliability of the information contained therein?
1. Which of the following would an auditor most likely use in making preliminary judgments about materiality? a. The anticipated sample size of the planned substantive tests. b. The entity's
It was noted that virtually all items in a company's financial statement are subject to some "fair value" comparison and that a company ought to have a systematic process by which to gather
Operating leases are not normally shown on a balance sheet. However, Ford Motor Co. has an account entitled net investment in operating leases. Explain what this account represents and whether it is
The auditor must interact with the audit committee on a regular basis and is hired or fired by the audit committee. Yet, the auditor is supposed to evaluate the audit committee and determine whether
During the audit of Pall Corp., KPMG found a material misstatement related to the client's estimate of income tax expense and the accrued liability. The misstatement had accumulated over a number of
ASC 820 Fair Value Measurements and Disclosures (previously SFAS 157) provides guidance for auditors and managers to make judgments regarding fair value. Required a. Identify the three levels of fair
A common theme throughout this text is that the auditor should carefully document the reasoning process regarding the assessment of an account balance or an internal control deficiency. Required An
Panzero Bread is a major retailer of specialty sandwich items and baked goods. The following information represents the company's financial position as of 12/31/10 andThe auditor of Panzero Bread
Seong-Yeon, C., R. C. Hagerman, N. Sandeep, and E. R. Patterson. (2003). Measuring Stockholder Materiality. Accounting Horizons 17:63-76. i. What is the issue being addressed in the paper? ii. Why is
It will never happen here-our data will not be disclosed!" Unfortunately, it can happen, and it has. Every month there are new stories about data that has been compromised or stolen. For example, in
List and explain the five key elements of the definition of auditing.
Which audit professionals could conduct the audit of a company that manufactures automobiles? Provide examples of the types of assurance or nonassurance engagements they could conduct for this
Explain the causes of information risk and how users can reduce the risk.
Explain the difference between an attest and direct report engagement.
Explain how and why the auditor makes information trustworthy and credible.
Describe and explain the differences and similarities between a financial statement, compliance, and operational audits.
Describe and explain the difference and similarities among the various types of auditors.
What are the major differences in the scope of the audit responsibilities for public accountants, auditors from offices of auditors general, Canada Revenue Agency auditors, and internal auditors?
Describe the different types of assurance engagements that an internal auditor, government auditor, forensic auditor, and public accountant could provide for a hospital.
Using a law firm as an example, describe the different assurance and nonassurance services that a public accounting firm could provide to the firm, with examples.
Consumers Union is a nonprofit organization that provides information and counsel on consumer goods and services. A major part of its function is the testing of different brands of consumer products
Vial-tek has an existing loan in the amount of $1.5 million with an annual interest rate of 9.5 percent. The company provides an internal company-prepared financial statement to the bank under the
In conducting audits of financial statements, it would be a serious breach of responsibility if the auditor did not thoroughly understand accounting. However, many competent accountants do not have a
Five university students majoring in accounting are discussing alternative career plans. Abdullah plans to become a CRA auditor because his primary interest is income taxes. He believes the
Projections indicated that there would be record numbers of homeless people over the next few years, so the city decided that it was important to make shelters available. Accordingly, contracts were
Denise Garrido was 2013 Miss Universe Canada for only 24 hours. She was dethroned after an independent audit of the judges' scores discovered a typo in the top five entries. It turned out that Riza
Joy Wu, a PA, is planning her first audit of a closely held small business. In prior years, Wu compiled the financial statements of the company. She also helped to set up its accounting system and
Explain why auditor independence is so important in conducting a financial statement audit.
Explain why an auditor who is not independent may not exercise the appropriate degree of professional skepticism.
Explain what is meant by "determining the degree of correspondence between information and established criteria." What are the information and established criteria for the audit of Glickle Ltd.'s tax
Explain how fair value accounting may increase information risk. How does fair value accounting increase risk for a financial statement auditor?
Access the Auditing and Assurance Standards Board (AASB) of Canada website at www.frascanada.ca/auditing-and-assurance- standards-board/index.aspx . REQUIRED a. Explain what the board does and
What type of public accounting firm would you prefer to work for-a large or a small firm? One consideration would be the types of clients and services offered by the firm. The large public accounting
How do structures of small and large public accounting firms differ?
What are the different ways that quality control is established and enforced for public accounting firms in Canada?
Why is it important that PAs have high-quality financial statement audits?
How does the organizational hierarchy of public accounting firms contribute to audit quality?
Explain how the CPA Handbook is organized
What is the purpose of the financial statement audit?
What are the objectives of the financial statement auditor when performing the audit?
What are the advantages and disadvantages of practising as a large public accounting firm rather than a small one?
Explain how appropriate competence and capabilities contribute to a PA's qualifications to conduct a financial statement audit. What are the various ways in which PAs fulfill these responsibilities?
What are the objectives and purpose of the financial statement audit?
What is meant by "audit quality," and what factors influence it?
The following comments summarize the beliefs of some practitioners about quality control and practice inspection: The Canadian quality control and practice inspection authorities are
Mobile Home Manufacturing Company is audited by the public accounting firm Rossi and Montgomery. Mobile Home has decided to issue shares to the public and wants Rossi and Montgomery to perform all
According to the CPAB, an audit firm culture that maintains the appropriate balance between commercialism (managing the economic business of the firm) and professionalism (sustainable high-quality
Daiyu Cheng, a recently qualified PA, has been assigned by her firm, Liu & Liu LLP, to serve as the senior auditor in charge of the fieldwork on a new audit engagement. The client is Demonte Credit
Although the CPA Canada Handbook standards provide general guidance, the application of these standards is dependent upon particular circumstances. In practice, a professional accountant may
What role does the CPA Canada Handbook have in the professional activities of public accountants in Canada?
What is the difference between the American and Canadian standard setting processes?
Access the CPA Canada's Audit Quality Blog at https://www .cpacanada.ca/en/connecting-and-news/blogs/audit-quality-blog . a. Explain the purpose of the Audit Quality Blog.
Access the Canadian Public Accountability Board (CPAB) website at www.cpab-ccrc.ca/en/Pages/default.aspx .a. Whom does CPAB identify as its key stakeholders? Explain the role of each of these
Due to regulatory requirements of certain jurisdictions in which some of the Big Four firms' clients are located, each firm prepares a transparency report. Access one of the Big Four firms'
What are some major factors that contribute to the growing cost of auditor litigation?

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