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auditing international approach

Questions and Answers of Auditing International Approach

Following is a list of audit procedures used as tests of controls in the rev- enue process. 1. Observing and evaluating segregation of duties. 2. Testing of whether sales invoices are supported by
Audit sampling involves applying an audit procedure to less than 100 percent of the population. The fact that an audit involves sampling is noted in the scope paragraph of the auditor's report, which
What is an auditor's evaluation of a statistical sample for attributes when 8 3. a test of 50 documents results in three deviations if the tolerable deviation rate is 7 percent, the expected
As a result of sampling procedures applied as tests of controls, an auditor incorrectly assesses control risk lower than appropriate. The most likely explanation for this situation is thata. The
What is an auditor's evaluation of a statistical sample for attributes when a test of 50 documents results in three deviations if the tolerable deviation rate is 7 percent, the expected population
Which of the following statements is correct concerning statistical sampling in tests of controls?a. Deviations from controls at a given rate usually result in misstatements at a higher rate.b. As
The following table depicts the auditor’s estimated computed upper deviation rate compared with the tolerable deviation rate, and it also depicts the true population deviation rate compared with
The allowance for sampling risk wasa. 5% percent.b. 4% percent.c. 3% percent.d. 1 percent. lop85
In the evaluation of this sample, the auditor decided to increase the level of the preliminary assessment of control risk because thea. Tolerable deviation rate (7 percent) was less than the computed
Which of the following combinations results in the greatest decrease in sample size in an attribute sample for a test of controls? lop85
To determine the sample size for a test of controls, an auditor should con- sider the tolerable deviation rate, the desired confidence level, and the la Expected population deviation rate.b. Computed
Samples to test internal controls are intended to provide a basis for an au- ditor to conclude whethera. The controls are operating effectively.b. The financial statements are materially misstated.c.
An advantage of statistical sampling over nonstatistical sampling is that statistical sampling helps an auditor toa. Eliminate the risk of nonsampling errors.b. Reduce audit risk and materiality to a
How should the results of a nonstatistical test of controls sample be evalu- ated in terms of considering sampling risk? lop85
The auditor should evaluate the qualitative aspects of deviations found in a sampling application. What are the purposes of evaluating the qualitative aspects of deviations? lop85
In performing certain audit procedures, the auditor may encounter voided documents, inapplicable documents, or missing documents. How should each of these situations be handled within the
List the four factors that enter into the sample size decision. What is the relationship between sample size and each of these factors? lop85
After defining the population, the auditor must make what additional de- cisions concerning the population? lop85
Define attribute sampling. Why is this sampling technique appropriate for tests of controls? lop85
Distinguish between nonstatistical and statistical sampling. What are the advantages and disadvantages of using statistical sampling? lop85
List audit evidence types that do not involve sampling. lop85
Distinguish between Type I and Type II errors. What terms are used to de- scribe these errors when the auditor is conducting tests of controls and substantive tests? What costs are potentially
Define audit sampling. Why do auditors sample instead of examining every transaction? lop85
Learn how to apply nonstatistical sampling to tests of controls. lop85
Work through an example of attribute sampling. lop85
Learn the sampling requirements in auditing standards. [6] Learn how to apply attribute sampling to tests of controls. lop85
Learn the types of audit sampling. lop85
Learn the types of audit procedures that do and do not involve sampling. lop85
Understand basic sampling terminology. lop85
Learn the definition of audit sampling. lop85
Using an Internet browser, search for information on labor costs in the retail catalog industry (e.g., labor costs as a percentage of sales). p-968
Executive compensation ballooned in the 1990s, and as highlighted in Exhibit 12-1, there were notable compensation abuses. The most popu- lar form of executive compensation in the 1990s was company
Service Corporation hired an independent computer programmer to de- velop a simplified payroll application for its newly purchased computer. The programmer developed an online database microcomputer
James, who was engaged to examine the financial statements of Talbert Corporation, is about to audit payroll. Talbert uses a computer service center to process weekly payroll as follows. Each Monday
McCarthy, CPA, was engaged to audit the financial statements of Kent Company, a continuing audit client. McCarthy is about to audit Kent's payroll transactions. Kent uses an in-house payroll
A CPA's audit documentation (working papers) contains a narrative description of a segment of the Croyden Factory, Inc., payroll system and an accompanying flowchart as follows. Narrative The
Brownstein, CPA, has been engaged to audit the financial statements of Young Computer Outlets, Inc., a new client. Young is a privately owned chain of retail stores that sells a variety of computer
An auditor is most likely to perform substantive tests of details on payroll transactions and balances whena. Cutoff tests indicate a substantial amount of accrued payroll expense.b. The level of
Effective control activities over the payroll function may includea. Reconciliation of totals on job time cards with job reports by employ- ees responsible for those specific jobs.b. Verification of
If a control total was computed on each of the following data items, which would best be identified as a hash total for a payroll IT application?a. Total debits and total credits.b. Net pay.c.
In an IT payroll system environment, an auditor would be least likely to use test data to test controls related toa. Missing employee numbers.b. Proper approval of overtime by supervisors.c. Time
An auditor who is testing IT controls in a payroll system would most likely use test data that contain conditions such asa. Deductions not authorized by employees.b. Overtime not approved by
The purpose of segregating the duties of hiring personnel and distribut- ing payroll checks is to separate thea. Human resource function from the controllership function.b. Administrative controls
For an appropriate segregation of duties, journalizing and posting sum- mary payroll transactions should be assigned toa. The treasurer's department.b. General accounting.c. Payroll accounting.d. The
In meeting the control objective of safeguarding of assets, which depart- ment should be responsible for the following? Distribution of Paychecks a Treasurer b Payroll C Treasurer d Payroll Custody
Which of the following procedures would most likely be considered a weakness in an entity's internal controls over payroll?a. A voucher for the amount of the payroll is prepared in the general
Matthews Corporation has changed from a system of recording time worked on clock cards to an IT payroll system in which employees record time in and out with magnetic cards. The IT system
Identify three possible disclosure issues for payroll expense and payroll- related liabilities. p-968
Discuss how an auditor would audit the accrued payroll taxes account. p-968
List two substantive analytical procedures that can be used to test payroll expense accounts and payroll-related liabilities. p-968
Identify two tests of controls or tests of details of transactions that can be performed using CAATS for payroll transactions. p-968
List the inherent risk factors that affect the human resource management process. p-968
Why is it important for the client to establish control activities over the classification of payroll transactions? p-968
What are the key authorization points in a payroll system? p-968
Discuss the two control environment factors that an auditor should consider when examining the human resource management process. p-968
List the key segregation of duties in the human resource management process. What errors or fraud can occur if such duties are not segregated? p-968
What duties are performed within the personnel, timekeeping, and payroll- processing functions? p-968
Briefly describe each of the following documents or records: pay- roll register, payroll master file, and payroll master file changes report. p-968
What are the major types of transactions that occur in the payroll system? What financial statement accounts are affected by each of these types of transactions? p-968
Why is the payroll system of most entities computerized? p-968
Evaluate the audit findings and reach a final conclusion on payroll expense and payroll-related accrued expenses. p-968
Identify tests of details of account balances and disclosures used to audit payroll expense and payroll-related accrued expenses. p-968
Identify tests of details of transactions used to audit payroll expense and payroll-related accrued expenses. p-968
Identify substantive analytical procedures used to audit payroll expense and payroll-related accrued expenses, p-968
Relate the assessment of control risk to substantive procedures. p-968
Assess control risk for a human resource management process. [a] Identify key internal controls and develop relevant tests of controls for payroll transactions. p-968
Identify and evaluate inherent risks relevant to the human resource management process. p-968
Know the appropriate segregation of duties for the human resource management process. p-968
Understand the functions in the human resource management process. p-968
Identify and describe the types of documents and records used in the payroll application. p-968
Identify the types of transactions in the human resource management process and the financial statement accounts affected. p-968
Develop an understanding of the human resource management process. p-968
(Appendix) International Studies Using the Internet, compare the value of the dollar to the value of worldwide currencies. Find the value of the Japanese yen, British pound, Chinese yuan, Euro,
Visit the SEC's Web site (www.sec.gov), and identify a company that has been recently cited for financial reporting problems related to the recog- nition of expenses. Prepare a memo summarizing the
Visit the Web site of a catalog retailer similar to EarthWear Clothiers, and determine how it processes purchase transactions and recognizes expenses. Note that you may have to examine the entity's
Mincin, CPA, is the auditor of the Raleigh Corporation. Mincin is consid- ering the audit work to be performed in the accounts payable area for the current year's engagement. The prior year's working
Taylor, CPA, is auditing Rex Wholesaling for the year ended December 31, 2006. Taylor has reviewed internal control relating to the purchasing, re- ceiving, trade accounts payable, and cash
In obtaining evidence in support of financial statement assertions, the auditor develops specific audit procedures to access those assertions. Required: Your client is All's Fair Appliance Company,
Coltrane, CPA, is auditing Jang Wholesaling Company's financial state- ments and is about to perform substantive audit procedures on Jang's ? P-968
In 2006 Kida Company purchased more than $10 million worth of office equipment under its "special" ordering system, with individual orders ranging from $5,000 to $30,000. "Special" orders entail
The flowchart shown below depicts the activities relating to the pur- chasing, receiving, and accounts payable departments of Model Company, Inc. Required: Based only on the flowchart, describe the
Katz, CPA, has been engaged to audit the financial statements of Sommer Manufacturing, Inc. Sommer is a medium-size entity that produces a wide variety of household goods. All acquisitions of
When using confirmations to provide evidence about the completeness assertion for accounts payable, the appropriate population most likely would be La Vendors with whom the entity has previously done
Which of the following procedures is least likely to be performed before the balance sheet date?a. Test of internal control over cash.b. Confirmation of receivables. P-968
Purchase cutoff procedures should be designed to test whether all inventorya. Purchased and received before the end of the year was paid for.b. Ordered before the end of the year was received.c.
Which of the following audit procedures is best for identifying unrecorded trade accounts payable? Examination of unusual relationships between monthly accounts payable balances and recorded cash
To determine whether accounts payable are complete, an auditor per- forms a test to verify that all merchandise received is recorded. The population of documents for this test consists of alla.
For effective internal control purposes, which of the following individuals should be responsible for mailing signed checks?a. Receptionist. bTreasurer.c. Accounts payable clerk.d. Payroll clerk.
n a properly designed purchasing process, the same employee most likely would match vendors' invoices with receiving reports and alsoa. Post the detailed accounts payable records.b. Recompute the
Which of the following control activities is not usually performed in the accounts payable department?a. Matching the vendor's invoice with the related receiving report.b. Approving vouchers for
Internal control is strengthened when the quantity of merchandise ordered is omitted from the copy of the purchase order sent to thea. Department that initiated the requisition.b. Receiving
When goods are received, the receiving clerk should match the goods with The purchase order and the requisition form.b. The vendor invoice and the receiving report. The vendor shipping document and
In a properly designed accounts payable system, a voucher is prepared after the invoice, purchase order, requisition, and receiving report are verified. The next step in the system isa. Cancellation
What are the differences between accounts receivable and accounts payable confirmations? P-968
Identify four possible disclosure issues related to the purchasing process and related accounts. P-968
List the procedures an auditor might use to search for unrecorded liabilities. P-968
List two substantive analytical procedures that can test accounts payable. What potential errors or fraud can be identified by each analytical procedure? P-968
Identify two tests of controls that could be performed using computer- assisted audit techniques (CAATS) for purchase transactions. P-968
What control activities typically ensure that the occurrence, authoriza- tion, and completeness assertions are met for a purchase transaction? What tests of controls are performed for each of these
List two inherent risk factors that directly affect the purchasing process. Why should auditors be concerned about issues such as the supply of raw materials and the volatility of prices? P-968

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