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auditing assurance services

Questions and Answers of Auditing Assurance Services

How can auditors use performance measures that are used to monitor risk as evidence in performing the financial statement audit? What considerations should auditors make in determining which measures
What is a residual risk? Why should the auditor take residual risks into account in his audit? How can he identify these risks?
What is the general relationship between business risks, business processes, management controls, and audit implications? Illustrate with an example.
Contrast management controls with process controls. Why do management controls (or the lack thereof) carry such heavy implications for audit risk assessment when they don't necessarily concern
The objectives of internal controls include the following:- To improve effectiveness and efficiency of operations- To increase reliability of accounting information- To foster compliance with rules
Management controls mitigate the strategic risks of the firm and promote efficiency and effectiveness of operations. The four types of management controls are:- Top-level reviews- Direct activity
Performance indicators are important for assessing whether any identified process risks are currently a significant problem. These problems can arise because risks are not effectively controlled or
Petro-Canada, like any major petroleum company, faces a number of significant process risks associated the extraction of oil from the ground or ocean. Below are several example risks likely impacting
Consider a fast food restaurant, such as Burger King (Hungry Jacks in Australia), that hires a large number of unskilled employees, many of whom are relatively young. Accordingly, there is a high
Listed below are three problems that can occur within the customer service process for Kentucky Fried Chicken (KFC). For each problem, indicate (1) a control activity that could prevent or detect the
Consider Figure 7-5, which depicts the impact of controls on risk assessments. For each of the following management controls, describe the extent to which you believe the risk moved down or to the
Consider the following two plots of risks and controls.Based on these two plots of risks and controls, explain the audit implications for the different plots for each of the four risks and controls
Why should auditors view auditing from a global, risk-based perspective? Specifically, what benefits are realized from viewing organizations as global entities and analyzing organizations from a
Define assurance, attestation, auditing, and accounting, including the interrelationships among them.
Compare and contrast the different ethical frameworks that can be used in organizations and by assurance providers. Which of the frameworks do you believe is easiest for you to employ and which is
Why do you believe understanding and assessing corporate governance mechanisms at clients is so important for auditors? Offer arguments for why you believe that auditors should or should not agree to
Describe the role of the audit committee in performing corporate governance. As part of your answer, describe the criteria for inclusion on audit committees for public companies in the United States
Previously auditors and accountants were allowed to establish their own procedural guidelines e.g., generally accepted auditing standards in the United States were established by the AICPA. However,
Discuss economic explanations for why audits arose before any government or governmental agency required them.
Two situations where information asymmetry may create distrust between shareholders and managers:a. Adverse selectionb. Moral hazard First, explain these two situations in a general context and then
How are financial statement audits and other attestation services (e.g., environmental and cost audits) similar and different?
Consider each of the four types of professional accounting firms-local, regional, emergent international, and international-mentioned in the chapter. Discuss what you believe are the most significant
The United States has a federal income tax system that relies significantly on the honesty of its taxpayers in that the Internal Revenue Service (IRS) can't audit everyone who files a tax return. In
Which of the following claims is amenable to attestation? Discuss the problems with attesting to each assertion (e.g., measurement issues).a. "PFD's net income for the second quarter of 2005 rose 10
Advances in information technology have made the timely receipt of information more and more valuable. Today, real-time information can be extracted externally from company databases through secured
For each of the following industries and situations, discuss and give examples of the ways that information technology has improved the reliability and efficiency of decision making and made the
Consider a local pizzeria and IBM. It should be obvious that their information needs will differ. However, their information needs will also be alike in some areas.a. Discuss the similarities and the
Imagine that you are interested in buying a car. Contrast the difference between buying a new car from a licensed Hyundai dealer and buying a used car from an individual through an online
Auditors face some unique circumstances in auditing financial statements. Two that suggest themselves immediately follow.a. The parties paying their bill are the ones whose financial statements are
Cynthia Cooper was the heralded Director of Internal Audit who exposed the largest fraud in U.S. history at WorldCom in Mississipi. Explain how she might have reacted upon discovering the fraudulent
The directors of High-Class Brands Limited are choosing an audit firm. They decide to appoint a major firm, at an expected fee of \(\$ 200,000\), instead of an alternative audit firm costing \(\$
Access the web site for Microsoft. Link to the company's Corporate Governance section.a. Who is the Chair of the Board of Directors and what is his or her background?b. Briefly describe each of the
After Enron's debacle, the importance of corporate governance has heightened and received considerable attention. In general, a system of corporate governance usually consists of the Board of
Describe how information asymmetry creates the demand for an external assurance service when fulfilling contractual obligations between an auto manufacturer (e.g., DaimlerChrysler) and one of its
Perform research to identify what is meant by the expectations gap and discuss recent developments in auditing practice that are intended to reduce the expectations gap.
How do enterprise risk management (ERM) and corporate governance relate? Use the components of the COSO ERM framework to illustrate your answer.
What are the five elements of COSO's 1992 Internal Control framework over financial reporting? Provide a definition for each element and give a brief example of how this function can be applied to a
Compare and contrast auditing and monitoring (using the COSO definition of monitoring).
Explain the audit implications of the dynamic relationship between strategy and internal control.
Control environment is a component of internal control according to the COSO framework. Describe how the control environment may also affect the audit.
This chapter described corporate responsibility reporting (CRR) as a growing mechanism for reporting on compliance risks. Access the CRR and Annual Reports for Royal Dutch Shell on its web site. The
A study on fraud by Beasley et al. (1999), which was commissioned by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), found that in 84 percent of the frauds investigated,
Describe the differences between a traditional audit and an integrated audit (i.e., an audit of a company registered in the United States).
How are the integrated audit and operational audit related?
What is internal control over financial reporting? How does it differ from the concept of internal control as discussed in the COSO's Enterprise Risk ManagementIntegrated Framework mentioned in
Consider an Internet dating service database that charges clients \(\$ 50\) to enter a database and have access to information about other clients. Advertising fees are the primary source of revenue
The most common forms of assurance are as follows:- Compliance with laws, regulations, and contractual obligations- Relevance and context of business risk management process- Effectiveness and
Using Figure \(2-1\), give specific examples of each of the four risk elements (Strategic, Operations, Reporting, and Compliance) mentioned under COSO's Enterprise Risk Management-Integrated
The basic steps of the risk management process are as follows:- Risk Assessment- Response by Management- Information Reliability- Performance Results- Reaction by Management Suppose you are the
To better understand the basic steps of identifying and assessing business risks, research the mission statements available on company web sites. Based on the mission statements, (1) infer two
Recall the four ways that risk can be addressed in a business environment, including avoidance, acceptance, sharing, and reduction. For each company, identify how the risks that are provided can be
For each of the following controls, describe the type of control (strategic or business process) being utilized and strengths and weaknesses associated with the control.a. The controller of the
Examine Figure \(2-3\), which depicts a generalized overview of the risk management process observed in practice. Using the figure for guidance, beginning with "risk assessment," describe how you
Access BASF's Corporate Report from its web site. Included in this CRR is an exhibit containing its goals, one of which is a reduction of chemical emissions for various chemicals by varying
Why are professional skepticism and ethical behavior on the part of the auditor necessary conditions for an audit?
Explain what is meant by the term "management assertions." With respect to the accounts receivable account, briefly explain how the management assertions apply.
Provide specific examples for each type of management assertions mentioned in the text:- Assertions about transactions- Assertions about accounts- Assertions about presentation and disclosure
Describe the relationships among the following:- Management assertions- Audit procedures- Audit evidence- Auditor's reports
One of the auditor's responsibilities is to plan an audit in such a way that reasonable assurance can be provided that errors and fraudulent misstatements will be detected and corrected. What is the
Auditors further classify fraud as either fraudulent financial reporting or misappropriation of assets. Describe these types of fraud. Why do auditors make this distinction? How is this distinction
Explain each of the three building blocks of auditing-risk, materiality, and evidenceand describe the relationship between the three. Why can these three concepts not be considered in isolation but
Describe the three broad types of risk that the auditor should consider during the course of an audit engagement. Why should the auditor take each of these risks into account during the audit?
What is audit risk? Describe the components of audit risk (risk of material misstatement and detection risk) and how they are related.
Engagement risk is defined as "the risks to the auditor's reputation that comes from being associated with a client firm that goes bankrupt, is found to have misstated previous financial statements,
What is materiality? Why is it such an important concept in auditing? How do auditors determine materiality?
An auditor can use a number of procedures to collect audit evidence. Two main categories that are distinguished are risk assessment and tests of accounting information. Discuss how these two
Discuss the difference between preliminary and substantive analytical procedures and discuss the role of each for an audit engagement.
An auditor may collect several types of audit evidence during the course of an audit. Not every type of evidence is equally strong. Discuss criteria that may determine the strength (i.e., competence)
List the types of audit evidence available for an auditor. For each type, provide an example for when the evidence might provide an auditor with persuasive evidence.
Describe the reports contained in the integrated audit:- A report on the financial statements- A report on management's assertions about the effectiveness of internal control over financial
Contrast the difference between a material weakness and a significant deficiency in internal control over financial reporting.
Depending on the outcome of the auditor's work, a number of combinations of opinions (the auditor's opinion of management's assessment of internal control, the auditor's opinion on internal control
To perform an integrated audit, an auditor must evaluate management's assessment of internal control over financial reporting. To accomplish this task, auditors evaluate management's process of
What are the underlying principles that affect the control environment?
Ken Smith, the partner in charge of the audit of Houghton Enterprises, a private entity, identified the following significant deficiencies during the audit of the December 31, 2021, financial
Go back and quickly review the rules that the Sarbanes-Oxley Act of 2002 placed on the auditing profession as described in this chapter. What do you think are the two or three main purposes of these
The minutes of the board of directors of the Tetonic Metals Company for the year ended December 31, 2011, were provided to you.Meeting of March 5, 2011The meeting of the board of directors of Tetonic
Assume that a sample of 100 units was obtained in sampling the inventory in Question 17-14. Assume further that the following three misstatements were found:Calculate adjusted misstatement bounds for
Multiple Choice QuestionsThe following questions deal with audit evidence for the sales and collection cycle. Choose the best response.a. An auditor is performing substantive tests of
Explain the relationship between the methodology for designing tests of controls and substantive tests of transactions in Figure 13-4 and the methodology for designing tests of details of balances in
Table 13-3 (p. 413) illustrates variations in the emphasis on different types of audit tests. What are the benefits to the auditor of identifying the best mix of tests?
McClain Plastics has been an audit client of Belcor, Rich, Smith & Barnes, CPAs (BRS&B), for several years. McClain Plastics was started by Evers McClain, who owns 51% of the company’s
Section 404(a) of the Sarbanes–Oxley Act requires the management of a public company to issue a report on internal control over financial reporting (ICOFR) as of the end of the company’s fiscal
The following internal controls were tested in prior audits. Evaluate each internal control independently and determine which controls must be tested in the current year’s audit of the December 31,
You are evaluating audit results for current assets in the audit of Quicky Plumbing Co. You set the preliminary judgment about materiality for current assets at $15,000 for overstatements and at
Explain why inherent risk is set for segments rather than for the overall audit. What is the effect on the amount of evidence the auditor must accumulate when inherent risk is increased from medium
Pamela Albright is the manager of the audit of Stanton Enterprises, a public company that manufactures formed steel subassemblies for other manufacturers. Albright is planning the 2011 audit and is
IntroductionThis case study is presented in seven parts. Each part deals largely with the material in the chapter to which that part relates. However, the parts are connected in such a way that in
Which services must be preapproved by the audit committee of a public company?
Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data. They range from simple comparisons to the
Identify the management assertion and general balance-related audit objective for the specific balance-related audit objective: All recorded fixed assets exist at the balance sheet date.
On February 17, 2012, a CPA completed all the evidence gathering procedures on the audit of the financial statements for the Buckheizer Technology Corporation for the year ended December 31, 2011.
Compliance auditing often extends beyond audits leading to the expression of opinions on the fairness of financial presentation and includes audits of efficiency, economy, effectiveness, as well
Which of the following best describes the operational audit?(1) It requires the constant review by internal auditors of the administrative controls as they relate to the operations of the company.(2)
In comparison to the external auditor, an internal auditor is more likely to be concerned with(1) internal administrative control.(2) cost accounting procedures.(3) operational auditing.(4) internal
Operational audits generally have been conducted by internal auditors and governmental audit agencies but may be performed by certified public accountants. A primary purpose of an operational audit
Which of the following attributes is likely to be unique to the audit work of CPAs as compared to the work performed by practitioners of other professions?(1) Due professional care.(2) Competence.(3)
Which of the following professional services is an attestation engagement?(1) A consulting service engagement to provide computer-processing advice to a client.(2) An engagement to report on
Independent auditing can best be described as(1) a branch of accounting.(2) a discipline that attests to the results of accounting and other functional operations and data.(3) a professional activity
Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements?(1) It is difficult to prepare financial

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