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auditing international approach

Questions and Answers of Auditing International Approach

As a condition for a public offering of securities by your largest and most important audit client, the underwriter requires a comfort letter containing the following items.1. An unequivocal
Keith Sellers, a new CPA, is establishing an accounting practice and has decided to specialize in performing compilations. He stated, "Because CPAs provide no assurance in compilation reports, they
Becky Maupin, CPA, has been asked to compile the financial statements of George's Diner, a nonpublic company, for the year ended April 30, 19X5.a. What understanding should Maupin establish with
The following report was drafted on October 25, 19X0, by Major, CPA, at the completion of the engagement to compile the financial statements of Ajax Company for the year ended September 30, 19X0.
Steve White, CPA, has completed the compilation of the financial statements of the Elbow Macaroni Factory, a nonpublic entity, and is now considering the form of report that he should issue.a.
Easecom Company is a manufacturer of highly specialized products for networking videoconferencing equipment. Production of specialized units is, to a large extent, performed under contract, with
Slow Burn Candle, Inc., a public company, asked its CPA, Parker Granger, to assist it in preparing footnotes for unaudited financial statements as of June 30, 19X5. Granger has previously audited the
Atlas Company is a small refinery owned by several individuals who are not active in its management. To supply them with reliable information about the company's operations for the year, you are
Differentiate between financial and operational auditing.
What is the purpose of a compliance audit?
How do government auditing standards differ from generally accepted auditing standards?
If an auditor finds no reportable conditions during an audit of a government entity, how is this reported under Government Auditing Standards?
What governmental entities are subject to the Single Audit Act?
Name and describe the general requirements that are tested for compliance in a single audit.
What specific requirements applicable to major programs are tested for compliance in a single audit?
What types of expenditures are classified as questioned costs in a compliance audit?
An operational auditor is most likely to be concerned with whether a transaction wasa. Necessary.b. Reasonable.c. Properly approved.d. Properly supported with documentation.
When planning an operational audit, the auditor should consider the risk ofa. Misleading financial statements.b. Inadequate internal controls.c. Inefficient operations.d. Lawsuits for inadequate
When performing a preliminary survey an auditor woulda. Assess control risk.b. Review flowcharts of operations.c. Compute sample sizes for tests of operations.d. Prepare a draft of the audit report.
Which of the following deviations from company policy would an operational auditor consider to be the most critical?a. Several late payments to vendors resulted in loss of discounts.b. The sales
The benefits of an operational audit generally include all of the following excepta. Increased revenue.b. Increased reliability of the financial statements.e. Increased productivity.d. Decreased
An operational audit report is not likely to be addressed to thea. Department supervisors.b. Audit committee.c. Stockholders.d. Top management.
In an operational audit of the tax department, you found that certain officers were abusing some of their executive perquisites and that this abuse may have a tax effect for the company. The tax
In a compliance audit, an auditor is concerned with whether an entity's transactions are in conformance witha. Management objectives.b. Board of director directives.c. Laws and regulations.d.
Organizations that issue standards affecting government audits include all of the following except thea. OMB.b. AICPA.c. SEC.d. GAO.
Government auditing standards require external quality reviews toa. Demonstrate independence.b. Assure investors of audit competence.c. Increase competition among accounting firms.d. Assure that
When engaged to audit a government entity in accordance with Government Auditing Standards, an auditor prepares a written report on internal controla. In all audits, regardless of circumstances.b.
Reporting on internal control under Government Auditing Standards differs from reporting under generally accepted auditing standards in that Government Auditing Standards requires aa. Written report
All of the following are general requirements for compliance with laws and regulations excepta. Civil rights.b. Political activity.c. Freedom of information.d. Cash management.
When auditing an entity's financial statements in accordance with Government Auditing Standards, an auditor should prepare a written report on the auditor'sa. Identification of the causes of
Wolf is auditing an entity's compliance with requirements governing a major federal financial assistance program in accordance with Government Auditing Standards. Wolf detected noncompliance with
An auditor performing a single audit would issue all the following reports excepta. Opinion on the financial statements.b. Report on management objectives.c. Report on internal controls over federal
Operational auditors use measures to evaluate performance, to identify and correct problems, and to discover opportunities. To assist in measuring achievement, a number of performance measures are
Brock Company is a manufacturer of children's toys and games. The company has been experiencing declining profit margins and is looking for ways to increase operating income. Because of the
Avery Research is a department of Northern Valley Hospital that is affiliated with a leading university. Avery operates on a project basis and consists of a pool of highly respected scientists and
You have been assigned to perform an operational audit of the Palmer Division. The division management had recently been told to implement a management by objectives (MBO) system and to increase
You have just received the following draft audit report that was prepared by one of your staff auditors. 1 Audit of the purchasing department 2 Introduction 3 The purchasing department is responsible
Your audit of a United Fund agency that received a grant of federal funds included tests of transactions for compliance with applicable laws and regulations. Indicate whether or not and why you would
Toxic Waste Disposal Company, Inc. (TWD) is a not-for-profit organization that receives grants and fees from various state and municipal governments as well as grants from several federal government
You have completed your audit of State College. As required by GAS, you tested compliance with laws and regulations that could have a material effect on the financial statements. You found no
Modern Widgets, Inc. manufactures various types of widgets in its Ames, Iowa, plant. Management recently completed an expansion that will permit the manufacture of super widgets, for which a large
Which of the following questions would an auditor ask while auditing accounts receivable to add value to an audit?a. Are accounts receivable pledged?b. Are customers satisfied with your billing
What are some inquiries an auditor can make when examining the long-term debt account to add value to the audit?
Beta, Inc., is an affiliate of an audit client and is audited by another firm of auditors. Which of the following is most likely to be used by the auditor to obtain assurance that all guarantees of
Briefly describe six reasons why the auditor's approach to obtaining an understanding of internal control is different when a computer is used rather than manual processing.
In obtaining an understanding of the control environment that affects computer processing, the auditor will often consider several matters. Briefly describe these matters.
What is batch processing?
What function is performed by an edit program?
What is online processing?
What is the difference between a minicomputer and a microcomputer?
What three methods or audit techniques are used to obtain an understanding of the computerized elements of an accounting system?
Define each of the general controls.
Define each of the application controls.
Describe the three most common types of batch totals.
Describe five potential control problems in an independent minicomputer or microcomputer system
Describe six controls that an auditor should look for in an independent minicomputer or microcomputer system.
Name two factors that determine the extent of knowledge that auditors need to obtain about computer control procedures.
Why might an auditor use a primarily substantive approach for the operation illustrated in Figure 11.3 ? FIGURE 11.3 Use of Microcomputer in a Partial Computer System The sales representative
Which of the following is a systems flowchart?a. A description of the sequence of operations and logic in a computer program.b. A description of the sequence of major processing operations and the
Which of the following is not an application control?a. Input controls.b. Processing controls.c. Output controls.d. Organization and operation controls.
Which of the following procedures would not improve internal control in a computer system?a. One computer operator running all programs.b. Limited access to computer programs.c. Programmers not
Which of the following is not a batch control?a. Control total.b. Hash total.c. Record count.d. Parity check.
Which of the following best describes a fundamental control weakness often associated with computer systems?a. Computer processing equipment is more subject to systems error than manual processing is
Matthews Corporation has changed from a system of recording time worked on clock cards to a computerized payroll system in which employees record time in and out with magnetic cards. The computer
Internal control procedures are ineffective when computer department personnela. Participate in computer software acquisition decisions.b. Design documentation for computerized systems.c. Originate
Which of the following is an example of application controls in computer processing systems?a. Hardware controls.b. Input controls.c. Documentation procedures.d. Controls over access to equipment and
Which of the following would most likely be a weakness in internal control of a client that utilizes microcomputers rather than a larger computer systema. Employee collusion possibilities are
Some computer processing internal control procedures relate to all computer activities (general controls), and some relate to specific tasks (application controls). General controls includea.
Program controls in a computer processing system are used as substitutes for human controls in a manual system. Which of the following is an example of a program control?a. Dual read.b. Echo check.c.
Which of the following employees normally would be assigned the operating responsibility for designing a computer processing installation, including flowcharts of data processing routines?a. Computer
When an online computer system is in use, internal control can be strengthened bya. Providing for the separation of duties between data input and error listing operations.b. Attaching plastic file
When erroneous data are detected by computer program controls, such data may be excluded from processing and printed on an error report. The error report should probably be reviewed and followed up
Which of the following would increase control risk in a computer processing system?a. The custodian of computer records maintains custody of computer program instructions and detailed listings.b. The
The computer system most likely to be used by a large savings bank for customers' accounts would bea. A batch processing system.b. An online system.c. A generalized utility system.d. A direct-access
Which of the following would an auditor most likely use in obtaining an understanding of internal control?a. Systems flowcharts.b. Record counts.c. Program listings.d. Record layouts.
Which of the following is not a characteristic of a batch processing computer system?a. The collection of like transactions that are sorted and processed sequentially against a master file.b. Keying
If a control total were to be computed on each of the following data items, which would best be identified as a hash total for a payroll computer application?a. Department numbers.b. Net pay.c. Hours
When computer programs or files can be accessed from terminals, users should be required to enter a (an)a. Parity check.b. Personal identification code.c. Self-diagnosis test.d. Echo check.
Misstatements in a batch computer system caused by incorrect programs or data may not be detected immediately becausea. Errors in some transactions may cause rejection of other transactions in the
Which of the following controls is a processing control designed to ensure the reliability and accuracy of data processing? Limit test Validity check test Yes Yes b. No No C. No Yes d. Yes No
For a number of years, the Keep Company had used a computer batch processing system for its credit sales transactions. As clerks made credit sales, a copy of the sales invoice was given to the
Talbert Corporation hired an independent computer programmer to develop a simplified payroll application for its newly purchased computer. The programmer developed an online, data-based microcomputer
Examine Figure 11.3 and describe as many control problems as you think exist. (Use the diagram and any other logical assumptions from the diagram.) Classify the controls according to the
Examine the systems flowchart shown and write a detailed narrative of the procedures shown in the flowchart.
Examine the program flowchart on pages 348-349 and write a narrative description of the computer processing shown. Include in your narrative a general description of the error messages. In the
Ineffective internal control may allow errors or fraud to occur. For each of the following situations, indicate the error or fraud that could occur.a. The computer operator, who has some knowledge
Mr. A. O. Steady, a programmer for One Corporation, had been employed in his job for a number of years. He was the only programmer. There was a separate computer operator and input data operator.The
George Beemster, CPA, is auditing the financial statements of the Louisville Sales Corporation, which recently installed a new computer. The following comments have been extracted from Mr. Beemster's
You are reviewing audit work papers containing a narrative description of the Tenney Corporation's factory payroll system. A portion of that narrative is as follows:Factory employees punch time cards
When auditing a computer accounting system, the independent auditor should understand how the use of computers affects the various characteristics of internal control. The indepen dent auditor should
Smaller Company is a manufacturer of plastic golf balls. Since the company was organized, it has used central processing for all of its computerized accounting operations. Early this year management
What is meant by "through the computer approaches" to performing tests of controls?
Contrast the purpose of and the methods of per- forming the four following tests of controls in a computer system.a. Test data.b. Integrated test facilityc. Online audit monitor.d. Parallel
What are some of the limitations of using test data?
Describe the advantages and disadvantages of using online audit monitoring.
Describe the use of parallel simulation to test the client's computer program.
Describe the guidelines for assessing control risk.
What are computer-assisted audit programs?
Give five examples of functions that can be performed by a computer-assisted audit program.
Name four types of spreadsheet working papers that can be produced with microcomputers.

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