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principles of auditing and other assurance services

Questions and Answers of Principles Of Auditing And Other Assurance Services

An auditor is performing a sequential (stop-or-go) sampling plan. Assuming 95 percent desired reliability, and a .04 tolerable rate of deviation, what is the auditor's initial sample size?a. 50.b.
An auditor is performing a discovery sampling plan. Assuming population size is 6,759, the critical rate of deviation is .4 percent, and the desired probability of observing at least one deviation is
Which of the following sampling plans varies sample size?a. Attribute estimation sampling.b. Sequential sampling.c. Discovery sampling.d. Stratified sampling.Choose the best answer.
When using statistical sampling for attributes, an auditor should assess control risk at the maximum assuming:a. The sample rate of deviation plus the allowance for sampling risk is less than the
Which of the following statements is true about nonstatistical sampling in tests of controls?a. Nonstatistical sampling plans provide a quantitative measure of sampling risk.b. The auditor's judgment
Auditors do not often have the luxury of testing 100 percent of the transactions and events underlying account balances or classes of transactions. More often, they rely on samples, thereby reducing
The use of statistical sampling in a financial statement audit does not eliminate the need for professional judgment.Required: Identify and explain four areas where judgment may be exercised by an
A sample of 80 accounts payable vouchers is to be selected from a population of 3,200. The vouchers are numbered consecutively from 1 to 3,200 and are listed in a computer spreadsheet
Within the chapter, three alternative statistical sampling plans are introduced and illustrated for use when conducting tests of controls under the second standard of field work: attribute estimation
Sampling for attributes is often used to allow an auditor to reach a conclusion concerning the rate of occurrence in a population. A common use in auditing is to test the rate of deviation from a
Assume that your audit objective is to estimate a true but unknovirn population rate of deviation. The risk of assessing control risk too low is .05, the maximum tolerable rate of deviation is .07,
Walter Cole has decided to use statistical, rather than nonstatistical, sampling to test a client's control over purchase transactions. Specifically, Cole is testing whether vendor invoices are
Using Statistical Sampling to Achieve Audit Program Steps Robin Hamilton, a first-year staff accountant, is reviewing the following selected audit procedures scheduled for use during the
Assume you are considering controls over a client's purchasing activities, and estimate the following for acceptable risk of assessing control risk too low, tolerable rate of deviation, and expected
From prior audits of Bristol, Inc. and recent discussions with management, an auditor believes that sales invoices agree in detail with related shipping documents, with very few exceptions.
Assume your audit plan requires observing at least one deviation at a specified critical rate of deviation, and the expected rate of occurrence is zero. Population size is 7,750, the critical rate of
Statistical sampling is not a panacea and is not necessarily appropriate for all tests of controls; nonstatistical sampling is often applied by practicing auditors, and for good reason.Required: 1.
You are auditing the financial statements of Elite Corporation, a continuing audit client, for the year ended December 31, 1998. Unlike prior years, you decide to use a statistical sampling plan to
Although the attributes sampling plans introduced in this chapter are accurate portrayals of plans applied in practice, they are by necessity generic. Over the years, professional journals such as
Translating sampling risk and audit risk into layman's terms is rather straightforward:Sampling risk translates loosely to "the risk that what you're looking for is not where you're looking," and
In an audit of a corporation that has a bond issue outstanding, the trust indenture is reviewed and confirmation as to the issue is obtained from the trustee. List eight matters of importance to the
Robertson Company had accounts receivable of \(\$ 200,000\) at December 31, 200X, and had provided an allowance for uncollectible accounts of \(\$ 6,000\). After performing all normal auditing
Tom Jones, CPA, is auditing the financial statements of a manufacturing company with a significant amount of trade accounts receivable. Jones is satisfied that the accounts are properly summarized
Elizabeth Cole, the senior auditor-in-charge of the audit of Thorne Company, a small manufacturer, was busy writing the audit report for another engagement. Accordingly, she sent Martin Joseph, a
Your regular annual audit of Palisades, Inc., included the confirmation of accounts receivable. You decided to use the positive form of confirmation request. Satisfactory replies were received from
Walter Conn, CPA, is engaged to audit the financial statements of Matthews Wholesaling for the year ended December 31,200X. Conn obtained and documented an understanding of internal control relating
Select the best answer for each of the following and explain fully the reason for your selection.a. To determine that all sales have been recorded, the auditors would select a sample of transactions
A CPA's audit working papers include the narrative description below of the cash receipts and billing portions of internal control of Parktown Medical Center, Inc. Parktown is a small health care
Lawrence Company maintains its accounts on the basis of a fiscal year ending October 31. Assume that you were retained by the company in August to perform an audit for the fiscal year ending October
Milton Chambers, CPA, was retained by Hall Corporation to perform an audit of its financial statements for the year ending December 31. In a preliminary meeting with company officials, Chambers
As part of his audit of the financial statements of Marlborough Corporation for the year ended March 31, 200X, Mark Wayne, CPA, is reviewing the balance sheet presentation of a \(\$ 1,200,000\)
The July 31, 200X, general ledger trial balance of Aerospace Contractors, Inc., reflects the following accounts associated with receivables. Balances of the accounts are after all adjusting journal
Ming, CPA, is engaged to audit the financial statements of Wellington Sales, Inc., for the year ended December 31, 200X. Ming obtained and documented an understanding of Wellington's internal control
At the beginning of your annual audit of Crestview Manufacturing Company's financial statements for the year ended December 31, 200X, the company president confides in you that Henry Ward, an
Santa Rosa Corporation is a closely held furniture manufacturing company employing approximately one thousand employees. On December 15, the corporation retained the firm of Warren and Wood,
Select the best answer for each of the following and explain fully the reason for your selection.a. Instead of taking a physical inventory count on the balance sheet date the client may take physical
Royal Meat Processing Company buys and processes livestock for sale to supermarkets. In connection with the audit of the company's financial statements, you have prepared the following notes based on
David Anderson, CPA, is engaged in the audit of the financial statements of Redondo Manufacturing Corporation for the year ended June 30, 200X. Redondo's inventories at year-end include finished
Payne Press Company is engaged in the manufacture of large-size presses under specific contracts and in accordance with customers' specifications. Customers are required to advance 25 percent of the
Mellon, Inc., wants to use the same depreciation methods for financial statement purposes that the corporation uses for tax purposes. Is this appropriate? Explain.
Give the purposes of each of the following procedures that may be included in an internal control, and explain how each procedure contributes to strong internal control:a. Forecasting of expenditures
Select the best answer for each of the questions below and explain fully the reason for your selection.a. With respect to an internal control measure that will assure accountability for fixed asset
J. Barnes, CPA, has been retained to audit a manufacturing company with a balance sheet that includes the caption Property, Plant, and Equipment. Barnes has been asked by the company's management if
Nova Land Development Corporation is a closely held corporation engaged in purchasing large tracts of land, subdividing the tracts, and installing paved streets and utilities. The corporation does
Compare the confirmation of accounts receivable with the confirmation of accounts payable under the following headings:a. Generally accepted auditing procedures. (Justify the differences revealed by
In connection with their audit of the financial statements of Davis Company, the auditors reviewed the Federal Income Taxes Payable account.Required: a. Discuss reasons why the auditors should
Select the best answer for each of the following and explain the reason for your selection.a. Which of the following procedures is least likely to be completed before the balance sheet date?(1)
James Rowe, CPA, is the independent auditor of Raleigh Corporation. Rowe is considering the audit work to be performed in the accounts payable area for the current year's engagement.The prior year's
You were in the final stages of your examination of the financial statements of Scott Corporation for the year ended December 31, 20X0, when you were consulted by the corporation's president, who
During the current year, your audit client, Video Corporation, was licensed to manufacture a patented type of television tube. The licensing agreement called for royalty payments of 50 cents for each
You are engaged in the audit of the financial statements of Armada Corporation for the year ended August \(31,200 \mathrm{X}\). The balance sheet, reflecting all of your audit adjustments accepted by
Stan Jones, CPA, the continuing auditor of Sussex, Inc., is beginning the audit of the common stock and treasury stock accounts. Jones has decided to design substantive tests with control risk
Valley Corporation has a stock option plan designed to provide extra incentive to its officers and key employees. A note to the financial statements includes a description of the plan and lists the
Select the best answer choice for each of the following, and justify your selection in a brief statement.a. The audit procedure of confirmation is least appropriate with respect to:(1) The trustee of
You have been retained to audit the financial statements of Midwest Products, Inc., for the year ended December 31. During the current year, Midwest had obtained a long-term loan from its bank in
In your first audit of Hydrafoil Company, a manufacturer of specially designed boats capable of transporting passengers over water at very high speeds, you find that sales are made to commercial
The following long-term debt working paper (indexed K-1) was prepared by client personnel and audited by Judith Dranertz, an audit assistant, during the calendar year 20X1 audit of American
What is the independent auditors' obligation with respect to information in client-prepared annual reports to shareholders, other than the audited financial statements?
When auditors submit documents to their clients that contain audited financial statements, what are their responsibilities concerning information that accompanies the financial statements?
On July 27, 200X, Arthur Ward, CPA, issued an unqualified audit report on the financial statements of Dexter Company for the year ended June 30, 200X. Two weeks later, Dexter Company mailed annual
Select the best answer for each of the following and give reasons for your choice:a. Which of the following is the best way for the auditors to determine that every name on a company's payroll is
The following "conditions" are excerpts from a report of an operational audit of a company's human resources department:Condition I: The company's payroll is prepared by the human resources
City Loan Company has 100 branch loan offices. Each office has a manager and four or five employees who are hired by the manager. Branch managers prepare the weekly payroll, including their own
In connection with your audit of the financial statements of Hollis Mfg. Corporation for the year ended December 31, 20X3, your review of subsequent events disclosed the following items:a. January 7,
In connection with her audit of the financial statements of Flowmeter, Inc., for the year ended December 31, 20X3, Joan Hirsch, CPA, is aware that certain events and transactions that took place
The audit staff of Adams, Barnes & Co. (ABC), CPAs, reported the following audit findings in their audit of Keystone Computers & Networks (KCN), Inc.:1. Unrecorded liabilities in the amount of \(\$
Your client, Quaid Company, requests your assistance in rewriting the note presented below, to make it clearer and more concise.Required: Rewrite the note in accordance with your client's
Brown & Brown, CPAs, was engaged by the board of directors of Cook Industries, Inc., to audit Cook's calendar year 20X8 financial statements. The following report was drafted by an audit
Select the best answer for each of the following and explain fully the reason for your selection:a. A material departure from generally accepted accounting principles will result in auditor
Only one type of qualified opinion has qualifying language in both the scope paragraph and the opinion paragraph. What is the reason for this type of qualification?
Marshall and Wyatt, CPAs, have been the independent auditors of Interstate Land Development Corporation for several years. During these years, Interstate prepared and filed its own annual income tax
Howard Green is a partner with Cary, Loeb, \& Co. On February 20, Green completed the audit of Baker Manufacturing for the year ended last December 31. It is now March 1, and Green is about to sign
The auditors' report below was drafted by a staff accountant of Williams & Co., CPAs, at the completion of the audit of the financial statements of Lenz Corporation for the year ended March 31,
What type of audit report (unqualified opinion, qualified opinion, adverse opinion, disclaimer of opinion) should the auditors generally issue in each of the following situations? Explain.a.
What basic conditions must be met before auditors can issue an unqualified auditors' report?
On September 31, 20X1, White & Co., CPAs, was engaged to audit the consolidated financial statements of National Motors, Inc., for the year ended December 31, 20X1. The prior year con solidated
Johnson & Barkley, CPAs, audited the consolidated financial statements of Jordan Company for the year ended December 31, 20X7, and expressed an adverse opinion because Jordan carried its plant
Does the issuance of a special report based on agreed-upon procedures indicate an audit engagement or an accounting service? Why?
Explain why engagements to perform agreed-upon procedures are restricted to specified users.
Describe the possible forms of audit reports for a U.S.-based client that is issuing a report for use primarily outside the United States.
What is the purpose of a comfort letter? Discuss.
An accountants' report was appended to the financial statements of Worthmore, Inc., a public company. The statements consisted of a balance sheet as of November 30 and statements of income and
Rose & Co., CPAs, has satisfactorily completed the audit of the financial statements of Dale, Booster \& Co., a partnership, for the year ended December 31, 20X1. The financial statements that were
"When performing accounting services, accountants provide no assurance in their reports. These reports may therefore be considered special reports."Required: a. Do you agree or disagree with the
Select the best answer for each of the following and explain fully the reason for your selection.a. Which of the following is not typically performed when the auditors are performing a review of
The following report on the basic financial statements was drafted by a staff assistant at the completion of the review engagement of Delano Company, a continuing client for the year ended September
On March 12, 20X5, Brown & Brown, CPAs, completed the audit engagement of the financial statements of Modern Museum, Inc., for the year ended December 31, 20X4. Modern Museum presents comparative
The following report was drafted on October 25, 20X8, by Bill Major, CPA, at the completion of the engagement to compile the financial statements of Ajax Company for the year ended September 30,
Brown, CPA, received a telephone call from Calhoun, the sole owner and manager of a small corporation. Calhoun asked Brown to compile the financial statements for the corporation and emphasized that
Describe what is meant by "decision context enhancement services." How do they differ from traditional attestation services?
Explain why continuous auditing is potentially of more value than periodic auditing.
Contrast a report on an examination under the attestation standards with a report on an audit under generally accepted auditing standards.
Can CPAs typically attest to management's assertion about a company's internal control over financial reporting based on the work performed during an audit? Explain.
CPAs may issue several types of reports on management's assertion about a company's internal control (e.g., unqualified, qualified, disclaimer, modified, and adverse). Describe the circumstances in
Contrast a WebTrust engagement with a SysTrust engagement in terms of the subject matter and the intended users.
Describe the four principles of a reliable system included in the criteria used for a SysTrust engagement.
Electronic commerce has been growing at an accelerating rate, but many people believe that its growth has been somewhat inhibited by consumer concerns. The accounting profession developed WebTrust to
Carson Manufacturing Company has a number of suppliers that it provides with confidential operating information to allow the suppliers to do production planning. To facilitate this sharing of
Assume that you are a partner with the CPA firm of Katherine Williams & Associates LLP. The following report was drafted by your staff at the conclusion of an engagement to examine management's
Select the best answer for each of the following and explain fully the reason for your selection.a. A report on an attestation engagement should(1) State the nature of the client's control

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