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auditing international approach

Questions and Answers of Auditing International Approach

Perry \& Price audited Bond's consolidated financial statements for the years ended December 31, 19X4 and 19X3. These financial statements are being presented on a comparative basis and an
You were recently appointed to a committee formed by the state CPA society to investigate possible substandard reporting practices. The following report was submitted to the committee, and, as the
A number of years ago a large public accounting firm used a form of the opinion paragraph shown below.In our opinion, the financial statements referred to above present fairly (in all material
On completion of fieldwork on September 23, 19X5, the following standard report was rendered by Timothy Ross to the directors of The Rancho Corporation.{Report of Independent Auditors}To the
Richard Adkerson, CPA, was reviewing with the president of Central Pond Shipping Com pany the standard audit report he intended to issue to this new client. The president had the following comments
Your client, Echo Software Systems, recently changed the wording of its sales contracts to permit its customers to receive software upgrades at no charge if its competitors upgrade their products.
You have been engaged to audit the financial statements of Gridley Corporation for the year ended December 31, 19X7. You completed the work in the client's office on February 22, 19X8 and returned
The following audit report contains departures from the standard wording. Identify the word, phrase, or omission that departs from the standard wording and state why the word, phrase, or omission
The management of Onbeach Supply Company desires to include four years' financial statements in this year's annual report. R. Vaughn, CPA, has audited the financial statements of the current and
The following auditor's report was drafted by a staff accountant of Jones \& Jones, CPAs, at the completion of the audit engagement on the financial statements of Adams Mining, Inc., for the year
In the current year the operating revenue of State Mountain Gas Company declined to \(\$ 1.7\) million from \(\$ 2.2\) million in the prior year. Owing to an extraordinary item, however, net income
For the year ended December 31, 19X8, Friday \& Company, CPAs (Friday), audited the financial statements of Johnson Company and expressed an unqualified opinion on the balance sheet only. Friday did
The fieldwork on Triple Steel Corporation has been completed. You were responsible for preparing the preliminary draft of the financial statements and auditors' report. You had the draft statements
Before the present form of the standard audit report was adopted, the following form was used:We have examined the balance sheet of \(\mathrm{X}\) Company as of December 31, 19X7, and the related
List the modifications of the standard audit report that normally do not result in a qualification, a disclaimer, or an adverse opinion.
When more than one auditor is involved in an audit of a company's financial statements, what two decisions about reporting must the principal auditor make?
What disclosure is made in the principal auditors' report if they decide to assume responsibility for other auditors' work? If they decide not to assume responsibility for other auditors' work?
Give three examples of matters that might be emphasized in an explanatory paragraph of the audit report.
Under what conditions should the phrase "with the foregoing explanation" be used in the opinion paragraph to refer to a matter emphasized in an explanatory paragraph?
Under what condition may an auditor issue an unqualified opinion on financial statements containing a departure from an accounting principle published by a body designated by the AICPA Council to
What modification is made to an auditor's report if accounting principles are not applied consistently?
List the factors that affect comparability of financial statements between years and result in a modification of the standard auditor's report.
List the factors that affect comparability of financial statements between years but would normally not result in a modification of the standard auditor's report.
List two circumstances that may result in a qualification, a disclaimer, or an adverse opinion.
Explain the meaning and use of the "except for" qualification.
Where should a qualifying phrase be placed if the auditor intends to qualify all of the basic financial statements?
What is the purpose of a disclaimer of opinion and when is it used?
Under what condition would an auditor issue a disclaimer of opinion rather than an "except for" qualification?
What is a piecemeal opinion, and under what conditions is it appropriate for the auditor to use it?
What does an adverse opinion state and when is it used?
How does an auditor decide whether to use an "except for" qualification or an adverse opinion?
List three reasons for limitations on the scope of an auditor's work.
Discuss the forms an auditor's report may take as the result of a scope limitation.
How is the scope paragraph of an auditor's report modified if the auditor's scope has been limited so that a qualification is required? A disclaimer is required?
Why should a scope limitation not be discussed in a footnote?
What forms of audit report are required to describe departures from generally accepted accounting principles and when is each used?
Why are qualifications and adverse opinions because of inadequate disclosure rare in practice?
A principal auditor decides not to refer to the audit of another CPA who audited a subsidiary of the principal auditor's client. After making inquiries about the other CPA's professional reputation
In which of the following situations would an auditor ordinarily issue an unqualified audit opinion without an explanatory paragraph?a. The auditor wishes to emphasize that the entity had significant
An auditor includes a separate paragraph in an otherwise unmodified report to emphasize that the entity being reported on had significant transactions with related parties. The inclusion of this
Eagle Company's financial statements contain a departure from generally accepted accounting principles because, due to unusual circumstances, the statements would otherwise be misleading. The auditor
When an entity changes its method of accounting for income taxes, which has a material effect on comparability, the auditor should refer to the change in an explanatory paragraph added to the
Miller Company uses the first-in, first-out method of costing for its international subsidiary's inventory and the last-in, first-out method of costing for its domestic inventory. Under these
An auditor concludes that there is substantial doubt about an entity's ability to continue as a going concern for a reasonable period of time. If the entity's disclosures concerning this matter are
An auditor who qualifies an opinion because of an insufficiency of evidential matter should describe the limitation in an explanatory paragraph. The auditor should also refer to the limitation in the
Restrictions imposed by a client prohibit the observation of physical inventories, which account for 35 percent of all assets. Alternative audit procedures cannot be applied, although the auditor was
Park, CPA, was engaged to audit the financial statements of Tech Co., a new client, for the year ended December 31, 19X3. Park obtained sufficient audit evidence for all of Tech's financial statement
A limitation on the scope of an audit sufficient to preclude an unqualified opinion will usually result when managementa. Is unable to obtain audited financial statements supporting the entity's
Green, CPA, was engaged to audit the financial statements of Essex Co. after its fiscal year had ended. The timing of Green's appointment as auditor and the start of field work made confirmation of
If a publicly held company issues financial statements that purport to present its financial position and results of operations but omits the statement of cash flows, the auditor ordinarily will
When an auditor qualifies an opinion because of inadequate disclosure, the auditor should describe the nature of the omission in a separate explanatory paragraph and modify the Introductory paragraph
An auditor's report that refers to the use of an accounting principle at variance with generally accepted accounting principles contains the words, "In our opinion, with the foregoing explanation,
Items a through \(\mathrm{h}\) present various independent factual situations an auditor might encounter in conducting an audit. List A represents the types of opinions the auditor ordinarily would
In which of the following circumstances would an auditor be most likely to express an adverse opinion?a. Information comes to the auditor's attention that raises substantial doubt about the entity's
The auditors' report below was drafted by Moore, a staff accountant of Tyler \& Tyler, CPAs, at the completion of the audit of the financial statements of Park Publishing Co., Inc., for the year
You are the auditor of X Company, and during your audit for the year ended September 30, 19X7, you note that approximately 76 percent of the company's sales were to one customer. In the prior year,
Y Company has never been audited and is to be acquired by one of your present clients and combined on a pooling-of-interest basis. Your client includes ten years of financial statements in its annual
In connection with your audit of Z Company for the year ended December 31, 19XX, you find that as a result of an improper cutoff of inventory shipments at the end of the year, approximately \(\$
You have been engaged to audit W Company, a new company formed to explore for oil and gas. During the year, W Company acquired several large undeveloped lease holdings for \(\$ 1\) million and
During the current year, your client, U Company, acquired B Company in a business combination accounted for as a pooling-of-interest. B Company previously had reported on a fiscal year ending on June
As a normal procedure in your audits, you request management of your clients to furnish you a management representation letter including, among other things, representations that the financial
During 19X7, R Company, your client, changed its method, effective January 1, 19X7, of computing inventory cost from the average cost method to the last-in, first-out method. This change had the
You recently were engaged to audit the financial statements of P Company, a company that previously has not been audited. During your work, you learn that three years ago a serious fire destroyed
The auditor's report below was drafted by Miller, a staff accountant of Pell \& Pell, CPAs, at the completion of the audit of the consolidated financial statements of Bond Co. for the year ended July
The partner in charge of the audit of Weishar Inc. began to draft the audit report for the year ended June 30, 19X2. She completed the first paragraph, which is shown below, before being called to
The following circumstances affect the comparability of financial statements between periods. The effect is material unless otherwise indicated. For each circumstance, state whether the auditor's
What is the purpose of tests of controls?
Describe the four procedures that can be used in conducting tests of controls.
Why are some tests of controls performed during the interim period?
What four factors should the auditor consider in deciding what evidence, if any, needs to be obtained during the period from the interim date to the balance sheet date?
Sampling is more likely to be used for certain types of tests of controls. What types are these?
For what types of procedures would sampling be appropriate?
For purposes of tests of controls, what is a deviation?
Give three examples of a sampling unit.
What is the difference between block sampling and haphazard sampling?
What is the difference between unrestricted random selection and systematic sampling?
Name the factors the auditor should consider in deciding on the size of a sample for a test of controls.
In performing the sampling plan, how should the auditor classify unlocated documents?
List the decision rules the auditor can use in evaluating sample results.
When nonstatistical sampling is used, two decisions are made judgmentally. These two are determined scientifically when statistical sampling is used. What are these two decisions?
In what situation is the assessed level of control risk most likely to be maximum?
What assessed level of control risk requires documentary support?
Describe the three ways in which substantive tests may be revised.
What is a reportable condition?
To whom should reportable conditions be communicated?
What is a material weakness?
Which of the following statements is true?a. Tests of controls are necessary if the auditor plans to use the primarily substantive approach.b. Tests of controls are necessary if the auditor plans to
In considering the evidence needed to assess control risk during the period from interim to year-end, all of the following should be considered except thea. Significance of the assertion being
The assessment of control risk can be made at any of the following times excepta. Immediately after obtaining an understanding of internal control.b. After some tests of controls are performed
Which of the following statements is true?a. If control risk is assessed at maximum, the nature of related substantive tests should be changed from more to less effective.b. If control risk is
Which of the following would not be a method used to conduct tests of controls?a. Inquiry.c. Confirmation.b. Walkthrough.d. Observation.
What is the reason for ensuring that every copy of a vendor's invoice has a receiving report?a. To ascertain that merchandise billed by the vendor was received by the company.b. To ascertain that
Which of the following procedures is most likely to ensure that employee job time tickets are accurate?a. Approve the payroll voucher in the accounts payable department.b. Keep employment
Which of the following audit techniques most likely would provide an auditor with the most assurance about effectiveness of the operation of an internal control procedure?a. Inquiry of client
The likelihood of assessing control risk too low is the risk that the sample selected to test controlsa. Does not support the tolerable misstatement for some or all of management's assertions.b. Does
The likelihood of assessing control risk too low relates to thea. Effectiveness of the audit.b. Efficiency of the audit.c. Preliminary estimates of materiality levels.d. Allowable risk of tolerable
Which of the following is not an auditing procedure that is commonly used in performing tests of controls?a. Inquiry.c. Comparison.b. Observation.d. Inspection.
The proper use of prenumbered termination notice forms by the payroll department should provide assurance that alla. Uncashed payroll checks were issued to employees who have not been terminated.b.
As a result of tests of controls, an auditor assessed control risk too low and decreased substantive testing. This assessment occurred because the true deviation rate in the population wasa. Less
After obtaining an understanding of internal control and assessing control risk, an auditor decided to perform tests of controls. The auditor most likely decided thata. It would be efficient to

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