Questions and Answers of Auditing A Practical Approach

Examine the list of factors investigated by Francis and Wilson (section 1. 2.2). Why would each of these factors be likely to affect management's desire to report the company’s performance
The auditor is employed to add credibility to the published accounting information. What attributes would the auditor have to possess in order to achieve this objective?
Very few countries require all companies to have an audit. Why are the agency problems likely to be different in smaller companies? Are small companies less likely to require an audit?
What are the implications of requiring the auditor to seek reappointment on an annual basis?
ABC Ltd is a wholly owned subsidiary of Alphabet plc. ABC manufactures and sells a range of double glazed windows and doors for domestic and industrial premises within fifty miles of its factory and
Universities usually involve external examiners in the process of setting and marking examination papers.(a) Suggest why this should be.(b) Draft a job description for an external examiner.(c) List a
The historical development of any subject is often a useful starting point for any student who is embarking on a course devoted to it. As an exercise, a great deal could be gained from reading brief
Describe the procedures which would have to be undertaken by the directors of a company who wished to appoint an auditor to replace the present holder of the post. Assume that the auditor does not
‘The auditor is only as independent as the directors allow him to be’.Discuss.
If independence is essentially an attitude of mind, why is it necessary to have the auditor’s behaviour regulated by so many detailed rules?
The Automobile Association (AA) will, in return for a fee, have an engineer inspect a used car on behalf of one of its members. Compare and contrast the independence of the AA from the garage selling
Discuss the extent to which the provision of non-audit services could impair or enhance the independence of the auditor.
Considerable amounts of time and effort have been devoted to the development of a conceptual framework for accounting, so far without success. To what extent would the auditor’s independence be
Whinge and Grovel is a small firm of Chartered Accountants, which employs approximately fifty professional staff and provides a range of management consultancy services as well as traditional audit
You are the technical partner in the executive office of a major firm of Chartered Accountants. You are concerned that the audit staff in some of your provincial offices could be acting in a manner
You are the partner in charge of a firm of accountants. You have returned from holiday and found a number of memos, each of which relates to a different audit:(a) The audit senior in charge of the
During the annual general meeting of a large, quoted company, the directors have been asked the following questions regarding the reappointment of the auditor:(a) The auditor is supposed to be
Mr Tick is the auditor of G plc, a medium-sized manufacturing company. He is rather perplexed. The chief accountant of the company has prepared a draft set of accounts which clearly fails to comply
Review your answers to the previous two questions. Comment on the persuasiveness of evidence from each test. Explain any factors that would affect your assessment.Fellowes and Associates Chartered
Tom’s Trailers Ltd. (TTL), located in London, Ontario, manufactures industrial trailers that are used to ship goods across the country. Originally, Tom Tran owned 60 percent of the common shares of
An auditor performs an audit data analytic and compares current-year and prior-year general ledger accounts to identify significant trends. What type of data analytic is this?a. descriptiveb.
Taking data from two different sources and comparing them to identify exceptions relates to which one of the following ADA techniques?a. visualizationsb. item matchingc. clusteringd. statistical
Structured data is defined as:a. data that reside in a fixed field within a record or file.b. data that do not reside in a fixed database.c. data that are heavily controlled by an organization.d.
Which of the following is a data error?a. missing datab. duplicate datac. incorrect datad. all of the above
The following represent key considerations in accessing data except:a. understanding the data available.b. the size of the dataset.c. obtaining read-only access.d. determining the accuracy of the
A false positive indicates:a. higher probability of a material misstatement.b. further testing is required.c. an item was incorrectly identified as notable.d. an item was correctly identified as
Which of the following is true when evaluating results of an ADA procedure and drawing conclusions?a. further testing should not be required for ADAs in order to interpret results.b. results should
The dependent variable in regression analysis is:a. the item to be predicted or the account being audited.b. the item known to be the predictor.c. normally identified as an external factor.d. not
Which of the following is false with respect to ADA as a substantive test?a. the auditor can test the entire population.b. the test may detect a material misstatement.c. the five-step process to help
Which of the following visualizations would be best suited for identifying outliers?a. scatterplotb. pie chartc. bar chartd. bubblechart
Define audit data analytics.
What are four techniques that could be used to perform audit data analytics?
What are five things the auditor should document when performing an ADA?
Describe the five-step process an auditor should apply when planning and performing an ADA.
How can an ADA assist with the risk assessment during an audit?
If an auditor performs an ADA and identifies a significant number of notable items, what should they do?
What are some specific ADA tests that could be performed to identify unusual journal entries?
How can regression analysis be used as an audit test?
Give two benefits of using an ADA as a test of details.
List and describe three things the auditor should consider when designing a visual that will impact its effectiveness.
The following are possible audit data analytics that an auditor could perform:1. Analyze the inventory by SKU for a retailer to assess if there is a problem with net realizable value.2. Develop a
Figure 9.1 provides a visualization and a data table.Required What questions would you have for your client regarding the information?Figure 9.1 450,000 400,000 350,000 300,000 250,000 200,000
Hariet Hemingway, CPA, has identified an opportunity to use data analytics in her audit program. She remembers from a recent team training session that the data should be relevant and reliable but
Martha Godfrey, CPA, is including audit data analytics in an audit for the first time. Excited about what she has accomplished, she tells you that it was much easier than expected. She began by
You have obtained a client’s data file and you plan to use it to analyze the movement of the inventory and the provision for sales discounts to customers. To begin, you will need to access the
You are working on the Devon Inc. audit. The company is responsible for managing large-scale construction projects for its customers. During the risk assessment phase, you noted a higher risk in the
You are auditing Hawthorne Industries. The preliminary risk assessment resulted in a high potential for fraud given the number of offices it has across Canada and the high volume of travel-related
You have just been assigned to the audit of Ferguson Manufacturing. You have been asked to help a new CPA who is performing audit data analytics using the client’s payroll file. The only analytic
Rajiv Khan, CPA, is using audit data analytics to assist with the testing of journal entries. He has obtained a general ledger data extract directly from the financial accounting system to work with.
An auditor is auditing the financial statements of a privately owned local hotel. The hotel has 200 guest rooms and in the last year, it generated $12.8 million in revenues. The auditor assessed the
BN&P, CPAs, are auditing a travel business. Various groups have booked tours, resulting in significant accounts receivable balances at year end. Because they have not had success with
Watch the video provided by CPA Canada at https://youtu.be/6qPZJfe5jXc and answer the following questions:a. Is the primary purpose of using audit data analytics to discover material misstatements?
The general ledger for Cloud 9 and a transcript of a meeting with Carla Johnson is provided in Appendix A.Requireda. During discussions with management, Josh asked how often the product prices are
Jim Boitisse, an audit partner at Hemingway CPAs, has learned about two additional techniques that can be used in audit data analytics. They are analysis using the principles of Benford’s Law, and
Use of an authorized price list in preparing the sales invoices will primarily meet the:a. existence or occurrence assertion.b. completeness assertion.c. accuracy, valuation, and allocation
Accounting for the numerical sequence of shipping documents used in tracing will primarily meet the:a. existence or occurrence assertion.b. completeness assertion.c. accuracy, valuation, and
A key control environment factor in reducing the risk of fraudulent financial reporting through the overstatement of sales and accounts receivable is:(i) management’s adoption of and adherence to
You have been assigned to perform tests of controls on the sales system at EDB Ltd. as part of the December 31, 2023, audit. EDB is a wholesaler of bathroom supplies such as vanity units, toilets,
Your client is BigC Ltd., a large private firm with offices in all major cities of Canada. BigC specializes in selling concentrated fruit juices to Canadian and overseas buyers. This is the first
It is common practice for companies to make two allowances for doubtful accounts:1. The specific allowance is based on accounts the company has reason to suspect may not be paid.2. The general
You have been assigned to audit the sales and accounts receivable balances of Coppero Engineering Ltd.for the year ended September 30, 2023. Coppero Engineering is a major manufacturer of steel parts
Harlan Venture Inc. (HV) operates a restaurant named Harlan’s in Toronto. The shareholder, Stephen Painter, wants to know whether the system and controls in place at the restaurant are appropriate
Tinkerbell Toys Co. (Tinkerbell) is a manufacturer of children’s building block toys. It has been in business for more than 35 years and it sells to a wide variety of customers including large and
The worksheet you completed for the case study question in chapter 8 includes your estimates of the overall risk assessment (ORA) and the acceptable detection risk (DR) in the sales to cash receipts
The specific audit objective “accounts payable are liabilities of the entity at the end of the reporting period” is derived from the:a. existence or occurrence assertion.b. completeness
Segregation of the functions of payroll and personnel do all of the following except:a. reduce the risk of payments to fictitious employees.b. reduce the risk of payments to terminated employees.c.
All of the following are procedures for identifying unrecorded liabilities except:a. examination of the subsequent period’s purchase and payment transactions.b. analytical procedures for expense
Responsibility for updating the personnel data master file should rest with authorized employees in the:a. personnel department.b. payroll department.c. controller’s department.d. employee’s
Diamond Construction is an owner-managed entity with contracting revenues of $20 million in 2023.As construction is a labour-intensive industry, one of Diamond’s largest expense accounts is labour
You are the audit senior for the audit of Grosse Ltd. and have been given the audit file to review. The reporting date is December 31, 2023, and the materiality for the client has been set at
Greystone Co. is a retailer of women’s clothing and accessories. It operates in many countries around the world and has expanded steadily from its base in Canada. Its main market is 15- to
You are the audit senior in charge of the audit of Blackburn Ltd., and you are auditing the company’s trade payables at December 31, 2023. A junior member of the audit team has been checking
Answer the following question based on the information presented for Cloud 9 in Appendix A and in the current and earlier chapters. You should also consider your answers to the Cloud 9 case study
Ensuring inventories include all materials, products, and supplies on hand at the end of the reporting period relates to the audit assertion of:a. accuracy, valuation, and allocation.b.
Lily Window Glass Co. (Lily) is a glass manufacturer that operates from a large production facility, where it undertakes continuous production 24 hours a day, seven days a week. Also on this site are
Refer to Professional Application Question 12.4 regarding Lily Window Glass Co. Now assume that you are the audit senior of Daffodil & Co. and are responsible for the audit of inventory for Lily. You
Stenton Toys Ltd. is a toy retailer with stores in each of the Canadian provinces. Stenton has a head office and a central warehouse in Mississauga, Ontario. All inventory purchases are made
The auditor’s working paper for auditing inventory balances for the client New Millennium Ecoproducts appears in figure 12.3. It shows the details of the net realizable value (NRV) tests.Requireda.
You are the auditor of John Benson Ltd., a manufacturer of a variety of paper and cardboard stationery products. Product lines range from everyday items that are low value but high volume to more
Your firm is responsible for auditing the financial statements of Hucknall Manufacturing Ltd. for the year ended November 30. The company operates from a single site. Its sales are $5 million and the
Securimax Limited has been an audit client of KFP Partners for the past 15 years. Securimax is based in Waterloo, Ontario, where it manufactures high-tech armour-plated personnel carriers. Securimax
Your firm is auditing the financial statements of Newthorpe Manufacturing Ltd. for the year ended June 30, 2023. You have been assigned to the audit of the company’s property, plant, and equipment,
Pineapple Beach Hotel Co. (Pineapple) operates a hotel providing accommodation, leisure facilities, and restaurants. Its year end was April 30, 2023. You are the audit senior of Berry & Co. and are
Your firm is the auditor of Daybrook Insurance Brokers Ltd., which operates from a number of branches and provides insurance for the general public and businesses. The company obtains insurance from
Answer the following question based on the information presented for Cloud 9 in Appendix A of this book and in the current and earlier chapters. You should also consider your answers to the case
The following would be the best protection for an entity that wishes to prevent the lapping of trade accounts receivable:a. ask that customers’ payment cheques be made payable to the entity and
The assertion that is the highest risk for an auditor in auditing investments is:a. accuracy, valuation, and allocation.b. existence.c. completeness.d. presentation.
When the client company does not maintain its own share register, the auditor should obtain written confirmation from the transfer agent and registrar concerning:a. the number of shares subject to
Your firm is the auditor of Thai Textiles Ltd. and you are auditing the financial statements for the year ended June 30, 2023. The company has sales of $2.5 million and a before-tax profit of
You have been asked by the financial controller, Walid Hossain, of Potter Ltd. to carry out an investigation of a suspected fraud by the company’s cashier. The cashier, Alfred Blyton, has left the
Your firm is the auditor of Trojan Trading Ltd. The audited financial statements for the year ended December 31, 2023, show the company’s revenue was $5 million and the profit before tax was
Your firm is the auditor of Zhao’s Charity for Pensioners. The charity was formed many years ago from a large gift by the Zhao family, the income from which is used to pay pensions to needy people.
You are completing the audit of Toledo Ltd. for the financial year ended December 31, 2023. Under the terms of a major loan contract, Toledo is required to maintain certain financial ratios. If the
The worksheet you completed for the case study question in chapter 8 includes your estimates of the overall risk assessment (ORA) and the acceptable detection risk (DR) in the sales to cash receipts
List and describe the elements in the engagement wrap-up process.Why are they important?
Phil Nanere is the partner in charge of the audit for a new client, Western Wonderland (WW). The client engaged Phil’s audit firm in November 2022, in preparation for the 2023 audit. From January
Springsteen Ltd. is a new audit client for the 2023 financial year. Springsteen’s financial statements for the 2022 year, the last with the previous auditor, were prepared on the assumption of a
Hatami and Partners completed the fieldwork for the December 31, 2023, audit of Harbinger Corporation on March 1, 2024. The financial statements and auditor’s report were issued and mailed to
Analyze the events surrounding the sale of FH’s land and buildings. Is it a subsequent event? If so, which type?Fabrication Holdings Ltd. (FH) has been a client of KFP Partners for many years. You
Based on your answer to question 14.13, explain what type of audit opinion you would issue. Why?Fabrication Holdings Ltd. (FH) has been a client of KFP Partners for many years. You are an audit

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