Questions and Answers of Auditing A Practical Approach

Lucy Huang has just finished her first audit assignment. She is now assisting her audit manager, Tom Lucas, wrap-up the engagement. He has asked Lucy to make a list of all open review notes, to-do
Turnbull Ltd has placed deposits with an overseas supplier totalling $340 000 for the manufacture of specially branded goods on 14 May 2016. On 27 May 2016 the supplier closed due to civil unrest in
Riley and Rosie are discussing the audit plan for a large manufacturing company. The company has two main manufacturing plants plus several warehouse and distribution centres (one in each state). The
Brad Jones is reviewing the results of the subsequent events audit procedures. Brad is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the
Sven Erasmus has had difficulties throughout the audit of Cantwell Catering. The company is a longstanding client of the audit firm and there have been no problems in the past. However, four months
Analyse the events surrounding the sale of land and buildings. Is it a subsequent event? If so, which type?Fabrication Holdings Ltd (FH) has been a client of Keith & Fiona Partners for many years.
Based on your answer to the question 12.34, explain what type of audit opinion you would issue. Why?Fabrication Holdings Ltd (FH) has been a client of Keith & Fiona Partners for many years. You are
(a) Explain your responsibilities with respect to the cafeteria fire.(b) How will this event be handled in the financial report and the audit report?Chan and Partners Chartered Accountants is a
(a) Are there any going concern issues for MSHG? Explain. If so, what are the mitigating circumstances?(b) How will you recommend the issue be handled in the financial report and the audit
An auditor disclaims responsibility when:(a) The users cannot rely on the financial report.(b) The audit opinion is unqualified and unmodified.(c) The auditor is unable to obtain sufficient evidence
The parties or matters relevant to an assurance engagement are:(a) Users, responsible party, subject matter.(b) Assurance practitioner, responsible party.(c) Responsible party, users, subject matter,
When performing an audit required under section 301 of the Corporations Act the auditor has aresponsibility to:(a) Form an opinion on the subject criteria.(b) Form an opinion on the independence of
Performance audits are useful because they:(a) Include a comprehensive audit.(b) Allow the auditor to demonstrate how well they are performing.(c) Are concerned with the economy, efficiency, and
Negative assurance means:(a) The auditor has conducted an audit and provides an opinion that the financial reports are true and fair.(b) The auditor has conducted sufficient work to conclude that the
The insurance hypothesis means: Lo6(a) An audit acts as insurance.(b) Owners must take insurance.(c) Managers must take insurance.(d) None of the above.
Audit committees for companies in the top 300 on the ASX:(a) Can be any size.(b) Should have a formal charter.(c) Must have the same chair as the board of directors.(d) Must include the chief
Generally, the auditor could be legally liable under:(a) Contract law to third parties and to the client.(b) The tort of negligence but not contract law to the client.(c) Contract law and under the
Li Chen has calculated profitability ratios using data extracted from his client’s pre-audit trial balance. He also has the values for the same ratios for the preceding two years (using audited
Cathy’s Computers imports computer hardware and accessories from China, Japan, Korea and the United States. It has branches in every capital city and the main administration office and central
Princess Island Vineyards is a boutique wine-maker based on Princess Island. Over the years, the business has grown firstly by supplying local retailers, and then through exports. In addition, there
Shapely Shoes has retail outlets in six large regional cities in the eastern states, selling ladies shoes and handbags. The shops are run by local managers but purchasing decisions for all stores are
Dolphin Surf & Leisure Holidays Pty Ltd (Dolphin) is a resort company based on the Great Barrier Reef. Its operations include boating, surfing, diving and other leisure activities, a backpackers’
Based on the background information, what are the major inherent risks in the MaxSecurity audit? Consider both industry and entity risks in your answer.MaxSecurity Limited (MaxSecurity) has been an
Discuss the factors to consider when determining preliminary materiality for MaxSecurity.MaxSecurity Limited (MaxSecurity) has been an audit client of Smith & Associates (S&A) for the past 15 years.
Party Cruises is a new client of MMM Partners. Party Cruises is a low-cost cruise ship operator, travelling between Australia and five countries in South-East Asia. The planning for the first audit
Which shows the correct ranking of audit evidence from most persuasive to least persuasive?(a)(i) Bank statement,(ii) management representation letter,(iii) client prepared bank reconciliation,(iv)
Analytical procedures are used to gather evidence:(a) At the risk assessment phase to gain an understanding of a client.(b) At the risk response phase to evaluate information included in the
In assessing the cleanliness of the data for the purposes of performing audit data analytics, are any of the following issues present in the database? Question a. Which product category (PRODCAT) had
This step requires you to complete some exceptions testing for the Employee p-card expenditures for the year ended 12/31/2020. Required: a. How many unique employees exceeded their annual
Your firm has decided to try two approaches to estimating a valuation allowance for sales returns. Required: a. First, your firm decides to estimate that 10% of all sales will eventually be
Which of the following would occur during the planning stage of ADA? a. Auditor must determine the nature, timing, and extent of the work to be performed in the ADA. b. Auditor can conclude
Which of the following is not a typical problem found by auditors when cleansing client data for the purposes of performing an ADA? a. Some fields may be empty and thus cause errors during
When identifying and assessing inherent risk through the use of audit data analytics, what type of analytic would an auditor most likely perform first? a. Detail analysis of specific sales
When performing tests of controls, how would the audit team classify a situation when encountering a missing item?
How does auditors’ liability under statutory law arise?
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
Butler Manufacturing Corporation raised capital for a plant expansion by borrowing from a bank and making a stock offering. Butler engaged Weaver, CPA, to audit its December 2020 financial
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
Which of the following sections or paragraphs of the auditors’ report would be modified if the report expresses an opinion on financial statements prepared using the cash basis of accounting rather
Which of the following best describes the scope of audit and compilation engagements compared to a review engagement? a. b. C. d. Audit Lesser than review Greater then review Lesser than
Why are adjusting entries and note disclosures labeled “proposed”?
In which of the following engagements would an accountant be required to be independent of the client? a. b. C. d. Compilation engagement Yes Yes No No Preparation engagement Yes No Yes No
J. Griffith audited the financial statements of Mets Magnificent Corporation for the year ended December 31, 2020. She completed gathering sufficient appropriate evidence on January 30 and later
Ambrose is auditing the financial statements of Mays (dated December 31, 2020). The date of the auditor’s report is February 17, 2021, and the audit report release date is February 20, 2021. For
Jay Ralph completed the December 31, 2020, audit of Raider Company on February 3, 2021; Raider’s financial statements and Ralph’s reports on Raider’s financial statements and internal control
What is an advantage of preparing financial statements using a special purpose framework?
What are the reporting options when an auditor examines compliance with contractual agreements or regulatory requirements in conjunction with a GAAS audit?
What role does an engaging party play in an agreed-upon procedures engagement?
How does a preparation engagement differ from a compilation engagement?
What are the four broad areas of assurance services currently being evaluated by the ASEC? Provide a brief summary of each area.
Identify and define the two types of trust services developed by the AICPA and CICA.
Auditors may accept an engagement and express an unmodified opinion on an element, account, or item of the financial statements if they a. Perform analytical procedures related to all
Which of the following statements would not be included in an accountants’ report on an examination of a financial forecast? a. The examination was conducted in accordance with attestation
In which of the following engagements would general use of the accountants’ report be appropriate? a. Agreed-upon-procedures engagement on a financial forecast. b. Examination of
Prospective financial information that reflects the results assuming the occurrence of one or more hypothetical events is referred to as a a. Financial estimate. b. Financial
Accountants can report on compliance with laws and regulations either in conjunction with an audit engagement or as a separate engagement. Required: a. What type of procedures are performed
The Coffin brothers have engaged you to compile their financial schedules from books and records maintained by James Coffin. The brothers own and operate three auto parts stores in Central City. Even
Can audit managers on the audit engagement team, who are also attorneys admitted to the state bar, assist in the defense of a lawsuit against an audit client for product liability defects?
Define reasonable assurance. How does the audit team provide reasonable assurance in the engagement?
Which of the following combinations would provide the auditor the most reliable evidence? Source of Evidence a. Internal b. Internal c. External d. External Effectiveness of Internal Control More
A large portion of audit evidence is gathered through inspection of documents and records. External documents, documents that are generated outside of the organization, provide more reliable evidence
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
In the case of The Taxman Always Rings Twice, what information could have been obtained from confirmations directed to the real population of delinquent accounts?
Auditors gather information from a variety of sources, including 10-K reports, to help assess risk and identify significant accounts and relevant assertions. Required: You are performing
You have been selected to audit football ticket revenues for the 2020 Championship State University (CSU) football season. Because CSU handles its own tickets, you cannot rely on internal counts of
An audit team was testing source documents in the purchasing cycle and identified the following circumstances. Which of the following would be the most indicative of source document fraud? a.
An audit firm is testing controls within the purchasing cycle. In which of the following procedures would the firm most likely apply sampling techniques?a. Risk assessment procedures performed to
You are in the final stages of your audit of the financial statements of Ozine Corporation for the year ended December 31, 2020, when the corporation’s president consults you. The president
During the audit of Mason Company Inc. for the calendar year 2020, you noted that the company produces aluminum cans at the rate of about 40 million units annually. On the plant tour, you noticed a
You are auditing Martha’s Prison Clothes Inc. as of December 31, 2020. The inventory for orange jumpsuits shows 1,263 suits at $782 for a total of $987,666. When you look at the invoices for the
Sorenson Manufacturing Corporation was incorporated on January 3, 2019. The corporation’s financial statements for its first year’s operations were not examined by a CPA. You have been engaged to
How can auditors gain assurance about estimates in the investment cycle?
You are doing the first-year audit of Sherman School District and have been assigned responsibility for doing a four-column proof of cash for the month of October 2023. You obtain the following
You are assigned to the December 31, 2023, audit of Sea Gull Airframes, Inc. The company designs and manufactures aircraft superstructures and airframe components. You observed the physical inventory
Describe the relations among international auditing standards, AICPA auditing standards, and PCAOB auditing standards.
In the audit of the Regional Transport Company, a large branch that maintains its own bank account, cash is periodically transferred to the central account in Cedar Rapids. On the branch account’s
Identify the six organizational structures available to CPA firms. Why are most CPA firms not organized as general partnerships?
You are auditing general cash for the Pittsburgh Supply Company for the fiscal year ended July 31, 2023. The client has not prepared the July 31 bank reconciliation. After a brief discussion with the
James Burrow is the loan officer for the National Bank of Dallas. National has a loan of $525,000 outstanding to Regional Delivery Service, a company specializing in delivering products of all types
Identify the four parts of the Uniform CPA Examination prior to and after January 2024.
What are the major causes of information risk? How can information risk be reduced?
Distinguish the three types of service organization reports.
In your audit of Aviary Industries for calendar year 2023, you found a number of matters that you believe represent possible adjustments to the company’s books. These matters are described below.
The table below is an excerpt from Apple Inc.’s Statement of Shareholders’ Equity for its fiscal year ended September 25, 2021: a. How would the auditor verify the balances as of September 26,
Callie Peters is completing the audit of MakingNewFriends.com for the year ended December 31, 2023. Callie has been the audit manager on this engagement for the past three years. MakingNewFriends.com
E-Antiques, Inc., is an Internet-based market for buyers and sellers of antique furniture and jewelry. The company allows sellers of antique items to list descriptions of those items on the
The field work for the June 30, 2023, audit of Tracy Brewing Company was finished August 19, 2023, and the completed financial statements, accompanied by the signed audit reports, were filed
You have been engaged for the audit of the Y Company for the year ended December 31, 2023. The Y Company is in the wholesale chemical business and makes all sales at 25% over cost. Following are
In an audit of the Marco Corporation as of December 31, 2023, the following situations exist. No entries have been made in the accounting records in relation to these items. 1. During the year
The following questions concern information accompanying basic financial statements. Choose the best response. a. The Form 10-K filed by management of a public company includes a section on
Your client, EKB, Inc., prepared the following schedule for longterm debt for the audit of financial statements for the year ended December 31, 2023: Requireda. What type of evidence would you
Five months after issuing an unqualified audit opinion and an unqualified opinion on internal controls for the audit of the year ended December 31, 2023, for a large publicly traded client, the
Explain the purpose of a client letter of representation. What types of information are normally included in the letter?
Describe a contingency. What conditions are required for a contingent liability to exist?
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
The Redford Corporation took out a 20-year mortgage on June 15, 2023, for $2,600,000 and pledged its only manufacturing building and the land on which the building stands as collateral. Each month
In an annual audit at December 31, 2023, you find the following transactions near the closing date: 1. Merchandise costing $625 was received on December 28, 2023, and the invoice was not
The following misstatements are included in the accounting records of Newcomb & Company:1. Direct labor was unintentionally charged to job 620 instead of job 602 by the payroll clerk when they
Makoto Auto Parts sells new parts for foreign automobiles to auto dealers. Company policy requires that a prenumbered electronic shipping document be issued for each sale. At the time of pickup or
Your client, Edgartown Corporation, provided the following schedule of land, buildings, and equipment for the audit of financial statements for the year ended December 31, 2023:a. What type of

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