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auditing cases an interactive
Questions and Answers of
Auditing Cases An Interactive
In 1890, the Brooklyn Trolley Dodgers professional baseball team joined the National League. Over the following years, the Dodgers would have considerable difficulty competing with the other baseball
Lore Levi was worried as she scanned the March 1983 bank statement for the Howard Street Jewelers. \({ }^{1}\) For more than four decades, she and her husband, Julius, had owned and operated the
Bill Lee retired in the mid-1990s from Triton Energy after leading the Dallas-based oil and gas exploration firm through three turbulent decades. During Lee's tenure, Triton discovered large oil and
"Checker needed up front." Kirby Jacobson placed a final can on the shelf in front of him and then turned and headed for the checkout stand at the front of the store. Kirby worked for Troberg Stores,
In 1990, David Sokol faced a problem that has stymied the careers of many business executives. \({ }^{1}\) At the time, Sokol served as president of Ogden Projects, Inc., an environmental services
Russell Smith knew why he had been summoned to the office of A. Walter Rognlien, the 74-year-old chairman of the board and chief executive officer of Smith's employer, Cardillo Travel Systems, Inc.
Jim and Tammy Faye Bakker founded the PTL (Praise the Lord) Club, a religious broadcasting organization, in 1974. A little more than one decade later, the PTL Club claimed more than 500,000 members
Law enforcement authorities and officials of regulatory agencies frequently receive anonymous "hot tips." The shy tipsters typically charge that an individual or organization has violated one or more
Tommy \(\mathrm{O}^{\prime}\) Connell had been a senior with a Big Five accounting firm for less than one month when he was assigned to the audit engagement for the Altamesa Manufacturing Company.
In the spring of 2000, the Council or governing body of the American Institute of Certified Public Accountants (AICPA) met to discuss two strategic initiatives. \({ }^{1}\) If implemented, the
San Diego-based National Medical Transportation Network (MedTrans) eventually became the largest ambulance services provider in the United States. Reaching that pinnacle was not an easy journey. In
For most of his life, New York City businessman I. Jerome Riker was a powerful man with an extensive network of influential friends and business associates. Probably the most influential of Riker's
In 1960, four partners founded Equity Funding Corporation of America, each assuming an equal ownership interest in the firm. Two of the partners soon resigned, leaving the small company to Stanley
Anthony Natelli was frustrated. For several days, Natelli had been working frantically on a 112-page proxy statement for one of his audit clients, National Student Marketing Corporation (NSMC). It
Satoshi Hirata served on the audit staff of Asahi, one of Japan’s four largest public accounting fi rms.1 Like its three principal rivals, Asahi was affiliated with one of the Big Four
After earning a law degree from the University of Capetown in 1988, 24-year-old Brett Kebble accepted an entry-level position with a prestigious Capetown law firm. The gregarious and impetuous Kebble
Every four years, the International Federation of Accountants (IFAC) organizes the World Congress of Accountants.1 Accountants from across the globe attend this meeting to share their views on major
In February 2002, a lengthy Business Week article examined a major financial scandal swirling around one of the large international accounting firms. Key features of the scandal included the
Prior to the Islamic conquest of the Middle East, the ancient Zoroastrian religion was the national religion of Persia. To escape persecution for their religious beliefs, a large band of Persian
The spice trade first brought European explorers, most notably the Portuguese adventurer Vasco da Gama, to the shores of the Indian sub-continent in the late fifteenth century. In the mid-eighteenth
During the 1970s, the public accounting profession eliminated its bans on competitive bidding, advertising, direct solicitation, and related practices that the Federal Trade Commission maintained
In the late 1970s, William Nashwinter accepted a position as a salesman with Doughtie's Foods, Inc., a publicly owned food products company headquartered in Portsmouth, Virginia. \({ }^{1}\) The
As for most young professionals, earning a reasonable livelihood ranked as a top priority for Scott Fane, a CPA specializing in taxation services who relocated to Florida in the mid-1980s. To
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
In 1990, David Sokol faced a problem that has stymied the careers of many business executives. At the time, Sokol served as president of Ogden Projects, Inc., an environmental services company. Sokol
In the late 1990s, the investing public’s fascination with Internet-based companies prompted the cyberspace equivalent of the Oklahoma Land Rush, according to one prominent Wall Street analyst.
Charles Keating, Jr., was a scholar-athlete at the University of Cincinnati during the mid-1940s. In 1946, Keating won an NCAA individual championship in the 200-yard butterfly, a swimming event, and
In 1969, Eddie Antar, a 21-year-old high school dropout from Brooklyn, opened a consumer electronics store with 150 square feet of floor space in New York City. Despite this modest beginning, Antar
On May 19, 1987, a short article in The Wall Street Journal reported that ZZZZ Best Company, Inc., of Reseda, California, had signed a contract for a \($13.8\) million insurance restoration project.
The United States prides itself in being first in a wide range of socioeconomic, scientific, and cultural “top ten” lists. One ranking that does nothing to bolster national pride among United
From 1962 to 1992, Ed McMahon served as the quintessential sidekick and straight man to Johnny Carson on the long-running and popular television program The Tonight Show. After leaving that program,
Bernard Lawrence Madoff was born on April 29, 1938, in New York City. Madoff spent his childhood in a lower middle-class neighborhood in the borough of Queens. After graduating from high school,
Executives in the multibillion-dollar toy industry constantly search for the next big “hit,” a magical toy that will trigger a nationwide frenzy among youngsters comparable to the mania sparked
In 1975, Carlos Cordova and several other investors founded Capital National Bank (CNB) in Bronx, New York.1 Cordova was appointed the bank’s chief executive officer (CEO) and chairman of the
In 1955, James Luther Turner and his son, Cal, opened a small retail store in Scottsville, Kentucky. The Turners hoped to emulate (on a smaller scale) the business model of major discount retailers
During the 1980s, CBI Holding Company, Inc., a New York–based firm, served as the parent company for several wholly owned subsidiaries, principal among them Common Brothers, Inc. CBI’s
Campbell Soup easily qualifies as one of the most recognizable brand names across the globe. Founded shortly before the start of the Civil War, Campbell Soup Company long had a reputation as having
In 1890, the Brooklyn Trolley Dodgers professional baseball team joined the National League. Over the following years, the Dodgers would have considerable difficulty competing with the other baseball
Lore Levi was worried as she scanned the March 1983 bank statement for the Howard Street Jewelers.1 For more than four decades, she and her husband, Julius, had owned and operated the small business
In 1887, several of Denver’s community and religious leaders established the Charity Organization Society. During its first year of operation, that organization raised a little more than
Bill Lee retired in the mid-1990s from Triton Energy after leading the Dallas-based oil and gas exploration firm through three turbulent decades. During Lee’s tenure, Triton discovered large oil
“Checker needed up front.”Kirby Jacobson placed a final can on the shelf in front of him and then turned and headed for the checkout stand at the front of the store. Kirby worked for Troberg
Alex Fries emigrated to the United States from Germany in the early nineteenth century.1 The excitement and opportunities promised by the western frontier fascinated thousands of new Americans,
Arvel Ray Smart was born in Lebanon, Missouri, and grew up in the small town of Bolivar, 40 miles west of Lebanon in southeastern Missouri.1 Arvel’s mother and father graduated from the University
We have all had that friend, an individual who attaches himself or herself to us without our encouragement—or approval, for that matter.1 For Debbie Woodruff, that friend was David Quinn. Debbie
Russell Smith knew why he had been summoned to the offi ce of A. Walter Rognlien, the 74-year-old chairman of the board and chief executive offi cer (CEO) of Smith’s employer, Cardillo Travel
Executives of The North Face, Inc., faced a troubling dilemma during the 1990s.1 For decades, those executives had struggled to develop and maintain an exclusive brand name for their company’s
Waverly Edward Holland, III, grew up in sunny Tucson, Arizona, but his heart was always in the mountains of Colorado. From the age of three, “Dutch” spent at least one week each winter at Aspen,
Becoming a partner with one of the large international accounting firms easily ranks among the most common career goals of accounting majors.1 Michael Goodbread staked out that career goal four
Awaiting his court appearance to be charged with securities fraud, David Myers sat in a jail cell in 2002 and counted the cinder blocks again and again to distract himself.1 In his pocket was a
Tommy O’Connell had been a senior with one of the major international accounting firms for less than one month when he was assigned to the audit engagement for the Altamesa Manufacturing Company.1
In 1990. David Sokol faced a problem that has stymied the careers of many business executives. At the time, Sokol served as president of Ogden Projects, Inc., an environ- mental services company:
Executives in the multibillion-dollar toy industry constantly search for the next big "hit," a magical toy that will trigger a nationwide frenzy among youngsters comparable to the mania sparked in
In 1975, Carlos Cordova and several other investors founded Capital National Bank (CNB) in Bronx, New York. Cordova was appointed the bank's chief executive officer and chairman of the board. Over
Consider the truth or falsity of the following statements:(a) Sufficient evidence for the auditor means having enough to form a conclusion that an assertion made by management may be accepted.(b)
You are the auditor of Oakshow Ltd and are searching for evidence to prove that the figures for purchases and related creditors are true and fair in the context of the accounts, taken as a whole. You
Below is a list of sources of audit evidence:(i) The chief accountant, who is a member of CIMA, explaining why inventory levels are higher at the end than at the beginning of the year.(ii) A storeman
Explain the meaning of the following terms:(i) interim examination(ii) final examination(iii) inconsistent audit evidence(iv) systems-based evidence(v) third-party evidence(vi) persuasive evidence.
An important objective of the business risk approach is to make the audit more profitable by cutting down on the amount of evidence obtained by substantive tests of detail.Discuss.
You are the engagement partner of an audit assignment with an entity specializing in the provision of information technology services and software. At the beginning of the financial year the company
Explain how a review engagement differs from an audit engagement. Explain why a report on a review engagement might be useful to the person requesting that the engagement be carried out.
Audit evidence is required to be both sufficient and appropriate. Explain what is meant by this statement giving appropriate examples.
There is a direct relationship between audit risk and the audit evidence search. Discuss.
Explain why audit judgement is a vital element of obtaining sufficient, appropriate audit evidence.
Explain why a good system of corporate governance is essential if the business risk approach is to be adopted.
Explain the importance of internal control within organizations. What are the main elements and what is the auditor’s interest in them?
Integrity and ethical values are important factors in ensuring that internal control, including the control environment, is effective in reducing risk and in helping management to achieve objectives.
You have recently become auditor of a small trading entity whose system is based on a series of networked microcomputers using bought-in software for basic accounting functions. During the initial
Figure 8.1 showed there are two broad levels of regulation and control relating to both external and internal environment. You are the auditor of an entity providing advice to clients on financial
As organizations have become more dependent on reliability of information systems, they have become more aware of the need to maintain quality of systems and the data/information derived from them.
Segregation of duties is a basic requirement of a good control system. Explain what is meant by this statement and show how segregation of duties in a modern computer system might differ from that in
The existence of a quality standards group within an entity’s control system, like the internal audit function, is a vital element of the control environment. Discuss.
Audit staff have to be skilled and experienced enough to understand the complexities of modern control systems. Discuss how this might be achieved.
Consider the following statements and explain why they may be true or false:(a) ICQs are questionnaires used to record the system in use.(b) ICQs are questionnaires used to evaluate the system in
Assume that Ann Paterson, an established customer, has telephoned asking to be supplied with three recently published books.She speaks to a sales clerk who deals with her order. Suggest controls that
Assuming that the order is accepted and that the books will be supplied on credit, explain what records will be affected by the transaction and the information/audit trail details that should be
In Table 9.2 we provided you with key and subsidiary questions in a sales system. Two key questions in a purchases system are:(a) Are all requisitions for goods and services initiated and approved by
Set out in Figure 9.6 is a systems flowchart for a production payroll system. Explain what is happening in the two routines‘transactions file update’ and ‘salary run’.In addition, explain the
Describe the nature of an extranet and explain why it might be a useful means of achieving business objectives. You are auditor of an entity carrying on business using an extranet. Explain what
Where a client company fully integrates business systems with e-commerce conducted through the Internet, particular problems arise for the auditor. Explain why this is so.
Audit firms should train auditors to become IT experts in the auditing field, rather than expecting IT experts to become auditors. Discuss.
Consider the following situations:(a) Assume that you are a partner in a two partner practice with total practice income of £250 000. One of your clients(a private limited company with a turnover of
Now that you have read the IFAC Code and the FRC Ethical Standard do you think that they have been influenced by prior work on auditing theory? Justify a Yes or No answer.
You have been asked by your audit partner to be senior in charge of the audit of a small public limited company. Unbeknown to the partner, you hold 1000 of the 100 000 shares in the company. Do you
You have just been telephoned by the chief accountant of a listed company client, Randerston plc, to tell you that there has been a computer breakdown and that some parts of the data concerning
In Table 3.3 we suggested pressures against independence in respect of small audit firms and small auditees. To what extent do you believe that the IFAC Code and FRC Ethical Standard have been
Discuss the arguments for and against requiring the mandatory rotation of auditors.
The following question is taken from the June 2011 F8 Paper – Audit and Assurance of the ACCA. We are only asking you to consider requirement (a) of the question.You are an audit manager in NAB &
The problem with ‘independence’ is that it is an intangible quality. Do you think that the IFAC Code and the FRC Ethical Standard have succeeded in making it less of a problem for the auditing
Figure 3.3 on page 86 is very useful in helping people to understand how objectivity and independence issues might be managed. Discuss. FIGURE 3.3 Audit firm's control environment and elements to
The IFAC Code and the FRC Ethical Standard contain many requirements and much advice on how auditors should behave. How should the professional bodies ensure that they are adhered to?
Consider the following statements and explain why they might be true or false:(a) The directors may not appoint the first auditor, neither may they appoint an auditor to fill a vacancy caused by the
Janet Helmsley is auditor of Skiplam Ltd for the year ended 30 September 2018. She and her staff are examining the inventory figure in the accounts and have become concerned that the inventory count
You are auditor of a small building contractor with two partners, Thomas Murton and Ezra Byland. Neither of them has much accounting knowledge, although both are very good craftsmen. They have asked
Consider the following statements and indicate if they are true or false:(a) Auditors have the right of access at any time to any accounting records of the company they are auditing.(b) The directors
Assume you are the senior partner in an audit firm which is considering submitting a tender for the audit of a large company.Outline what information you might want to collect about the company
A major criticism of the regulatory regime in the past was that it lacked independence from the accounting profession. Discuss the extent to which that criticism is still valid for the new regulatory
We noted in the chapter that often the directors of a company exerted a considerable influence, more so when there is no audit committee, in determining which firm of auditors should be appointed.
Describe the regulatory structure for monitoring audit quality in the UK.
Discuss the need for a different regulatory regime for small companies from that which applies to listed companies.
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