Questions and Answers of Auditing Risk Based Approach

Locate and read the article listed below.Ruhnke, K., and M. Schmidt. (2014). Misstatements in financial statements: The relationship between inherent and control risk factors and audit adjustments.
Locate and read the article listed below.Cohen, J., L. M. Gaynor, G. Krishnamoorthy, and A. M. Wright. (2007). Auditor communications with the audit committee and the board of directors: Policy
Answer the following questions based on the information presented for Cloud 9 in Appendix B of this book and in the current and earlier chapters. You should also consider your answers to the case
Earlier this year, the International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB) jointly issued new requirements for recognizing revenue under IFRS and
Obtain the latest annual report of a large multinational Canadian company (for example, one of the large banks or mining companies). Required (a) What information is given in the annual report about
Locate and read the article listed below.Carson, E., N. L. Fargher, M. A. Geiger, C. S. Lennox, K. Raghunandan, and M. Willekens. (2013). Audit reporting for going-concern uncer- tainty: A research
Locate and read the article listed below.Chen, Yu, J. D. Eshleman, and J. S. Soileau. (2017). Business strategy and auditor reporting. Auditing, A Journal of Practice and Theory 36(21): 63-86.a. What
Obtain a copy of the 2017 Annual Report of Diageo.a. What information did the auditors provide about:i. The audit approach?ii. The auditing standards that the auditors followed?iii. KAMs?iv.
Refer to Exhibit 15.8. For each of the eight sections, identify the ISA that provides relevant guidance. You may find it helpful to refer to the Auditing Standards Exhibit inside the front cover of
Assume that you are preparing audit report with an unqualified opinion and no report modifications for a nonpublic U.S. company and are not sure how to describe the audit that was performed. Which
In the chapter, we learned about the going-concern uncertain- ties that the following companies have faced:a. ImmunoGenb. SearsUse online resources to determine the ultimate fate of these companies.
Locate and read the article listed below. Bhaskar, L. S., G. V. Krishnan, and W. Yu. (2017). Debt covenant violations, firm financial distress, and auditor actions. Contemporary Accounting Research
Locate and read the article listed below.Lobo, G.J., L. Paugam, D. Zhang, and J. Francois Casta. (2017). The effect of joint auditor pair composition on audit quality: Evidence from impairment tests.
Locate and read the article listed below.Peytcheva, M. and P. R. Gillett. (2011). How partners’ views influence auditor judgment. Auditing: A Journal of Practice & Theory 30(4): 285–301.a. What
Locate and read the article listed below. Bhattacharjee, S., K. K. Moreno, & T. Riley. (2012). The interplay of interpersonal affect and source reliability in auditors’ inventory judgments.
In May 2017, the PCAOB issued PCAOB Release No. 105-2017-027, which is a settled disciplinary order. Obtain a copy of this Release from the PCAOB website.a. This disciplinary order notes that the
In February 2017, the PCAOB issued an inspection report of Grant Thornton. The report is PCAOB Release No. 104-2017-027. Obtain a copy of this Release from the PCAOB website.a. Identify the audit
Refer to the Auditing Standards Exhibit inside the front cover of this textbook.Locate the AICPA standard relating to audit evidence-specific considerations for selected items (inventory), then
The PCAOB disciplined the Ibarra audit firm because the auditors failed to identify and address a departure from GAAP relating to their client’s valuation of inventory. GAAP requires inventory to
Refer to the Focus on Fraud feature “Inventory Valuation at MagnaChip Leads to Desired Increase in Gross Margins.” Obtain a copy of the SEC’s AAER for this case.a. The Focus on Fraud feature
Download and complete the following case, which relates to cash accounts.Borthick, A. F., G. P. Schneider, and T. R. Viscelli. (2017). Analyzing data for decision making: Integrating spreadsheet
Locate and read the article listed below.Perols, Johan L., R. M. Bowen, C. Zimmermann, and B. Samba. (2017). Finding needles in a haystack: Using data analytics to improve fraud prediction. The
Locate and read the article listed below.Christensen, B. E., R. J. Elder, and S. M. Glover. (2015). Behind the numbers: Insights into large audit firm sampling policies. Accounting Horizons 29(1):
Locate and read the article listed below. Cao, M., R. Chychyla, and T. Stewart. (2015). Big data analytics in financial statement audits. Accounting Horizons 29(2): 423–429.a. What is the purpose
Download and complete the following case, which relates to data analytics around purchasing card transactions:Dow, K. E., M. W. Watson, and V. J. Shea. (2013). Understanding the links between audit
Locate and read the article listed below.Dennis, S. A., and K. M. Johnstone. (2016). A field survey of contemporary brainstorming practices. Accounting Horizons 30(4): 449–472.a. What is the
Locate and read the article listed below.Mock, T. J., and H. Fukukawa. (2016). Auditors’ risk assessments: The effects of elicitation approach and assertion framing. Behavioral Research in
Locate and read the article listed below.Francis, J. R. (2011). A framework for understanding and researching audit quality. Auditing: A Journal of Practice and Theory 30(2): 125–152.a. What is the
Locate and read the article listed below.Franzel, J. M. (2014). A decade after Sarbanes-Oxley: The need for ongoing vigilance, monitoring, and research. Accounting Horizons 28(4): 917–930.a. What
With your instructor’s guidance, select a place where you have worked or an organization in which you have some acquaintance (relative or friend), and therefore have access. Choose one area of
Select a company where you have worked part-time or an organization in which you have some acquaintance (relative or friend) and therefore have access. Choose one area of operations (cash receipts,
This problem requires the use of ACL software, which can be accessed through the textbook website. Information about downloading and using ACL and the commands used in this problem can also be found
The Institute of Internal Auditors (IIA) is an international professional association of more than 185,000 members, with global headquarters in a suburb of Orlando, Florida. The IIA is recognized
The following questions deal with internal and governmental auditing. Choose the best response. a. Which of the following statements regarding the use of internal auditors is correct? (1)
The following questions deal with operational auditing. Choose the best response. a. Which of the following best describes the operational audit?(1) It concentrates on seeking aspects of
Distinguish between efficiency and effectiveness in operational audits. State one example of an operational audit examining efficiency and another examining effectiveness.
Identify the key required reports of the Single Audit Act and OMB Uniform Guidance.
In what ways is the Yellow Book consistent with the principles in AICPA auditing standards, and what are some additions and modifications?
Schroeder, CPA, has been engaged by Somerville Company to conduct agreed-upon procedures related to an investment performance schedule of the Red Cedar Investment Fund. Somerville has requested that
Nilsson, CPA, is conducting the audit of Ellison Waste Management Corporation. In addition, a supplemental negative assurance report is required for a major mortgage holder. The supplemental report
With greater frequency, organizations are issuing sustainability reports that describe how they engage in socially responsible activities. Many believe that users will increasingly want assurances
Jennifer Nantale is a new staff auditor on the audit engagement of Greenville Light & Sound, which is a publicly traded company with a calendar year end. The engagement team has completed its
You are doing a review services and related tax work engagement for QC Construction Company. You have made extensive inquiries of management about their financial statements and have concluded that
The following questions concern engagements other than the audit of financial statements performed by accountants. Choose the best response. a. Which of the following is a prospective financial
The following questions concern attestation engagements. Choose the best response. a. A Type 1 service auditor’s report on internal controls at a service organization (1) includes an
Describe the five Trust Services categories.
Explain the purpose of an attestation engagement and provide an example of an assertion a CPA could attest to.
What is meant by the term level of assurance? How does the level of assurance differ for an audit of historical financial statements, a review, a compilation, and a preparation engagement?
In your audit of Aviary Industries for calendar year 2019, you found a number of matters that you believe represent possible adjustments to the company’s books. These matters are described below.
The following items were discovered during the December 31, 2019, audit of the financial statements of Westmoreland Corporation: 1. The company’s financial statements did not include an
In March 2018, Toys R Us confirmed that it would close all of its U.S. stores after its plans to survive Chapter 11 bankruptcy proceedings failed. Visit the SEC’s Edgar database to locate the
Callie Peters is completing the audit of MakingNewFriends.com for the year ended December 31, 2019. Callie has been the audit manager on this engagement for the past three years. MakingNewFriends.com
The field work for the June 30, 2019, audit of Tracy Brewing Company was finished August 19, 2019, and the completed financial statements, accompanied by the signed audit reports, were mailed
In an audit of the Marco Corporation as of December 31, 2019, the following situations exist. No entries have been made in the accounting records in relation to these items. 1. During the year
The following questions concern contingencies, subsequent events, and communications with those charged with governance. Choose the best response. a. A client acquired 25 percent of its
How might the matters communicated to those charged with governance impact the nature of information included in the auditor’s report?
Describe what is meant by the term “non-GAAP measure” and summarize requirements regarding the inclusion of non-GAAP measures in financial statements filed with the SEC.
Distinguish between a management letter and a letter about significant deficiencies in internal control. Give examples of items that might be included in a management letter.
Five months after issuing an unqualified audit opinion and an unqualified opinion on internal controls for the audit of the year ended December 31, 2019, for a large publicly traded client, the
In the audit of the James Mobley Company, you are concerned about the possibility of contingent liabilities resulting from a patent dispute. Discuss the procedures you could use for an extensive
Identify and describe the transaction-related and balance-related presentation audit objectives. Explain how many of the procedures to test presentation objectives are integrated with tests performed
The amount of subjectivity involved in establishing fair value estimates can be complex for management responsible for making the fair value measurements and disclosures contained in financial
You are doing the first-year audit of Sherman School District and have been assigned responsibility for doing a four-column proof of cash for the month of October 2019. You obtain the following
You are auditing general cash for the Pittsburgh Supply Company for the fiscal year ended July 31, 2019. The client has not prepared the July 31 bank reconciliation. After a brief discussion with the
The auditor will select the MUS sample from the 3,140 inventory items described in Question 17-10 using systematic sampling. Assuming a random starting point of 123,608, identify the cumulative
Assume that the auditor has selected 100 sales invoices from a population of 100,000 to test for an indication of internal verification of pricing and extensions. Determine the CUER at a 10 percent
The following questions concern auditing year-end cash and financial instruments. Choose the best response. a. Which of the following controls would most likely detect a kiting scheme? (1)
The following questions deal with discovering fraud in auditing year-end cash. Choose the best response. a. Which of the following cash transfers results in a misstatement of cash at December
Explain the purpose of a proof of cash. List two types of misstatements it is meant to uncover.
Describe the purpose of obtaining a cutoff bank statement or obtaining online access to the client’s bank activity after year end.
Describe how electronic confirmation of cash balances through third-party intermediaries can improve the cash confirmation process.
Evaluate the effectiveness and state the shortcomings of the preparation of a bank reconciliation by the controller in the manner described in the following statement: “When I reconcile the bank
The table below is an excerpt from Apple Inc.’s Statement of Shareholders’ Equity for its fiscal year ended September 30, 2017: Required:a. How would the auditor verify the balances as of
The following audit procedures are commonly performed by auditors in the verification of owners’ equity: 1. Review articles of incorporation and bylaws for provisions about owners’
The Redford Corporation took out a 20-year mortgage on June 15, 2019, for $2,600,000 and pledged its only manufacturing building and the land on which the building stands as collateral. Each month
The ending general ledger balance of $568,000 in notes payable for the Kolman Production Company is made up of 20 notes to nine different payees. The notes vary in duration anywhere from 30 days to
Your client, EKB, Inc., prepared the following schedule for long-term debt for the audit of financial statements for the year ended December 31, 2019: Required:a. What type of evidence would you
The following questions concern auditor responsibilities related to the audit of the capital acquisition and repayment cycle. Choose the best response. a. An auditor is planning the test of
What is the role of an independent registrar? What information can be confirmed with a registrar?
Explain why proper presentation of debt balances and related disclosures is important from a creditor’s perspective.
You have been engaged for the audit of the Y Company for the year ended December 31, 2019. The Y Company is in the wholesale chemical business and makes all sales at 25 percent over
In an annual audit at December 31, 2019, you find the following transactions near the closing date: 1. Merchandise costing $625 was received on December 28, 2019, and the invoice was not
Latner Shoe Distributor Company maintains a large portion of the shoe merchandise in 10 warehouses throughout the eastern United States. This ensures swift delivery service for its chain of stores.
Your client, Ridgewood Heating and Cooling, specializes in residential air conditioning and heating installations. The company maintains an inventory of air conditioning units, furnaces, and air
The following questions deal with internal controls in the inventory and warehousing cycle and tests of details of balances for inventory. Choose the best response. a. Alpha Company uses its
The following questions deal with tests of details of balances and substantive analytical procedures for inventory. Choose the best response. a. An auditor selected items for test counts while
The following questions concern internal controls, and the testing of internal controls, in the inventory and warehousing cycle. Choose the best response. a. For control purposes, the quantities
Each employee of the Gedding Manufacturing Co., a firm using a job-cost inventory costing method, must reconcile his or her total hours worked with the hours worked on individual jobs using a job
Included in the December 31, 2019, inventory of the Wholeridge Supply Company are 2,600 deluxe ring binders in the amount of $5,902. An examination of the most recent acquisitions of binders showed
Tanvi Ghose is auditing payroll accruals for a manufacturing company. The client has accrued payroll taxes, accrued vacation pay, and accrued bonuses for salespersons as of the end of the fiscal
The following questions concern auditor responsibilities related to the audit of the payroll and personnel cycle. Choose the best response. a. In auditing the payroll function of a client, an
The following questions concern audit testing of the payroll and personnel cycle. Choose the best response. a. A common audit procedure in the audit of payroll transactions involves tracing
Your client, Schroeder Manufacturing Co., provided the following schedule of property, plant, and equipment for the year ended June 30, 2019. Balances have been agreed to the general ledger. As part
Your client, Edgartown Corporation, provided the following schedule of land, buildings, and equipment for the audit of financial statements for the year ended December 31, 2019: a. What type of
The following audit procedures were planned by Jack Kaguri, CPA, in the audit of the acquisition and payment cycle for DeWitt Products, Inc.: 1. Review the acquisitions journal for large and
The following questions concern internal controls and tests for property, plant, and equipment. Choose the best response. a. An audit firm performs a preliminary review of the client’s
The following questions concern the audit of income and expense accounts. Choose the best response. a. The auditor may note that annual depreciation expense is too low for a class of assets by
Explain why asset impairments are difficult to identify and audit. How might a client or auditor use a valuation specialist in determining the fair value of property and equipment?
Identify three asset accounts, three expense accounts, and three liability accounts typically associated with acquisition and payment cycle transactions.
You are part of the engagement team for the audit of Suzuki Manufacturing for the year ended December 31, 2019, and are responsible for auditing the acquisition cycle. Download the Excel file for the

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