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auditing assurance services

Questions and Answers of Auditing Assurance Services

In the opening vignette, the concept of audit quality indicators (AQIs) was discussed. These AQIs are quantitative measures that provide insight into audit quality. The intent is to have firms
What assurance does the auditor provide that errors and fraud that are material to the financial statements will be detected? Errors Fraud (1) Limited (2) Reasonable Negative Reasonable (3) Limited
According to the Canadian Organic Food Standards, the ?organic? label can only be placed on apples that are grown without the use of chemical pesticides. You recently decided to start eating only
As part of the analytical procedures of Mahogany Products Inc., you perform calculations of the following ratios. REQUIREDFor each of the preceding ratios:a. State whether there is a need to
You are an audit manager on the year-end audit of Nicolas Manufacturing. Your team was assigned a new junior audit staff member, Michelle, who recently graduated from university. Michelle performed
You are auditing payroll for the Morehead Technologies company for the year ended October 31, 2018. Included next are amounts from the client’s trial balance, along with comparative audited
Your comparison of the gross margin percent for Jones Drugs for the years 2015 through 2018 indicates a significant decline. This is shown by the following information: A discussion with Nandini
This problem requires you to access CPA Canada Assurance Handbook—CAS 315 Identifying and Assessing Risks of Material Misstatements Through Understanding the Entity and Its Environment. Use this
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 2018 audit and is
Auditors are required to understand the client?s industry and business but may not be experts in identifying the quantity and value of certain inventory items. For example, with regards to the audit
It is October 21, 2018, and you, an audit manager at E&N LLP, are in charge of reviewing the audit engagement file of Eye in the Sky Inc., which has a yearend of July 31, 2018. Today you will be
Hans & Co. LLP is auditing CCC Inc.’s 2018 financial statements. The firm previously audited the company’s 2016 and 2017 financial statements. The 2016 audit resulted in a qualified opinion
Provide two examples of analytical procedures that could indicate a possible misstatement in accounts payable.
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
Roscoe, a public accountant, has completed the examination of the financial statements of Excelsior Corporation as of and for the year ended December 31, 2018. Roscoe also examined and reported on
You are the in-charge accountant on the audit of Amazing Inc. (AI). It is March 25, 2019, and your firm is part way through the 2018 audit. You are currently assigned to work on various sections
With greater frequency, organizations are issuing corporate social responsibility (CSR) reports that describe how they are engaging in socially responsible activities. Read the report many believe
You are an audit senior and have recently moved from a large public accounting firm to a smaller firm. At the large accounting firm, you were only exposed to audits of large corporations. You are
Why do the reporting standards for specified auditing procedures state that the distribution of the report be limited to the specific users?
You have a new client that is a private company planning to go public in the near future. The predecessor public accountant prepared a review engagement report and the accounting framework was ASPE.
Evaluate the following statement: “For a compilation engagement, the accountant does not check the financial statements, so they are very likely to contain material misstatements.”
Classify each of the presented audit procedures according to the types of evidence collection procedures:? (1) Inspection or physical examination,? (2) Confirmation,? (3) Inspection of
For each of the audit procedures presented, identify the management assertion(s) the procedure covers (A?G), and indicate the quality of audit evidence (low, moderate, high) obtained through the
For each scenario, identify possible audit engagement acceptance/continuance risk(s)(A?F).Audit engagement acceptance/continuance risk(s):A. Firm?s ability to audit client (scope limitation)B. Firm?s
Yummy Pops Ltd. is 100 percent owned by Pops Holding Ltd. The company has been profitable in the past. However, it has incurred a loss in the current year ended December 31, 2018. The parent company
You are the senior auditor in charge of the December 31, 2018, year-end audit for Cleo Patrick Cosmetics Inc. (CPCI). CPCI is a large, privately held Canadian company that was founded in 1999 by one
What is meant by the “control environment”?
For each of the following, give an example of a physical control the client can use to protect the asset or record:1. Computers2. Cash received by retail clerks3. Accounts receivable records4. Raw
The following are general questions about internal control. Choose the best response.a. Which of the following would not be considered an inherent limitation of the potential effectiveness of an
The following questions concern the characteristics of IT systems and their impact oninternal controls. Choose the best response.a. Which of the following is an advantage of a computer-based system
For each of the following descriptions of internal controls, select which of the five COSO (Committee of Sponsoring Organizations of the Treadway Commission) internal control components (1?Control
For each of the following internal controls, indicate the type of control activity and therelevant transaction-related assertion (audit objective). Control Activity Internal Control
Determine whether the provided procedure is appropriate for testing the corresponding control. Procedures Controls Yes/No Prior to the sales staff processing an order, the customer's credit must be
Identify the most relevant assertion(s) for each control that is listed below.Assertions:A. ExistenceB. CompletenessC. AccuracyD. ValuationE. Occurrence Control Assertion(s) Customer credit limits
Based upon the case facts, indicate whether the type of control risk?pervasive risk (impacts entire financial statements) or a risk at the assertion level (if so, which account and assertions are
Jebrah Manufacturing Limited (JML) is a small company with about 50 employees. It has a local area network, production systems software, timekeeping software, and accounting systems. These are all
As highlighted in Auditing in Action 9-3, the 2016 survey of the International Forum of Independent Audit Regulators found that internal control testing is consistently an area where audit work is
The following questions concern subsequent events. Read the background information related to company and the description of each event, and answer the related questions.BACKGROUND INFORMATIONSilo
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. Yukon
In your audit of Aviary Industries for calendar year 2018, you found a number of matters that you believe represent possible adjustments to the company’s books. These matters are described below.
What criteria does the auditor use to assess the client’s financial statements?
What are the auditor’s responsibilities that are included in the independent auditor’s report?
Explain the difference between key audit matters and emphasis of matter and other matter paragraphs.
What type of audit opinion is issued when the only errors found during the audit are immaterial? Why?
Explain what is meant by a “close call” in evaluating the going concern. If, in assessing a “close call,” the auditor concludes that the client does not need to disclose a material
What is the purpose of key audit matters in the auditor’s report? Why do the international standards only mandate key audit matters for listed entities?
Under what conditions does the auditor issue a qualified opinion?
On February 17, 2019, a public accountant completed the examination of the financial statements for Buckheizer Corporation for the year ended December 31, 2018. The audit is satisfactory in all
Which of the following is not a required element of an unqualified audit report for a private company issued in accordance with CAS?(1) A title that emphasizes the report is from an independent
Identify the management assertion and balance-related audit objective for this audit objective: All recorded fixed assets exist at the balance sheet date.
Which of the following is not a safeguard to independence?(1) A qualified, independent audit committee.(2) Firm policies that limit direct communication between junior staff and the client’s senior
Joanne Whitehead is planning the audit of a newly obtained client, Henderson Energy Corporation, for the year ended December 31, 2018. Henderson Energy is regulated by the provincial utility
Moranda and Sills, LLP, has served for over 10 years as the auditor of the financial statements of Highland Credit Union. The firm is conducting its audit planning for the current fiscal year and is
This problem requires you to access CPA Canada Assurance Handbook and to review CAS 240—The auditor’s responsibilities relating to fraud in an audit of financial statements.REQUIREDa. You have
The audit staff have recently completed risk assessment procedures to gain an understanding of Chocolate from Heaven Inc.?s (CFHI) business and to identify risk factors relevant to the risk of
The following questions deal with audit risk and evidence. Choose the best response.a. Which of the following does not increase the need for sufficient appropriate audit evidence?(1) A lower
Some account balances, such as those for pensions and leases, are the result of complexcalculations. The susceptibility to material misstatements in these types of accounts is defined as:(1) Audit
The following questions concern the assessment of the risk of material misstatements.Choose the best response.a. Which of the following circumstances most likely would cause the auditor to suspect
Why is it important for the auditor to consider risk of material misstatement at the overall financial statement level?
Statements of earnings and financial position for Prairie Stores Corporation are shown. REQUIREDa. Use professional judgment in determining overall materiality based on revenue, net income before
Elias Tech (ET) is a private company founded by Sarah House and Rosa Perks. Sara and Rosa each own a 40 percent interest in the company, with the remaining 20 percent owned by a venture capitalist
The following questions pertain to client acceptance. Choose the best response.a. When approached to perform an audit for the first time, the CPA (Chartered Professional Accountant) should make
For each scenario below, identify the most appropriate client acceptance/continuance risk(s) (A?C). Client acceptance/continuance risk(s):A. IndependenceB. Scope limitation imposed by clientC.
Analytical procedures used in planning an audit should focus on identifying:(1) Material weaknesses in internal control.(2) The predictability of financial data from individual transactions.(3) The
A client decides not to record an auditor’s proposed adjustments that collectively are not material and wants the auditor to issue the report based on the unadjusted numbers. Which of the following
Access CPA Canada’s CAS 720, Auditors’ responsibilities relating to other information, to answer the following questions:a. What is the definition of “other information”?b. List some examples
The following items were discovered during the December 31, 2018, audit of the financial statements of Westmoreland Corporation. 1. The company?s financial statements did not include an accrual for
Callie Peters is completing the audit of MakingNewFriends.com for the year ended December 31, 2018. Callie has been the audit manager on this engagement for the past three years. MakingNewFriends.com
In an examination of Marco Corporation as of December 31, 2018, the following situations exist. No related entries have been made in the accounting records.1. Marco Corporation has guaranteed the
Written management representations obtained by the auditor in connection with a financial statement audit should include a:(1) Summary of all corrected misstatements.(2) Statement of management’s
Why would an auditor submit a management letter to the client?
Will the audit procedures concerned with tests of details of general cash address the assertion listed? The above questions deal with discovering fraud in auditing year-end cash. Choose the best
The auditor should control and verify all liquid assets simultaneously to prevent:(1) Unrecorded disbursements.(2) Conversion of assets to conceal a shortage.(3) Unauthorized disbursements.(4)
Why do the risks of every transaction cycle affect cash?
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 2018 financial
Evangeline Ltd. took out a 20-year mortgage for $2 600 000 on June 15, 2018, and pledged its only manufacturing building and the land on which the building stands as collateral. Each month, a payment
An auditor usually obtains evidence of shareholders’ equity transactions by reviewing the entity’s:(1) Minutes of board of directors’ meetings.(2) Transfer agent’s records.(3) Cancelled stock
List examples of complex transactions that could affect retained earnings.
What audit assertion is at most risk for the audit of capital?
An auditor reviews the reconciliation of payroll tax forms that a client is responsible for filing to:(1) Verify that payroll taxes are deducted from employees’ gross pay.(2) Determine whether
Provide two examples of payroll tests that could be used to verify the accuracy of payroll costs included in inventory. Note: Two examples are provided. Others are possible.
Why is it likely that the auditor will focus on the audit of payroll transactions rather than payroll balances?
Today is August 21, 2018, and you are an audit manager working on an audit plan for the inventory section of Jolanta’s Inc. (Jola) July 31, 2018, year-end financial statement audit. Jola’s
PawLow Inc. is a private manufacturer of specialized lubricants for the space industry. Its lubricants are used to cover moving mechanical parts inside rocket ships, the Space Station, and the Mars
You are the in-charge accountant on the audit of Dezine Inc. (DI). It is March 25, 2018, and your firm is partway through the audit for the year ended January 31, 2018. You are currently assigned to
You encountered the following situations during the December 31, 2018, physical inventory of Latner Shoe Distributing Corp.a. Latner maintains a large portion of its shoe merchandise in 10 warehouses
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
Below are four independent client scenarios:1. Colburn Pharmacy Inc. has 77 stores located in Eastern Canada. Approximately 60 percent of the inventory recorded on the balance sheet for the
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, 2018, Raymonde Mathieu, public accountant, is
Big Tasty Bird Inc. (BTB) is a turkey farm. BTB year-end is September 30, 2018. It takes about four to six months to raise a turkey from the time the chicks hatch from their eggs. A full-grown and
On December 31, 2018, Best Cement Inc., a cement wholesaler, conducted its annual year-end inventory count. Best Cement stores all of its cement in large storage silos (very tall cylinder-shaped
Ruswell Manufacturing Ltd. applied manufacturing overhead to inventory at December 31, 2018, on the basis of $3.47 per direct labour hour. Explain how you would evaluate the reasonableness of total
Included in the December 31, 2018, 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
Although attending the client’s count is important for substantive testing, it is perhaps more important to assess internal controls over the count. Explain why.
Describe the two separate subsystems used to assess controls in the inventory and distribution cycle and provide an example of a business function for each subsystem.
Provide two reasons why there could be a material error in inventory. Note: Two reasons are provided. Others are possible.
Read Auditing in Action 13-4, “Incorrect Classifications Hide a Greater Net Loss,” regarding fraudulent reporting at TV Communications Network (TVCN).REQUIREDa. Explain why the auditor’s
You are doing the audit of the UTE Corporation for the year ended December 31, 2018. The following schedule for the property, plant, and equipment and related allowance for amortization accounts has
PawLow Inc. is a private manufacturer of specialized lubricants for the space industry. Its lubricants are used to cover moving mechanical parts inside rocket ships, the Space Station, and the Mars
You were in the final stages of your examination of the financial statements of Ozine Corporation for the year ended December 31, 2018, when the corporation’s president came to talk to you. He

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