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principles of auditing and other assurance services

Questions and Answers of Principles Of Auditing And Other Assurance Services

Briefly explain the concept of reasonable assurance.
What is an auditor's objective when obtaining an understanding of an entity's information system?
Identify and indicate the major components of each phase of an auditor's consideration of internal control.
What methods can an auditor use to document internal control?
What is the purpose of a transaction walk-through?
Briefly describe the process of identifying transaction cycles.
In your own words, briefly define what is meant by a "material weakness in internal control."
An integrated services digital network is a high-speed phone line that can be used to:a. Access software from a service bureau.b. Access software from the Internet.c. Enhance the processing
Information systems that access software from file servers and direct print jobs from print servers are called:a. Local area networks (LANs).b. Telecommunications channels.c. Intranets.d. Service
A public accounting firm has issued a report that refers to criteria established in Internal Control: Integrated Framework issued by the Committee of Sponsoring Organizations (COSO) of the Treadway
As part of a periodic planning exercise, a company discovers that an eastern European political dispute may interfere with supply sources. This is an example of:a. Control environment.b. Risk
Internal control should provide reasonable (but not necessarily absolute) assurance, which means that:a. Internal control is management's, not the auditor's, responsibility.b. An attestation
Which of the following statements is an example of an inherent limitation of internal control?a. The effectiveness of control procedures depends on segregation of duties.b. Procedures are designed to
An auditor considers internal control to:a. Determine whether assets are safeguarded.b. Suggest improvements in internal control.c. Plan audit procedures.d. Express an opinion.Choose the correct
After obtaining an understanding of an entity's internal controls, an auditor may assess control risk at the maximum for some assertions because the auditor:a. Believes internal control activities
After obtaining an understanding of an entity's internal controls and assessing control risk, an auditor may next:a. Perform tests of controls to verify management's assertions that are embodied in
The primary purpose of performing tests of controls is to provide reasonable assurance that:a. Internal control is effective.b. The accounting system is documented accurately.c. Transactions are
After obtaining an understanding of a client's controls, an auditor may decide to omit tests of the controls. Which of the following is not an appropriate reason to omit tests of controls?a. The
Which of the following statements is not true about test data?a. Test data should consist only of conditions that interest the auditor.b. Only one transaction of each type need be tested.c. Test data
Processing data through the use of simulated files provides an auditor with information about the effectiveness of control procedures. One of the computer assisted audit techniques that uses this
General controls relate to all computer activities and application controls relate to specific tasks. General controls include:a. Controls designed to assure that all data submitted for processing
Which of the following computer assisted audit techniques allows fictitious and real transactions to be processed together without client personnel being aware of the testing process?a. Parallel
Assume you have been requested by the Upton Corporation to prepare a report expressing an opinion on management's assertions about internal control. In each of the five years Upton has been an audit
An entity's internal controls should be designed to achieve a variety of objectives.Assume that an entity wishes to accomplish the following four control objectives:1. Transactions should be executed
An auditor must have a general understanding of how employees could make errors or intentionally commit and conceal fraud. Otherwise, the auditor would be unable to recognize potential deficiencies
You have been assigned to the audit of the F&S Savings and Loan Association. In preparing for the audit, you learn the following about F&S:Total assets approximate \($400\) million. F&S
An auditor who has been engaged to audit the financial statements of Ajax Inc. is ready to begin considering Ajax's internal controls.Required:1. What are the objectives of internal control?2. What
Apart from assessing control risk, an auditor's consideration of internal control lends insight into inherent limitations and significant deficiencies that ought to be communicated to management
The Committee of Sponsoring Organizations' COSO Report: Internal Control: Integrated Framework defines internal control as a process, effected by an entity's board of directors, management and other
The Auditor's Consideration of Internal Control Jim Harrison, CPA, is preparing a seminar on internal control for his entry-level professional staff. His predominant concern is to present the staff
An in-charge auditor is drafting interim tests of controls for the American Optical Company, a December 31 year end optics manufacturer located in Southbridge, Massachusetts.Tests will be performed
The town of Bullet Park operates a public parking lot near the railroad station for the benefit of town residents. The guard on duty issues annual prenumbered parking stickers to residents who submit
As part of your annual audit of Call Camper Company, you are responsible for preparing a report communicating internal control related matters noted in the engagement.Your working papers include a
Several days prior to completing field work at Ansonia Wire & Cable Co., the engagement partner. Colleen Kelly, discusses with Ansonia's CFO, Alan Rothstein, reportable conditions that her audit
During the course of a financial statement audit, an auditor may become aware of matters relating to the client's internal controls that may be of interest to the client's audit committee or to
Shannon Bracken, CPA, is considering internal control for the Rumford Company, a December 31 year end company. Rumford's purchasing, billing, receivables, payables, and job-order cost accounting
When a company converts from a manual to a computer accounting system, many records and documents become unnecessary and therefore are not prepared. With the audit trail eliminated or distorted, the
During your preliminary review of an entity's computer system, you note the following:a. Purchase orders initiated by line personnel within the manufacturing plant may be authorized and executed bv
When auditing a computer information system, the independent auditor should have a general familiarity with the effects of using a computer on the various characteristics of control and on the
Linder Company is completing the implementation of a new computerized inventory control and purchase order system. Linder's controller wants the controls that are incorporated into the software of
Of the four volumes in the COSO Report, one Committee of Sponsoring Organizations of the Treadway Commission (COSO). Internal Control: Integrated Framework. Evaluation Tools. New York: COSO, 1992.
The profession has argued for decades about the advisability of mandatory reporting on internal control by public companies and by governmental entities. In the 1970s and 1980s, the main players in
Threatened by a declining share of the long-distance phone service market, Noy Holland, Vice President, Consumer Service, KLR Communications, suggests at a sales retreat that KLR bank on the
What is meant by the term audit samplmgl
What is the purpose of attributes sampling in tests of controls?
What is nonsampling risk and how can it be controlled?
Identify the sampling risks inherent in sampling for attributes.
Compare and contrast nonstatistical and statistical audit sampling plans.
Why is it important that audit populations be defined properly?
How can an auditor achieve randomness when selecting a statistical sample?
What is the purpose of stratifying an audit population?
Identify the three parameters necessary to determine sample size in attribute estimation sampling plans.
Describe the alternative available to an auditor when an attributes sampling plan suggests that a control is not effective.
When is attribute estimation appropriate?
When is sequential sampling appropriate?
Under what conditions may discovery sampling be appropriate?
The practice of public accounting, and the preprofessional education for certified public accountants, have both been subject to considerable controversy and change recently.The controversy stems
Owing to serious criticisms of industrial era financial statements, the AICPA's Special Committee on Financial Repwrtiug (The Jenkins Committee) recommended sweeping changes to financial statements
Why is the market unlikely to permit the public accounting profession to develop measurement rules for assurance services when the same market granted the profession permission to develop measurement
Briefly trace the historical development of attestation standards and generally accepted auditing standards.
Why is independence important to the profession's acceptance as a major player in the assurance services market?
Distinguish between practitioner independence and profession independence.
What precautions can be expected of a prudent practitioner?
Identify and describe the quantitative criteria often used by practicing auditors when making materiality decisions.
What approaches are available for allocating a preliminary estimate of materiality to individual financial statement accounts?
Identify and describe the three component risks underlying audit risk for an individual financial statement account.
Assurance service engagements:a. Do not require independence.b. Require application of all attestation standards and GAAS.c. Are performed currently without professional standards.d. Do not require
A practitioner should comply with applicable attestation standards:a. On every attestation engagement, without exception.b. On every attestation engagement, except financial statement audits.c. On
Which of the following best describes the purpose of attestation standards and GAASla. Measures of quality for attestation and audit engagements.b. Methods to discharge professional responsibilities
What is the focus of the standards of field work for attestation and audit engagements?a. Guidelines for training, proficiency, and due care.b. Guidelines for the content of the practitioner's
Which of the following best describes due care?a. Tact in avoiding legal liability, b. Requisite skill and diligence.c. Reasonable infallibility.d. Freedom from undue influence.Choose the correct
The validity of evidence depends ultimately on the:a. Attestation standards and GAAS.b. Availability of subordinate evidence.c. Relevance of the evidence.d. Practitioner's professional
Practitioner independence:a. Minimizes risk.b. Helps achieve public confidence.c. Defends against liability.d. Achieves compliance with the standards of field work.Choose the correct answer.
Which of the following may be assessed nonquantitatively?Choose the correct answer. Inherent Control Detection Risk Risk Risk a. Yes. Yes No b. Yes No Yes C. No Yes Yes d. Yes Yes Yes
Materiality is:a. Addressed within a practitioner's attestation and audit reports.b. Expressed in terms of dollars.c. Measured using guidelines established by the AICPA.d. Not applicable to
Paul Dietz, CEO of the St. Joseph Medical Center, a two-hundred-bed hospital in northwest Indiana, has approached you, a partner in Dirksen & Co., a public accounting firm. The Medical Center's board
The AICPA's attestation standards and GAAS are classified as general standards, standards of field work, and standards of reporting, and are closely aligned with four concepts: independence, due
Interrupted by World War II, the Committee on Auditing Procedure, forebear to today's Auditing Standards Board, responded in the late 1940s to the SEC's 1941 call for auditing standards. The first
Generally accented auditing standards are an auditor's guidelines for selecting and designing detailed audit procedures, and an auditor typically applies selected procedures to determine whether an
Andrea Farell, a local CPA, has been approached by Whitely Corporation concerning audited financial statements for the year ended September 30, 1999. Whitely, a relatively new company, processes
The second general standard of GAAS states: In all matters relating to the assignment, an independence in mental attitude is to he maintained by the auditor or auditors. In addition to Rule 101 of
The public accounting firm, Rodgers and Burge, performed an audit of the Lexington Manufacturing Company's December 31, 1999 financial statements. The scope paragraph of the unqualified report reads
You are the managing partner of Berke & Co., CPAs. On February 2, 1999, you receive a letter from the president of Barbizon, Inc., requesting the following: "We have made arrangements with Farmers
You have been assigned by your firm to complete the audit of the financial statements of Carter Manufacturing Corporation. The senior accountant and an inexperienced assistant who began the
You are engaged in the audit of the financial statements of Rapid, Inc. and the Slow Corporation, a recently acquired subsidiary. In acquiring Slow Corporation during 1999, Rapid, Inc. exchanged a
Leer, CPA, has discussed various reporting considerations with two audit clients. The two clients asked how the following situations would affect the audit report.a. A client has a loan agreement
Smith, the owner of a small company, engaged Holmes, a CPA, to perform a financial statement audit. Smith told Holmes that an audit was to be completed in time to submit audited financial statements
Audit risk, the probability that an auditor may unknowingly fail to modify his or her opinion on materially misstated financial statements, occurs on all audit engagements, partly because auditors do
In planning a December 31, 1999 year end audit, you note that for the 1998 engagement your firm's assessment of audit risk was high, and the preliminary estimate of materiality, $1,200,000, was
The concept of materiality is important to the audit of financial statements and to an auditor's expression of an opinion on the statements.Required: Discuss the following:1. How is materiality (and
Richard Yates, CPA, is auditing the Levitan Corporation's financial statements for the year ended December 31, 1999. In prior years, Levitan's financial statements were audited by other auditors.
During the course of an audit engagement, an independent auditor gives serious consideration to the concept of materiahty, a concept that is inherent in the work of the independent auditor and is
Few organizations have had more impact on the profession's self-regulatory efforts than the Public Oversight Board (FOB). The FOB is a five-member autonomous monitoring mechanism that provides
Robert K. Elliott, KPMG Peat Marwick partner and chair of the AICPA's Special Committee on Assurance Services (the Elliott Committee), has been quite influential in awakening the profession to the
What does the language in Consumers Union Buying Guides and Consumer Reports have in contmon with reports issued by public accounting firms?
What message does an attestation report convey to readers?
On what should an auditor base his or her opinion about compliance with GAAP?
Under what conditions is a qualified audit opinion issued ordinarily?
Under what conditions is an adverse audit opinion issued ordinarily?
How does a standard audit report differ from a report which, owing to a scope limitation, disclaims an opinion?

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