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auditing international approach

Questions and Answers of Auditing International Approach

What are the key functions of the accounting system?
How do managers monitor control effectiveness? Why are controls monitored?
Bultz & Prime LLP is the external auditor for Bain Corp. You have been assigned to this audit. You are meeting with Chelsea, the Director of Finance, to discuss existing internal controls in
Four cases of control procedures used for financial statement items in different businesses are given below.Required:a. For each control procedure, evaluate whether there are significant risks in the
What internal control could be tested by the auditors of Mohit Corp. to support the objective of authorization for the cash account?a. A bank reconciliation is performed by a senior accountant on a
Mohit Corp. is a manufacturer of specialized diving gear. What internal control could be tested by its auditor to support the objective of proper period cutoff for their Cost of Goods Sold
Why does GAAS specifically require auditors to examine the adjusting entries made by management as part of the closing process at the end of the accounting period to prepare the financial
The auditee’s computerized exception-reporting system helps an auditor to conduct a more efficient audit because ita. Condenses data significantly.b. Highlights abnormal conditions.c. Decreases the
Control tests are required fora. Obtaining evidence about the financial statement assertions.b. Accomplishing control over the validity of recorded transactions.c. Analytical review of financial
Which of the following is a tool designed to help the audit team obtain evidence about the control environment and the accounting and control procedures of an audit client?a. A narrative memorandum
A bridge working paper shows the connection betweena. Control evaluation findings and subsequent audit procedures.b. Control objectives and accounting system procedures.c. Control objectives and
In most audits of large companies, internal control risk assessment contributes to audit efficiency, which meansa. The cost of year-end audit work will exceed the cost of control evaluation work.b.
In updating a computerized accounts receivable file, which of the following would be used as a batch control to verify the accuracy of the posting of cash receipts remittances?a. The sum of the cash
When performing an audit, the auditor must obtain an understanding of the internal controls relevant to the audit. Which of the controls below would be considered the least relevant to an audit?a.
A customer’s order was not approved for credit because the credit manager had not yet finished searching the customer’s credit rating information. Yet the goods were shipped, invoiced, and
Management’s responsibilities for internal control over financial reporting includea. Ensuring the fair presentation of the financial statements.b. Assessing material misstatements in the financial
The control objective intended to reduce the probability that a credit sale transaction will get debited to cash instead of accounts receivable isa. Validity.b. Classification.c. Accuracy.d.
A company’s application control procedure isa. An action taken by auditors to obtain evidence.b. An action taken by company personnel for the purpose of preventing, detecting, and correcting errors
The control objective intended to reduce the probability that fictitious transactions get recorded in the accounts isa. Completeness.b. Authorization. c. Proper period.d. Validity.
Which of the following can an auditor observe as a general control activity used by companies?a. Segregation of functional responsibilities.b. Management philosophy and operating style.c. Open lines
Explain why independent audit evidence needs to be persuasive.
The following information is available to Griffin & Fox, the auditors of Melba Inc.Required:For each of the following situations, discuss which source information would be considered of higher
Generally accepted standards for performing a financial statement audit require that auditors obtain sufficient appropriate evidence that provides a reasonable basis for forming an opinion on the
Some general audit procedures are (a) recalculation, (b) physical inspections, (c) confirmation (accounts receivable, cash, or other assets), (d) verbal inquiry, (e) inspection of internal documents,
As part of the review of McMaster Auto Parts, France met with the CEO to obtain an explanation for their decreasing gross margin percent for this year as compared to last year. The above procedure is
Marc, a junior auditor, attended the inventory count of Mira’s Office Shop, a large retailer of office supplies and electronics. Marc watched Mira’s employees doing the count and reported on
Bosso Properties Inc. records its real estate investment properties at fair value under IFRS. Sidra is performing the following procedures as part of the audit program for the valuation assertion for
Calvin is performing the following auditing procedures related to revenues: (i) obtaining production records of physical quantities sold and calculating an estimate of total sales dollars based on
Obtaining sufficient audit evidence about the sales revenues of a given company means that the auditora. Tested all sales transactions for the given period.b. Tested more than 50% of the sales
Confirmations of accounts receivable provide evidence primarily about these two assertions:a. Completeness and valuation.b. Valuation and ownership.c. Ownership and existence.d. Existence and
The objective in an auditor’s review of credit ratings of an auditee’s customers is to obtain evidence related to management’s assertion abouta. Completeness.b. Existence.c. Ownership.d.
Tima is working on the audit of Stellar Productions Inc. Today she is touring the factory with the production manager, and she is discussing the procedures for recording the flow of goods through the
What is considered the most important content of the current audit files?
What action is required if an auditor cannot obtain sufficient appropriate audit evidence?
Distinguish between the appropriateness of audit evidence and the sufficiency of audit evidence.
What is the relationship between assertions and the relevance of audit evidence?
Why must the entire confirmation process be controlled by the audit firm?
Define the following terms: vouching, tracing, and scanning.
How does the evidence requirement for an audit opinion differ from that of other types of professional accounting engagements?
What is the purpose of audit documentation? How is it created in an audit engagement? Why do GAAS require it to be complete and clear?
What do audit programs contain? How are they used in an audit?
How do the evidence techniques relate to audit procedures?
How does an auditor determine that the evidence obtained is sufficient to support the audit conclusion?
What makes evidence relevant?
Explain what sufficient appropriate audit evidence means in GAAS.
What are two important qualities of evidence that increase its reliability?
Why does corroboration increase the reliability of evidence?
Identify two points in the audit process when analytical procedures are required by GAAS, and explain why they are considered necessary.
Explain why analytical procedures are used throughout the audit process.
Explain why substantive audit procedures provide direct evidence relevant to the audit opinion.
Explain why risk assessment and control testing procedures give indirect rather than direct audit evidence relevant to the audit opinion.
Identify four main purposes of auditing procedures used in the three steps of the audit process.
List and describe six main techniques used to gather audit evidence.
Explain the logical argumentation approach that underlies how an auditor uses audit evidence to support reasonable assurance.
Explain why independent audit evidence needs to be persuasive.
How are auditors’ judgments about the quality or effectiveness of internal control affected by anchoring?
Why should auditors think about what could go wrong in a particular assertion?
Briefly explain the five principal assertions that can be made in management’s financial statements, and then describe the auditors’ objectives related to each.
Why does an auditor review management’s significant accounting policy choices and compare them with those of significant industry competitors?
What are some gimmicks that management can use to manipulate earnings?
How do an organization’s business risks relate to its strategies and business processes?
How do business processes relate to the financial statements?
What is the goal of business analysis?
Explain the risk-based approach to the audit. What is its purpose?
Why do auditors need an understanding of the auditee’s accounting processes?
Identify the main accounting processes typically found in a manufacturing business.
What are accounting processes, and how do they relate to business processes?
What are the sources of assurance available for an assertion? How do they relate to the audit risk model components?
What is the main use of the audit risk model for audit planning?
What does it mean to say detection risk will be low? high? Give an example of an audit scenario where the acceptable detection risk would be high and one where it would be low.
State the audit risk model formula, and explain the relations among the factors it includes.
Why would an auditor want to accept much lower audit risk on a particular audit compared to another? On what factors would this choice depend?
What are the components of the audit risk model, and how are they defined?
How does the level of audit risk an auditor accepts when giving an audit opinion relate to the ethical requirement to use due care?
How does the concept of reasonable assurance relate to the concept of audit risk?
How is the term audit risk defined in GAAS?
What does it mean to say that the auditor assesses risk of material misstatement at the assertion level?
What two types of risk factors create the risk of material misstatement? What is the auditor’s responsibility related to the risk of material misstatement in the auditee’s financial statements?
How is it helpful to an auditor to apply the assertions to the classes of transactions, account balances, and disclosures in the financial statements? Discuss how assertions are useful in the risk
List five main assertions that can be used in practice, and give an example of each assertion for these accounts/transactions: Cash, Accounts Payable, Revenues.
What does the term assertion mean in financial statement auditing? What are the different aspects of financial statements that assertions relate to?
Why do auditors need to understand how management assesses risks?
How are risks related to financial information and disclosure managed?
What are business risks? What are management’s main tools for managing business risks?
What are management’s responsibilities related to the risk of material misstatement in the financial statements?
What do auditors achieve by assessing risk of material misstatement at the financial statement level?
Describe what is meant by saying that an audit under GAAS is risk based.
What does the term risk mean?
What might two endorsements on a cancelled cheque mean?
What account could you audit to determine whether a company had recorded fictitious sales?
How could you tell whether the amount on a cheque has been increased after it was paid by a bank?
Describe three types of manipulations that could produce materially misleading financial statements.
If sales and income were overstated by recording a false cash sale at the end of the year, what dangling debit might give the scheme away?
What might happen if a person could authorize medical insurance claims and enter them into the system for payment without supervisory review?
Bruce Barnett Investment (BBI) is a prominent hedge fund on Bay Street in Toronto. Bruce founded the hedge in 2001 and today, BBI has 41 employees and manages close to $1 billion in assets.Your
François is the manager of a restaurant. He has been noticing that the inventory of wine is decreasing and bottles often go missing, as they frequently cannot reconcile the beginning inventory,
Buddiez is an increasingly popular social network platform, and Kristy, a junior auditor, is helping with the risk of fraud assessment for this year’s audit of the financial statements. She has
In accordance with CAS 240, when an auditor is inquiring about the risk of fraud and errors, what would the auditor not be required to ask management about?a. Management’s assessment of the risk
When an auditor notices evidence of a potential fraud while performing an audit, the auditor shoulda. Only report it to the company’s management if the impact is believed to be material.b. Perform
Which of the following situations in the purchasing process creates the highest risk of fraud by making payments to a fictitious supplier?a. The company has a comprehensive code of ethical conduct

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