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business
auditing

Questions and Answers of Auditing

Why is the audit technique of observation important during the physical inventory count?
Included in the December 31, 2015, inventory of Kupitz Supply Ltd. are 2600 deluxe ring binders in the amount of $5902. An examination of the most recent purchases of binders showed the following
In connection with her examination of the financial statements of Knutson Products Co. Ltd., an assembler of home appliances, for the year ended May 31, 2015, Raymonde Mathieu, public accountant, is
Items 1 through 8 are selected questions typically found in questionnaires used by auditors to obtain an understanding of internal controls in the inventory and distribution cycle. In using the
Your client, Ridgewood Heating and Cooling, specializes in residential air conditioning and heating installations. The company maintains an inventory of air conditioning units, furnaces, and air
Read Auditing in Action 14-1 , which describes BlackBerry's inventory obsolescence review process. REQUIRED a. What types of procedures do you think an auditor would use to assess the reasonableness
In an annual audit at December 31, 2015, you find the following transactions near the closing date: 1. Merchandise costing $625 was received on December 28, 2015, and the invoice was not recorded.
You are the in-charge accountant on the audit of Dezine Inc. (DI). It is March 25, 2015 and your firm is partway through the audit for the year ended January 31, 2015. You are currently assigned to
iBee is a private corporation located in Punkeydoodles Corners, Ontario, that owns and maintains a large honeybee colony. Tom Doodles established the company as a small hobby business in 1967. Over
In obtaining an understanding of inventory procedures for a small manufacturing company, the auditor obtains a copy of the client's inventory instructions and reviews them with the controller before
Payroll is picky. The amounts have to be exact, many deductions have to be taken, and several remittances and forms must be submitted to regulatory agencies. Fines are heavy if you remit too little
Why is it important for the auditor to audit the payroll cycle?
How does the audit of access rights management in the payroll cycle affect the audit of other transaction cycles?
Why might auditors limit the number of transactions tested in the payroll cycle?
Describe three assertions that are important when testing payroll-related liabilities, and provide an example of an audit test for each assertion.
When would the auditor conduct tests of details of balances for payroll expense accounts?
Ling is responsible for planning the audit over inventory and payroll cycles for a new client. Her supervisor gave her an internal control questionnaire for payroll, on which the supervisor had
The following misstatements are included in the accounting records of Lathen Manufacturing Company: 1. Joe Block and Frank Demery take turns "punching in" for each other every few days. The absent
During the first-year audit of Omato Wholesale Stationery Ltd., you observe that commissions amount to almost 25 percent of total sales, which is somewhat higher than in previous years. Further
Janbec Limited is a distributor of health care products. It has about $450 000 in accounts receivable and about $600 000 in inventory. It has been a tough winter, with many people sick with the flu
Archer Uniforms Inc. is a distributor of professional uniforms to retail stores that sell work clothing to professionals such as doctors, nurses, and security guards. Traditionally, most of the sales
You are assessing internal control in the audit of the human resources and payroll cycle for the Kowal Manufacturing Company, a company specializing in assembling computer systems from purchased
List the types of authorizations in the human resources and payroll cycle, and state the type of misstatement that is increased when each authorization is lacking.
Read "The Payroll Payoff" by Edward Nagel at www .camagazine.com/archives/print-edition/2004/may/ regulars/camagazine16292.aspx , and then answer the following questions. REQUIRED a. For each of the
Recording long-term credit transactions sounds simple enough- record the debt, and expense the interest. Yet this is not always the case. Consider the Institute of Chartered Accountants of Ontario
Who should be responsible for the approval of new debt such as notes payable?
Provide examples of outsourcing as applied to management of share records.
Why are liability accounts that are included in the capital acquisition and repayment cycle audited differently from accounts payable?
Evangeline Ltd. took out a 20-year mortgage for $2 600 000 on June 15, 2014, and pledged its only manufacturing building and the land on which the building stands as collateral. Each month, a payment
Bee Corporation's partial balance sheet includes the following information:REQUIRED a. Design two audit procedures to test existence related to the above investments for Bee's 2016 financial
E-Antiques Inc. is an internet-based market for buyers and sellers of antique furniture and jewellery. The company allows sellers of antique items to list descriptions of those items on the
List four types of restrictions that long-term creditors often put on companies when granting them a loan. How can the auditor find out about each restriction?
Before a company can begin trading on an exchange, it must meet certain initial requirements. In order to be listed on the Toronto Stock Exchange, companies must meet minimum requirements. Review the
Does something seem unusual at your client but you cannot quite identify it? Perhaps there seems to be less cash than usual and purchases are slightly up, reducing costs of goods sold, but sales have
Many organizations use electronic funds transfer (EFT) when they are transferring cash among banks, collecting from customers, paying employees, and paying vendors. Under these systems, cash is
Describe the difference between a general cash account and an imprest bank account.
For each of the following transaction cycles, provide an example of an error in cash that would affect the cycle: sales and accounts receivable, acquisition and payment, human resources and payroll.
When could kiting occur and what does it do? How would it be accomplished?
How can the auditor test for kiting?
How do EDI and EFT affect the audit trail at a business?
Explain the relationships among the initial assessed level of control risk, tests of controls for cash disbursements, and tests of details of cash balances. Give one example in which the conclusion
Assume that a client with excellent internal controls uses an imprest payroll bank account. Explain why the verification of the payroll bank reconciliation ordinarily takes less time than the tests
In an attempt to save costs, routine tasks such as audit work related to bank reconciliations are being off shored to cheaper locations such as India. For instance, the Big 4 Firms in Canada, the
Why are contingent liabilities difficult to identify?
When reviewing legal expenses, which transactions should the auditor examine, and why?
List three audit techniques that could be used to identify relevant subsequent events. Note: Three examples are provided. Others are possible.
Why is partner examination of final analytical review important?
Describe management's and the auditor's responsibilities with respect to the going-concern assumption
What method does the auditor use to determine whether sufficient appropriate audit evidence has been collected?
What are some procedures used for the engagement quality control review?
List two examples of information that must be communicated by the auditor to the audit committee. Note that two examples are provided; more are possible.
Kathy Choi, a public accountant, has completed the audit of notes payable and other liabilities for Valley River Electrical Services Ltd. and now plans to audit contingent liabilities and
In an examination of Marco Corporation as of December 31, 2015, the following situations exist. No related entries have been made in the accounting records. 1. Marco Corporation has guaranteed the
In analyzing legal expense for Boastman Bottle Company, Bart Little, a public accountant, observes that the company has paid legal fees to three different law firms during the current year. In
Callie Peters is completing the audit of MakingNewFriends.com for the year ended December 31, 2016. Callie has been the audit manager on this engagement for the past three years. MakingNewFriends.com
Melania Tsiprasis a public accountant in a medium- sized public accounting firm who takes an active part in the conduct of every audit she supervises. She follows the practice of reviewing all
In a letter to the audit committee of Cline Wholesale Company, Jerry Schwartz, a public accountant, informed it of weaknesses in the control of inventory. In a separate letter to senior management,
You are a public accountant in the public accounting firm of Lind and Hemming. One of your larger clients is Yukon Corp., a company incorporated under the Canada Business Corporations Act, which has
In your audit of Aviary Industries for calendar year 2016, you found a number of matters that you believe represent possible adjustments to the company's books. These matters are described below.
You are the audit senior who has recently been assigned to the year-end audit of Ontario Agra Corporation (OAC). After the end of the audit fieldwork, the senior on the engagement resigned suddenly
Distinguish between subsequent events requiring adjustment and those requiring disclosure. Give two examples of each type.
On May 20, 2014, the US Securities Exchange Commission (SEC) issued an accounting and auditing enforcement release against two Canadian CPAs, Bryce Walker and Spence Walker, in relation to their
In 2014, the International Accounting and Assurance Standards Board asked stakeholders to provide feedback on its proposed changes to the audit reporting model. In its comments on the proposed
Although adverse opinions are rare, they do occur. The auditor general of Saskatchewan had issued a qualified opinion of the province's General Revenue Fund (GRF) financial statements for several
What are the auditor's responsibilities that are included in the independent auditor's report?
What is the appropriate date for the auditor's report?
Describe the difference between the corresponding figures and the comparative financial statements approach.
What is the difference between material and material and pervasive?
Why is a report that contains a disclaimer of opinion normally shorter than other reports?
Roscoe, a public accountant, has completed the examination of the financial statements of Excelsior Corporation as of and for the year ended December 31, 2015. Roscoe also examined and reported on
For the following independent situations, assume you are the audit partner on the engagement. For each situation, using the framework for reporting decisions, decide what type of auditor's report
For the following independent situations, assume you are the audit partner on the engagement. For each situation, using the framework for reporting decisions, identify the appropriate audit report
The following are independent situations for which you will recommend an appropriate auditor's report. For each situation, using the framework for reporting decisions, identify the appropriate audit
You are in charge of the audit of Saskatoon Building Products Limited (SBP), a company listed on the Vancouver Stock Exchange. In the course of your audit, you discover that SBP's working capital
Materia Blues Inc. is a company that manufactures and distributes books internationally. The company has proposed that the following comments be included in the company's 2016 annual report to the
List the components of an unqualified auditor's report and explain the meaning of each part. How do the parts compare with those found in a qualified report?
You are the in-charge accountant on the audit of Amazing Inc. (AI). It is March 25, 2016, and your firm is part way through the 2015 audit. You are currently assigned to work on various sections
You are the audit partner for Yogis Inc., a privately owned company that specializes in unique and fashionable yogawear. Over the years, the company has been quite successful; however, recently it
On February 17, 2016, a public accountant completed the examination of the financial statements for Buckheizer Corporation for the year ended December 31, 2015. The audit is satisfactory in all
Explain what is meant by "contingencies." Give an example of a contingency, and discuss its appropriate disclosure in the financial statements.
Canada will be adopting the new standard, ISA 701, which will include reporting of assessed risks of material misstatement identified by the auditor and their effect on the overall audit strategy.
If reviews provide less assurance than audits, and compilations provide no assurance, why is there a demand for these types of services?
What is the difference between the review reports for a private company under CSRE 2400 (or OSC 8200) and the interim financial statements for a public company?
If the PA does not issue an opinion or conclusion based upon the audit findings, why would a user request a specified audit procedures engagement?
How does an engagement to report on supplemental matters differ from a specified audit procedures engagement?
Why is it so difficult to determine materiality for assurance engagements involving non-financial information?
Why do assurance providers often perform limited assurance engagements for integrated reports?
Explain the difference between Other Canadian Standards (OSCs) and Canadian Audit Standards (CASs).
Stephanie Biggs, Chartered Professional Accountant, has compiled the financial statements for her sister's pharmacy business since it started four years ago. The financial statements are attached
You are a senior with Tick and Bop, Public Accountants. Stupendous Soups is one of your clients, and your firm prepares a compilation report for the company for income tax purposes.Stupendous Soups
You are an audit manager employed by Deslauriers and Gupta LLP. You have just been on the phone with one of your partners, whose audit client, Rock On (a local radio station located in Winnipeg), has
In October 2014, the province of Nova Scotia announced that it would provide Nova Star Cruises Limited, the new operator of the ferry between Yarmouth, NS, and Bangor, Maine, with $5 million in
Discuss the standards for compilation engagements, and explain why they differ from those for review engagements and audits. Discuss.
Figure 20-4 is the review engagement report for Science Atlantic, a charitable organization representing 17 postsecondary and research institutes in Atlantic Canada. Science Atlantic, which was
With greater frequency, organizations are issuing corporate social responsibility (CSR) reports that describe how they are engaging in socially responsible activities. Many believe that users will
Identify three of the documents required by the Securities Exchange Act of 1934 that are commonly encountered by auditors. Briefly describe the purpose of each of these documents
Suppose that you are the auditor of a major retail client who has reported the following income before taxes (IBT) for the first two quarters of the year: 1st quarter = $1,200,000 and 2nd quarter =
You are the audit manager for Ken-Ron Enterprises. Your firm has been the entity's auditor for 15 years. Your firm normally uses a range of 3% to 5% of income before taxes to calculate overall
While it is a relatively rare event, companies do change auditors. Use the Internet to identify an auditor change? Pick one auditor change and investigate the information provided by management and
Koss Corporation is a publicly traded company that designs and sells stereo headphones. The Koss family controls a majority of the Company's stock. On November 17, 2010, Sujata "Sue" Sachdeva, the

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