Questions and Answers of Auditing Cases An Interactive

Includes a recommendation of an IT system development control that could be implemented to minimize your concern for each deficiency in question 1?
Provides a brief description explaining your primary concern for each deficiency noted in question 1?
In 1978, at the age of 34, Ann Hopkins faced a dilemma that a growing number of professional women are being forced to confront. Hopkins had to make a difficult choice involving her family and her
At some point in their careers, every public accountant reaches that crossroads where they must answer the important question: Should I stay in public accounting or should I accept a job offer in the
In this chapter we referred to the term non-sampling risk. Outline what you believe the term means and give some examples of what you consider to be a non-sampling risk.
On page 452 of this chapter we noted that Roberts and Dwyer (1998) appear to suggest that auditors should disclose the level of materiality they have used when conducting the audit. Given that this
In Appendix 11.2 on the Cengage companion website we suggest steps that could be included in the audit programme for accommodation income of the County Hotel Limited received in cash. Reread this
In Appendix 11.2 on the Cengage companion website we suggest steps that could be included in the audit programme for accommodation income of the County Hotel Ltd received in cash. Reread this
In 1887, a young Dutchman, Albert Heijn, entered the business world by purchasing a small grocery store from his father.1 The store was located in Oostzaan, a village on the Dutch peninsula known as
The United States and the Commonwealth of Australia have long been strong and mutually supportive allies.1 However, the two countries’ close relationship was threatened recently by an international
Jerome Kerviel was born and raised in Pont-l’Abbe, a small coastal village in the Brittany region of northwestern France. His father was a blacksmith, while his mother worked as a hairdresser.
During the mid-1980s, Stephen W. Gray owned and operated a small CPA firm in Columbia, Mississippi.1 Located in south-central Mississippi near the banks of the Pearl River, Columbia’s population of
Paul Polishan graduated with an accounting degree in 1969 and immediately accepted an entry-level position in the accounting department of The Leslie Fay Companies, a women’s apparel manufacturer
Nathan recently interviewed with one of the accounting firms in the city where he wants to live. The firm agreed to cover the expense of a rental car that he used to travel from his university to the
After completing Part A of this assignment, your instructor may ask you to complete Part B. Do not proceed to Part B unless requested to do so by your instructor.BACKGROUNDCongratulations!!! You were
Brent Dorsey graduated eight months ago with a master’s degree in accounting. After graduating, Brent began working with a large accounting firm in Portland. He is now on his second audit
Consider the following statements and explain why they may be true or false:(a) Tests of controls are tests designed to check the accounting and control systems are effective.(b) Substantive tests
In this chapter we showed in Figure 11.1 a purchases substantive audit programme, but we did not include the use of audit software. Suggest how audit software could have been used in programme steps
Assuming your audit programme for the purchase of non-current assets has been completed and that your programme objectives have been met, draft a suitable audit conclusion for audit work performed in
You are auditing a manufacturing company and have drafted a management letter that contains reference to matters to increase the efficiency of company systems and the general profitability of the
You are undertaking the fieldwork for the audit of the financial statements of CAREFREE Limited for the year ended 31 December 2020. CAREFREE owns and operates a network of six private nursing homes,
Munro Limited is a small company with two divisions. One division trades in specialized equipment for walkers and mountaineers, and the other sells artists’materials. The company has acquired
Communication by the auditors with those charged with governance other than management makes the audit process more effective. Discuss.
Explain the difference between substantive analytical procedures and substantive tests of detail.
Consider the following statements and explain why they may be true or false:(a) Statistical sampling methods do not require auditors to exercise judgement.(b) Tolerable error is the amount of error
It is important to recognize that audit sampling may be constructed on a non-statistical basis. If the auditors use statistical sampling, probability theory will be used to determine sample size and
Leslie Ltd has had a trend of profits in the past five years as set out below:During the year to 31 December 2018, you discover that inventories have been overstated by £5 000 and that, in
During the audit of Leven Ltd for the year ended 31 March 2018, your audit tests reveal that trade receivables include£30 000 for a customer who went into liquidation shortly before the end of the
Give some examples of qualitative characteristics an auditor might take into account when deciding if a particular item in the financial statements is materially misstated.
The following text relating to materiality was included in the audit report for Sainsbury’s Plc for the year ended 11 March 2017.
Sampling and materiality are both related to audit risk. Discuss.The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the
When setting materiality levels it is crucial that the auditor considers the external environment. Discuss.The magnitude of an omission or misstatement that, individually or in the aggregate, could
Consider the following statements and explain why they may be true or false.(a) If the analytical review discloses no variations from the previous year, the auditor need not enquire further.(b)
Produce a table with two columns and sufficient rows; in the first column list the key matters that should be included in inventory count instructions. In the second column give a brief indication
You have been asked by a member of your audit team to explain the purpose of each audit stage. Give a brief explanation of each stage using the following headings:(a) preliminary stage(b) systems
In the text we suggested that you should look broadly at figures in the financial statements before you calculated individual ratios. Explain in your own words why we took this view giving examples
The profit and loss account for the year ended 31 December 2020 and balance sheet at 31 December 2020 of Crail Limited, a trading company, are set out below.Required:1 Perform an analytical review of
The division of management assertions into genuine, accurate and complete is a useful aid to auditors. Discuss.
In previous chapters we discussed the significance of risk facing auditors in the process of forming audit conclusions. Explain how auditors address risk at the prefinal stage of the audit process.
In previous chapters we discussed the significance of evidence gathering to enable auditors to form audit conclusions. Explain how auditors approach evidence gathering at the prefinal stage of the
Analytical procedures represent an important tool in the hands of the auditor. Discuss.
Consider the following statements and explain why they may be true or false:(a) The audit approach to any asset will involve the auditor in a consideration of condition.(b) It is easier to prove the
Turn to the Pykestone example (Case Study 14.1) and draft an audit programme for:(a) non-current asset additions during the year(b) non-current asset disposals during the year(c) non-current assets
Draft a request for confirmation of a trade receivables balance in the accounting records of a company audited by you, explaining why you have included each item.
Consider the following items of income and expense and state: whether they bear a relationship to each other or not; if they are related in any way, in what way they should move in relation to each
Consider the following items of income and expense and state: whether they bear a relationship to each other or not; if they are related in any way, in what way they should move in relation to each
‘If management review useful lives annually, impairment reviews will rarely be necessary’. Give your views on this statement.What audit procedures should you carry out to see if an impairment
You ask your audit assistant to carry out a review of after-date receipts from credit customers. Explain to them the reason for such a review and show how it should be performed. What kind of
Auditing is a logical process. Discuss, in the light of our discussion of the audit of noncurrent assets and trade receivables in this chapter.
Analytical procedures represent an important tool in the hands of the auditor.Discuss.
Consider the following statements and explain why they may be true or false:(a) The omission of a short-term liability from the balance sheet will result in the acid test ratio showing that the
You are auditing a company that operates a computer controlled warehouse. There is no human entry to the warehouse except when essential maintenance is carried out.Products are taken into the store
The following is a record of inventory movements and recorded sales of Whygate Ltd, a company buying and selling products on credit with a December 2020 year end.Consider these figures and then
You are responsible for the audit of trade payables and purchases of Powerbase for the year ended 31 May 2020. You carried out interim audit work on purchases and trade payables at 30 November 2019
Blackford Ltd is a company engaged in two diverse activities: manufacture of lawnmowers and trading in the hardware sector, selling its lawnmowers through its own hardware outlets. The company
Explain why it is so important for auditors to identify the points at which management is making judgemental decisions about accounting matters. Give examples.
It is early December 2020, and you approach the Chief Financial Officer of Pitscottie Limited, a trading company, to ask him to send the 31 December year end inventory count instructions for review.
It is easier to prove that trade receivables are genuine, accurate and complete than is the case for trade payables.
Identify important controls surrounding inventory counts by the entity.
Consider the following statements and explain why they may be true or false:(a) Audit working sheets should be a record of all evidence collected by auditors in forming the audit opinion.(b)
Show how the following events should be reflected in the accounts at 31 December 2020 and describe audit procedures you would perform to verify them:(a) Company A estimated profits on a construction
Bandon Limited acquired a subsidiary, Gateside Limited, ten years ago and goodwill on consolidation is being written off over 20 years. Gateside made good profits until two years ago, but in the year
During an audit of the cost records of Roberton Ltd at 31 March 2020 you discover that Prospect Limited has sued the company, claiming that it is using a manufacturing process patented by
ISA 450 identifies three kinds of misstatement.State what these are and in your answer give examples to explain their significance.
Lundin plc operates a number of divisions, but the board of directors has been considering closing those that no longer fit into the future plans of the company.On 30 November 2020 (year end is 31
Your audit assistant on the Greenburn Limited assignment has asked you where the following working schedules should be filed:(a) Summary of the details of a construction contract for the supply of
Dunino Limited is a company manufacturing, selling and laying carpet tiles, currently preparing financial statements at 31 December 2020. Under the terms of sale, Dunino gives a warranty whereby it
The management letter of representation is a key piece of audit evidence. Discuss.
Explain the role and features of the final review.
This question is placed within the text (Case Study 17.6: Internal audit at Troston plc). Internal audit at Troston plc CASE STUDY 17.6 The company is already known to you from Activity 8.8 in
In the text we introduced you to two levels of assurance. Explain what is meant by assurance, illustrating your answer by reference to these levels of assurance.
The information is taken from a public notice displayed at Billowness Beach, Anstruther, Fife, Scotland.Required:Examine the information contained in this notice and (a) identify the following:(i)
Consider whether the following statements are true or false:(a) The same standards of independence need not be applied in assurance engagements as in the statutory audit of financial statements.(b) A
The characteristics of suitable criteria are:relevance, completeness, reliability, neutrality and understandability. Explain what these characteristics mean, illustrating your answer by reference to
You are a member of an internal audit department and have been asked the following questions by an audit assistant:(a) Why is it that we check all purchases invoices daily to goods received notes and
Your firm has been external auditor of Elgol plc for some years. Elgol has an internal audit department engaged in both compliance and operational auditing.You have a high opinion of the quality of
A properly constituted audit committee enhances the role of both external and internal audit. Discuss.
Assurance services provided by the external auditor, other than the audit of financial statements, are far more useful than the latter. Discuss.
Auditors will not be willing to give a positive assurance report on the management commentary in the annual report of companies until a liability cap is introduced.
Consider the following statements and explain why they may be true or false.(a) If a company fails to comply with the provisions of a specific FRS Standard or IFRS Standard, the company’s auditors
This question is based on an ACCA question in their Advanced Audit and Assurance Paper P7, December 2010.(a) You are the manager responsible for the audit of Willis Ltd, a large client of your audit
The following is an amended version of a question contained in the ACCA December 1994 Paper 6, Audit Framework.Your firm audits the following two companies, and you have been asked to consider the
Write brief notes on the following topics:(a) Discuss the extent to which you believe that the inclusion of key audit matters and a brief description of the auditors’ responsibilities in the
This question is based on an ACCA question in their Advanced Audit and Assurance Paper P7, June 2012.Snipe Ltd has in place a defined benefit pension plan for its employees. An actuarial valuation on
Discuss the extent to which you believe the audit report does not provide enough insight about the findings derived from an audit.
The audit opinion for Redcentric plc is available at: www.redcentricplc.com/media/3087/ra_2017_combined_web.pdf.Read this audit report and then answer the following questions:(a) Why did the
The value of the auditor’s involvement in reviewing certain of the UK Corporate Governance Code requirements would be much enhanced if the auditors actually provided an opinion on the nature of the
The audit report is a rather crude device to inform shareholders about the auditors’ satisfaction, or dissatisfaction, with the view given by the financial statements and their compliance with the
For this question you will need to refer to the audit report for Rolls-Royce Holdings plc available at URL:
Consider the following statements and explain why they may be true or false:(a) Auditors are responsible for detecting fraud in a company’s financial statements.(b) The implementation of a sound
(a) Errors should be detected by auditors more easily than frauds. Discuss.(b) Discuss the reasons why you believe the audit profession is unwilling to take greater responsibility for the detection
(a) Describe the tests and procedures that the auditor needs to perform to form an opinion on management’s conclusion that a company is a going concern.(b) List as many factors as you can that
The willingness of large audit firms to provide forensic audit services indicates that they have the ability and techniques available to detect fraud. It would seem a short step to suggest that
You have completed the audit of Magnolia Ltd for the year ended 31 December 2018. The financial statements show turnover of £10 000 000 – down 10 per cent on the prior year – and losses of £75
Identify business risk factors that might alert the auditor to an increased risk of fraud occurring within an audit client.
The auditors’ present role in respect of going concern is too passive; they should be much more pro-active in determining if an audit client is a going concern.Discuss.
Discuss the occasions when you believe auditors should be required to report suspicion of a client engaged in fraud to a third party.
Consider the following statements and explain why they may be true or false:(a) The audit expectations gap has arisen since the 1960s.(b) The reasonableness component of the audit expectations gap
Critically explain the extent to which the audit expectations gap is a dynamic concept.
Discuss key elements that are important drivers of audit quality and evaluate whether an audit firm could reasonably be expected to identify key performance indicators against which audit quality

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