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auditing international approach

Questions and Answers of Auditing International Approach

In classical statistical sampling, what six steps should be followed in applying mean estimation?
In classical statistical sampling, how does the auditor determine whether to accept or reject the hypothesis that the evidence supports the account balance?
What are the characteristics of a population to which an auditor would apply probability proportional to size sampling?
What four items are needed to determine the sample size when probability proportional to size sampling is used?
Sampling results could lead the auditor to believe erroneously that the account does not contain more dollar error than can be tolerated. Which of the following corresponds to the preceding
To determine an optimum sample size when sampling methods are used in a substantive test, all of the following factors must be considered except thea. Variation in the population.b. Risk levels the
Which of the following sample planning factors would influence the sample size for a substantive test of details for a specific account? Expected amount of misstatements No Measure of tolerable
The relationship between the sampling risk of incorrect acceptance and the sample size of substantive tests isa. Inverse.b. Positive.c. Indeterminate.d. None of the above.
Which of the following sampling methods would be used to estimate a numerical measurement of a population, such as a dollar value?a. Discovery sampling.b. Sampling for variables.c. Sampling for
In assessing sampling risk, the risk of incorrect rejection of an account balance relates to thea. Efficiency of the audit.b. Effectiveness of the audit.c. Selection of the audit.d. Audit quality
Which of the following statements is correct concerning the auditor's use of statistical sampling?a. An assumption of PPS sampling is that the underlying accounting population is normally
In statistical sampling methods used in substantive testing, an auditor most likely would stratify a population into meaningful groups ifa. Probability proportional to size sampling is used.b. The
An advantage of statistical sampling over non statistical sampling is that statistical sampling helps an auditor toa. Minimize the failure to detect errors and fraud.b. Eliminate the risk of non
If the achieved allowance for sampling risk of a statistical sample is greater than the planned allowance for sampling risk, this is an indication that thea. Standard deviation was larger than
An auditor is performing substantive tests of pricing and extensions of perpetual inventory balances consisting of a large number of items. Past experience indicates numerous pricing and extension
Using statistical sampling to assist in auditing the year-end accounts payable balance, an auditor has accumulated the following data:Using the ratio estimation technique, the auditor's estimate of
Use of the ratio estimation sampling technique to estimate dollar amounts is inappropriate whena. the total book value is known and corresponds to the sum of all the individual book values.b. There
In classical statistical sampling, which of the following must be known to estimate the appropriate sample size?a. The total amount of the population.b. The planned standard deviation.c. The planned
The major reason that the difference and ratio estimation methods would be expected to produce audit efficiency compared to mean estimation is that thea. Number of members of the populations of
Probability proportional to size sampling (PPS) is normally used when it is thought that the population contains aa. Few understatements.b. Large number of understatements.c. Few overstatements.d.
Vale has decided to use PPS sampling in the audit of a client's accounts receivable balances. Vale plans to use the following PPS sampling table:What sample size should Vale use?a. 120b. 108c. 60d.
In a PPS sample with a sampling interval of \($10,000,\) an auditor discovered that a selected account receivable with a recorded amount of \($5,000\) had an audit amount of \($3,000.\) The projected
In a PPS sample with a sampling interval of \(\$ 5,000\), an auditor discovered that a selected account receivable with a recorded amount of \(\$ 9,000\) had an audit amount of \(\$ 8,000\). If this
Which of the following statements is correct concerning PPS sampling?a. The sampling distribution should approximate the normal distribution.b. Overstated units have a lower probability of sample
In each of the following cases involving non statistical sampling, indicate what conclusions the auditor might draw and why.a. The likely misstatement is more than the tolerable misstatement.b. The
Assume that an account has the following characteristics:Number of items in the account-300 Recorded amount- \(\$ 600,000\)Sample size-100 Required:a. If the sample mean is \(\$ 1,800\) and mean
Take the population in the table and perform the following (use sampling without replacement and a standard deviation of the recorded amounts of 20),a. Determine the sample size for a classical
The following data for a substantive test using sampling are available:Population recorded amount- \(\$ 200,000\)Tolerable misstatement \(\$ 10,000\)Number of items in the population-200 Risk of
During the planning of the audit of Strong Company, the partner in charge of the audit was discussing sampling plans with a manager and a senior. The discussion centered on the potential use of
You desire to estimate the amount of the inventory of your client. Draper. Inc. You satisfied yourself earlier as to the inventory quantities. During the audit of the pricing and extension of the
In the following situations solve the problems and answer the questions.a. Non statistical sampling is used. The number of items in the population is 1,000 , and the recorded amount on the books is
Smith, CPA, has decided to assess control risk applicable to the existence of accounts receivable at a low level. Smith plans to use sampling to obtain substantive evidence concerning the existence
Edwards has decided to use probability proportional to size (PPS) sampling in the audit of a client's accounts receivable balance. Few, if any, account balance overstatements are expected. Edwards
Take the illustration of PPS sampling starting on page 450 of the chapter material and do the following:a. Assume a tolerable misstatement of \(\$ 150,000\) instead of \(\$ 100,000\), leaving all
Mead, CPA, was engaged to audit Jiffy Co.'s financial statements for the year ended August 31, 19X8. Mead is applying sampling procedures.During the prior year's audits Mead used classical variables
Why are assets more likely to be overstated than understated, and what effect does this have on the auditor's emphasis in the audit of assets?
Give an example and explain the importance of restrictions on cash.
State the objectives in the audit of cash.
What analytical procedures may an auditor apply to cash?
The auditor gathers evidence regarding the amounts shown in a bank reconciliation. Indicate the evidence he or she would gather or examine in support ofa. The bank balance.c. Deposits in transit.b.
The standard bank confirmation provides the auditor with evidence relating to accounts other than cash. State how this is done.
What is the objective of testing interbank transfers?
Explain what is meant by "kiting."
What are some inquiries an auditor can make when examining the cash account to add value to the audit?
State the objectives in the audit of receivables.
How can analytical procedures be applied to accounts receivable?
What are "alternative procedures" and when are they performed?
List the factors an auditor would consider in evaluating the adequacy of the allowance for doubtful accounts.
Discuss the audit procedures an auditor would employ to detect liens on or pledges of receivables.
What are some inquiries an auditor can make when examining accounts receivable to add value to the audit?
State the objectives in the audit of prepayments.
Explain how internal control relating to prepayments could affect the scope of the auditor's work in that section.
What analytical procedures may an auditor apply to prepayments?
What evidence would an auditor examine in support of additions to prepaid insurance?
Why does an auditor review a client's insurance coverage?
To gather evidence regarding the balance per bank in a bank reconciliation, an auditor would examine all of the following except thea. Cutoff bank statement.b. General ledger.c. Year-end bank
An auditor ordinarily sends a standard confirmation request to all banks with which the client has done business during the year under audit, regardless of the year-end balance. A purpose of this
The cashier of Rock Company covered a shortage in the cash working fund with cash obtained on December 31 from a local bank by cashing, but not recording, a check drawn on the company's out-of-town
An auditor gathers evidence regarding the validity of deposits in transit by examining thea. Bank confirmation.b. Cutoff bank statement.c. Year-end bank statement.d. Bank reconciliation.
Which of the following audit procedures is most likely to detect a cash balance that is restricted as to withdrawal?a. Review the cutoff bank statement.b. Prepare an interbank transfer schedule.c.
An auditor should trace bank transfers for the last part of the audit period and the first part of the subsequent period to detect whethera. The cash receipts journal was held open for a few days
An auditor will request a cutoff bank statement primarily toa. Verify the cash balance on the client's bank reconciliation.b. Detect lapping.c. Verify reconciling items on the client's bank
On the last day of the fiscal year, the cash disbursements clerk drew a company check on Bank A and deposited the check in the company account in Bank B to cover a previous theft of cash. The
Which of the following statements is correct concerning the use of negative confirmation requests?a. Unreturned negative confirmation requests rarely provide significant explicit evidence.b. Negative
Which of the following internal control procedures most likely would deter lapping of collections from customers?a. Independent internal verification of dates of entry in the cash receipts journal
Which of the following statements regarding the audit of negotiable notes receivable is not correct?a. Confirmation from the debtor is an acceptable alternative to inspection.b. Physical inspection
To conceal defalcations involving receivables, the auditor would expect an experienced bookkeeper to charge which of the following accounts?a. Sales returns.b. Miscellaneous income.c. Petty cash.d.
Returns of positive confirmation requests for accounts receivable were very poor. As an alternative procedure, the auditor decided to check subsequent collections. The auditor has satisfied himself
An auditor's purpose in reviewing credit ratings of customers with delinquent accounts receivable most likely is to obtain evidence concerning management's assertions abouta. Valuation or
An auditor's risk of misstatement of accounts receivable is least likely to increase if there isa. An increase in customer complaints about their accounts.b. A general slowdown in cash collections.c.
Which of the following ratios is least applicable to the audit of the valuation assertion of accounts receivable?a. Ratio of bad debt expense to sales.b. Current ratio.c. Accounts receivable turnover
When auditing prepaid insurance, an auditor discovers that the original insurance policy on plant equipment is not available for inspection.The policy's absence most likely indicates the possibility
When auditing the prepaid insurance account, which of the following procedures would generally not be performed by the auditor?a. Re compute the portion of the premium that expired during the year.b.
Items a through \(\mathrm{f}\) represent the items that an auditor ordinarily would find on a client-prepared bank reconciliation. The accompanying List of Auditing Procedures represents substantive
In your audit of Ryan Company for the year ended December 31, 19X8, you note that the bank reconciliation for the Third National Bank Account contains a large unlocated difference, as shown
The following interbank transfer schedule has been prepared in connection with the audit of Panther Creek Properties, Inc.Complete the following summary as of December 31, assuming no deposits in
During the year Wimberly Corporation began to encounter cash flow difficulties, and a cursory review by management revealed receivable collection problems. Wimberly's management engaged Starr, CPA,
Your firm has been engaged to audit the financial statements of RST Inc. for the year ending December 31. RST Inc. is a medium-sized manufacturing company that has approximately 400 trade accounts
Susan Start, a new staff assistant of a CPA firm, was -assigned to the audit team auditing the financial statements of Rel-Hep Finance Company. The senior in charge of the audit assigned Susan to the
The CPA firm of Wright \& Company is in the process of auditing William Corporation's 19X4 financial statements. The following open matter must be resolved before the audit can be completed.No audit
Chem Inc., a public company, manufactures pesticides and other chemical products and has its main manufacturing facilities in the United States. Chem does business primarily with other U.S.
You have been assigned to the audit of a medium-sized manufacturer of machine parts whose fiscal year ends October 31. You and the senior arrive on Monday, November 13, to start the fieldwork for
Taylor Wholesalers distributes golf equipment to about 100 retail sporting goods stores. At June \(30,19 \times 7\), the end of the company's fiscal year, the distribution of the accounts receivable
Mary Jones, CPA, is engaged to audit the financial statements of Cook Wholesaling for the year ended December 31, 19X8. Jones obtained and documented an understanding of internal control relating
During an audit of the financial statements of Gole Inc., Robbins, CPA, requested and received a client-prepared property casualty insurance schedule, which included appropriate premium
Listed below are misstatements that could occur in cash, accounts receivable, and prepayments. Indicate the substantive test that should provide reasonable assurance of detecting each misstatement.a.
State the objectives in the audit of inventories.
Give three examples of internal control policies and procedures that may affect the scope of substantive tests of inventories.
What analytical procedures may an auditor apply to inventories?
Discuss the auditor's responsibility for an accurate physical inventory.
How does the auditor guard against inclusion in the final inventory listing of count sheets or tags containing fictitious inventory items?
Why does an auditor record some inventory test counts?
What is the purpose of inventory cutoff tests?
What procedures can the auditor perform during the inventory observation to test for obsolete, excess, or slow-moving items?
State the general approaches to auditing job-order, process, and standard cost systems.
Describe the audit tests made of the client's inventory summary schedules.
Describe the audit procedures designed to detect liens and pledges of inventory.
What are some inquiries an auditor can make when examining inventories to add value to the audit?
How do the auditor's approach and emphasis in auditing assets differ from those in auditing liabilities?
State the objectives in the audit of current liabilities.

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