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auditing international approach

Questions and Answers of Auditing International Approach

In what situations is it most likely that auditors will decide to test controls over the production process?
What are an auditor’s main concerns related to production cost transactions? Why?
What are the main risks for production of manufactured inventory, and management’s main control objectives related to the process? Why?
What are the main classes of transactions and related account balances for the production process?
What is the management purpose for information generated about costs of producing manufactured inventory, or services that are sold to customers?
What are some common substantive audit procedures for payroll? What financial statement assertions do these procedures provide evidence about?
In what situations is it most likely that auditors will decide to test controls over payroll transactions?
What are an auditor’s main concerns related to payroll transactions? Why?
What are the main risks for payroll, and management’s main control objectives and control activities related to the payroll process? Why?
What are the main classes of transactions and related account balances for the payroll process?
Grafite International Inc. (Grafite) is a manufacturer of various components used in the electricity distribution industry. It has factories across the country, and its customer base includes a
SCI makes clothes under its own labels, and also makes clothes to order under the labels of several large retailers. The large retailers usually order goods to be manufactured and held by SCI until
Which of the following is an auditor’s objective related to the valuation assertion for the auditee’s PPE and intangible assets?a. Obtain evidence that the auditee has legal rights to its
To determine whether accounts payable are complete, an auditor performs a test to verify that all merchandise received is recorded. Which of the following is the population for this test?a.
When evaluating inventory controls with respect to segregation of duties, which of the following would an auditor be least likely to do?a. Inspect documents.b. Make inquiries.c. Observe procedures.d.
Which of the following is the best audit procedure for determining the existence of unrecorded liabilities?a. Examine confirmation requests by creditors whose accounts appear on a subsidiary trial
To protect against the preparation of improper or inaccurate cash payments, which effective internal control procedure would be required for all cheques?a. Signed by an officer after necessary
Why must auditors understand the physical characteristics of inventoried assets?
How can analysis be used to discover understated expenses?
How can analysis be used to discover excess costs?
Explain two-direction sampling in the context of inventory test counts.
What is the main evidence used to audit depreciation expense?
What assertion(s) are addressed by a physical inspection of PPE?
What assertion is the auditor most concerned about in auditing the purchases, payables, and payments process? Why?
How do the results of the auditor’s control testing affect the plan to perform substantive procedures?
What substantive audit procedures are often performed for purchases, payables, and cash payments?
Why do auditors frequently choose to test controls in the purchases, payables, and payments process?
What are an auditor’s main concerns related to purchasing and payment transactions? Why?
What are management’s main control objectives related to the purchases process? Why?
What are the main classes of transactions and related account balances for the purchases process?
Specialties Papers Inc. (SPI) makes a unique type of paper that is used in specialized biohazard cleanup operations. Since customers cannot predict when they will need large supplies of the paper,
When an auditor selects a sample of shipping documents and takes the tracing direction of a test to find the related sales invoice copies, the evidence is relevant for deciding which of the
The negative request form of accounts receivable confirmation is most likely to be acceptable in which case? ASSESSED LEVEL OF NUMBER OF SMALL BALANCES IS CONTROL RISK RELATING PROPER CONSIDERATION
In the audit of cash and accounts receivable, the main emphasis should be on which assertion?a. Completeness.b. Existence.c. Obligations.d. Presentation and disclosure.
What is the best reason for prenumbering, in sequence, documents such as sales orders, shipping documents, and sales invoices?a. Enables determination of the accuracy of each document.b. Enables
Which of the following is the most effective technique for detecting suspicious cash transactions between inter-company banks?a. Review the composition of authenticated deposit slips.b. Review
The audit working papers often include an auditee-prepared aged trial balance of accounts receivable as of the balance sheet date. The aging is best used by the auditor for which of the
Which of the following would the auditor consider to be an incompatible operation if the cashier receives remittances?a. The cashier prepares the daily deposit.b. The cashier makes the daily deposit
What is the purpose of auditing inter-company bank transfers just before and after the year-end?
Why is it a control weakness if the same employee can authorize inventory transfers and record accounts receivable entries?
What purpose is served by prenumbering sales orders, shipping documents (packing slips and bills of lading), and sales invoices?
What is an example of a substantive audit procedure that provides evidence related to the existence of cash? of accounts receivable?
What assertion is the auditor most concerned about in auditing the revenues, receivables, and receipts process? Why?
Give two examples of dual-purpose tests that can be used in the revenue process.
What are some common substantive audit procedures for revenues, cash, and accounts receivable?
In what situations is it most likely that auditors will decide to test controls over revenue transactions?
What are an auditor’s main concerns related to revenue transactions? Why?
What are management’s main control objectives related to the revenue process? Why?
What are the main classes of transactions and related account balances for the revenue process?
Your audit firm is planning the audit of a company’s accounts receivable, which consists of 1,032 customer accounts with a total recorded amount (book value) of $300,000. You have already decided
N. Wolfe, PA, is planning the audit of Goodwin Manufacturing Company’s inventory. Wolfe plans to audit the inventory by selecting a sample of items for physical observation and counting, followed
Prepare tables like the one in Exhibit DC 10B-2 under different assumptions for the three combinations given below. Calculate monetary-unit sample sizes using the Poisson risk factors for a dollar
Write an explanation of the auditing theory and GAAS regarding sampling plans when the risk model causes the calculation of RIA (acceptable risk of incorrect acceptance) to exceed 50%.
Using the discovery sampling theory and R value tables, fill in the missing data in each case below. (a) (b) (c) Critical rate of occurrence 0.4% 0.5% 1.0% Required probability q9 q9 q9 Sample size
Using the table of random digits and the Poisson risk factor equation, find the computed UEL for each case below. (a) (b) (c) Risk of assessing control risk too low 0.01 0.05 0.10 Sample size 300 300
When you audited Kingston Company’s performance of its control procedures, you found four deviations of “wrong quantity billed” in a sample of 80 invoices. At the risk of assessing control risk
A local industrial company has two departments. In the larger department, about 45 sales invoices are completed each day; in the smaller department, about 15 invoices are completed each day. About
Why do you think the auditing profession has no definite rules for deciding the amount of an adjustment?
If you had to pick the one best measure for an amount to recommend for adjustment based on a sample, which one would you choose?
What is the UEL for the audit of 96 dollar units from the $300,000 accounts receivable, given the errors shown in Exhibit 10B–7, for RIA = 0.48? for RIA = 0.05? What interpretation can you give to
What is the risk-related interpretation of each of the UELs you calculated in question 10B-39?
Suppose you have audited a $600,000 recorded amount of inventory with a sample of 100 dollar units and their logical units and found no errors. What is the UEL at RIA = 0.05? RIA = 0.10? RIA = 0.25?
What happens when two dollar units for the sample fall in the same logical unit?
How does MUS sample selection produce an automatic stratification of choosing the high-value logical units in a control account balance?
What effect does the identification of individually significant logical units have on the size of the recorded amount population for MUS?
All other factors remaining the same, will an MUS sample size be larger, smaller, or the same for a larger tolerable misstatement?
All other factors remaining the same, will an MUS sample size be larger, smaller, or the same for a larger expected misstatement?
All other factors remaining the same, will an MUS sample size be larger, smaller, or the same for a larger risk of incorrect acceptance?
All other factors remaining the same, will an MUS sample size be larger, smaller, or the same for a larger book balance?
In what way does MUS resemble attribute sampling for control deviations?
What are the advantages and disadvantages of MUS?
What is the unique feature of MUS?
What are some of the other names for types of MUS?
What position is taken in GAAS with respect to the risk of incorrect rejection?
What considerations are important for determining the risk of incorrect rejection?
Why is the risk of incorrect acceptance considered more critical than the risk of incorrect rejection in connection with audit decisions about an account balance?
If audit risk (AR) is 0.015, inherent risk (IR) is 0.50, control risk (CR) is 0.30, and analytical procedures risk (APR) is 0.50, what risk of incorrect acceptance (RIA) is suggested by the expanded
Is there any benefit to be gained from using the audit risk model to calculate risk of incorrect acceptance?
Does use of the audit risk model to calculate risk of incorrect acceptance remove audit judgment from the risk determination process?
What is the objective of test of controls auditing with attribute sampling? of test of a balance with monetary-value sampling?
When you have several alternative test of controls sample sizes to choose from, how do you choose the one to audit?
What are the links that connect test of controls sample planning with substantive balance-audit sample planning?
What is the proper interpretation of the probability in discovery sampling?
What is the UEL for these data: sample size audited = 46, actual deviations found = 3, effectiveness risk = 35%?
What is the auditing interpretation of the sampling error–adjusted deviation rate (UEL)?
What steps are involved in selecting a sample using the systematic random selection method?
Are you required to use all five digits of a random number when you have a random number table, such as the one at the end of this appendix?
When you subdivide a population into two populations for attribute sampling, how do the two samples compare to the one sample that would have been drawn if the population had not been subdivided?
Test yourself to see whether you can get the sample size of 70 using the Poisson risk factor equation with these specifications: effectiveness risk = 5%, tolerable deviation rate = 9%, expected
What facts, estimates, and judgments do you need to figure a test of controls sample size using the R value tables and Poisson risk factors? What other relevant judgment is not used?
Test yourself to see whether you can get the sample size of 87 from the R value table with these specifications: effectiveness risk = 5%, tolerable deviation rate = 9%, expected errors = 3.
What facts, estimates, and judgments do you need to figure a test of controls sample size using the R value tables? What other relevant judgment is not used?
What professional judgment and estimation decisions must be made by auditors when applying statistical sampling in test of controls audit work?
What is the connection between material dollar misstatement assigned for the substantive audit of a balance and tolerable deviation rate used in a test of controls sample?
What is the connection between possible assessments of control risk and a judgment about tolerable rate, both considered prior to performing test of controls audit procedures?
What is the probability of finding one or more deviations in a sample of 100 units if the deviation rate in the population is only 0.5%?
What is the probability of finding one or more deviations in a sample of 100 if the population deviation rate is actually 2%?
What general considerations are important when an auditor decides on an acceptable risk of assessing control risk too low?
What general considerations are important when an auditor decides on an acceptable risk of assessing control too high?
If inherent risk (IR) is assessed as 0.90 and the detection risk (DR) implicit in an audit plan is 0.10, what audit risk (AR) is implied when the assessed level of control risk is each of 0.10, 0.50,

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