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principles of auditing and other assurance services

Questions and Answers of Principles Of Auditing And Other Assurance Services

The following questions concern internal controls in the inventory and warehousing cycle. Choose the best response.a. In a company whose materials and supplies include a great number of items, a
The following questions concern testing the client's internal controls for inventory and warehousing. Choose the best response.a. When an auditor tests a client's cost accounting records, the
The following questions deal with tests of details of balances and analytical procedures for inventory. Choose the best response.a. An auditor would most likely learn of slow-moving inventory
Following are audit procedures frequently performed in the inventory and warehousing cycle for a manufacturing company.1. Compare the client's count of physical inventory at an interim date with the
You encountered the following situations during the December 31, 2001, physical inventory of Latner Shoe Distributing Corp.a. Latner maintains a large portion of the shoe merchandise in 10 warehouses
In connection with her examination of the financial statements of Knutson Products Co. Ltd., an assembler of home appliances, for the year ended May 31, 2002, Ray- monde Mathieu, public accountant,
The table below shows sales, cost of sales, and inventory data for Aladdin Products Supply Inc., a wholesale distributor of cleaning supplies. Dollar amounts are in millions.Requireda. Calculate the
In an annual audit as at December 31, 2001, you find the following transactions near the closing date:1. Merchandise costing $1,822 was received on January 3, 2002, and the related purchase invoice
You are testing the summarization and cost of raw materials and purchased part inventories as part of the audit of Rubber Products and Supply Corp. There are 2,000 inventory items with a total
You are assigned to the December 31, 2001, audit of Sea Gull Airframes, Inc. The company designs and manufactures aircraft superstructures and airframe components.You observed the physical inventory
in the amount of $200. This bill was entered in the freight-in account. Virtually all freight was for the metal formers.This is the first time Sea Gull Airframes has been audited by your
Rakhi Grande has been assigned to the audit of Pro¬ duce Distributors Inc. (PDI), a new client with his firm, Beaver & Jones, Chartered Accountants. The company is a wholesale distributor of
The following multiple-choice questions concern interest-bearing liabilities. Choose the best response.a. The auditor's program for the examination of long-term debt should include steps that require
The following questions concern the audit of accounts in the capital acquisition and repayment cycle. Choose the best response.a. During an examination of a public company, the auditor should obtain
The ending general ledger balance of \($186,000\) in notes payable for Sisam Manufacturing Inc. is made up of 20 notes to 8 different payees. The notes vary in duration any¬ where from 30 days to 2
The following covenants are extracted from the indenture of a bond issue outstanding from McMullen Corp. The indenture provides that failure to comply with its terms in any respect automatically
Evangeline Ltd. took out a 20-year mortgage on June 15, 2002, for \($2,600,000\) and pledged its only manufacturing building and the land on which the building stands as collateral. Each month
In 1956, Claudette Andre and her brothers took over a small manufacturing company started by their father as a sideline to their regular occupations. What began as a small informal partnership
The controller of Abracadabra Limited has presented Joan Smylowsky, the company's auditor, with the financial statements for the year ended June 30, 2002. The statements include the following
List five tests of controls that can be performed for the payroll cycle, and state the purpose of each control being tested.
Explain why the percentage of total audit time in the cycle devoted to performing tests of controls is usually far greater for the payroll and personnel cycle than for the sales and collection cycle.
The following questions concern internal controls in the payroll and personnel cycle. Choose the best response.a. A factory supervisor at Steblecki Corporation discharged an hourly worker but did not
The following questions concern audit testing of the payroll and personnel cycle. Choose the best response.a. A computer operator perpetrated a theft by preparing erroneous T-4 forms. The operator's
The following misstatements are included in the accounting records of Lathen Manufacturing Ltd.:1. Direct labour was unintentionally charged to job 620 instead of job 602 by the payroll clerk when he
The following audit procedures are typical of those found in auditing the payroll and personnel cycle.1. Examine evidence of double-checking payroll wage rates and overtime calculations by an
Kowal Manufacturing Corp. employs about 50 pro¬ duction workers and has the following payroll procedures:The factory supervisor interviews applicants and on the basis of the interview either hires
During the first-year audit of Omato Wholesale Stationery Ltd., you observe that commissions amount to almost 25 percent of total sales, which is somewhat higher than in previous years. Further
Dunlop Ltd., a property management company, has a subsidiary, Riber Ltd., that is constructing an office building to be operated as a rental property by Dunlop. The building is being constructed by
Carrie Ahwahli is the auditor of Abbolah Ltd., a large manufacturing company with several plants across Canada. All accounting records are automated using a combination of software packages and
In many companies, labor costs represent a substantial percentage of total dollars expended in any one account¬ ing period. One of the auditor's primary means of verifying payroll transactions is by
What are the similarities and differences in the objectives of the following two procedures?1. Select a random sample of receiving reports and trace them to related vendors' invoices and acquisitions
The following questions concern internal controls in the acquisition and payment cycle. Choose the best response.a. Effective internal control over the purchasing of raw materials should usually
The following questions concern accumulating evidence in the acquisition and payment cycle. Choose the best response.a. In comparing the confirmation of accounts payable with suppliers and
The following misstatements are included in the accounting records of Westgate Manufacturing Corp.1. Telephone expense (account 2112) was unintentionally charged to repairs and maintenance (account
The following auditing procedures were performed in the audit of accounts payable:1. Examine supporting documents for cash disbursements several days before and after year end.2. Examine the
In testing cash disbursements for Immanuel Klein Ltd., you perform minimum tests of 15 transactions as a means of assessing control risk. In your tests, you discover the following exceptions:1. Two
You are the staff auditor testing the combined purchase and cash disbursements journal for a small audit client. Internal control is regarded as reasonably effective, considering the number of
You were in the final stages of your examination of the financial statements of Ozine Corporation for the year ended December 31, 2001, when you were consulted by the corporation's president. He
As part of the June 30,2002 audit of accounts payable of Milner Products Ltd., the auditor sent 22 confirmations of accounts payable to vendors in the form of requests for statements. Four of the
You have been assigned to the audit of Compu Co. (CC), a new client of your firm, Neer & Farr, Chartered Accountants. You are responsible for the accounts payable section of this year's audit. You
List and briefly state the purpose of all audit procedures that might reasonably be applied by an auditor to determine that all capital assets retirements have been recorded on the books.
In auditing amortization expense, what major considerations should the auditor keep in mind? Explain how each can be verified.
Explain the relationship between the tests of controls for the acquisition and payment cycle and the tests of details of balances for verification of prepaid insurance.
Explain the relationship between accrued rent and the tests of controls for the acquisition and payment cycle. Which aspects of accrued rent are not verified as a part of the tests of controls?
List the factors that should affect the auditor's decision whether or not, to analyze a particular account balance. Considering these factors, list four expense accounts that are commonly analyzed in
The following questions concern analytical procedures in the acquisition and payment cycle. Choose the best response.a. Which of the following comparisons would be most use¬ ful to an auditor in
The following questions concern the audit of asset accounts in the acquisition and payment cycle. Choose the best response.a. In testing for unrecorded retirements of equipment, an auditor most
Describe how analytical procedures can be used during the knowledge of business and planning phases of the audit.
Peter Li, a student-in-accounts at an accounting firm, has completed analytical procedures comparing internal client data for Abracadabra Company. Since there are no other companies providing
When an auditor conducts comparative analytical procedures, he or she looks for both expected changes and unexpected changes. Why?
Explain how the results of analytical procedures affect individual transaction cycles.
Jane Berger has conducted analytical procedures using the current and prior comparative financial statements. John Polakowsky has completed regression analysis using purchasing and production data.
List the 12 steps required to conduct structured analytical procedures.
How does the auditor decide the dollar value of a significant fluctuation when conducting analytical procedures?
Provide an example of an analytical procedure for each of the three intended assurance levels: low, medium, and high.
What techniques would an auditor use to investigate significant fluctuations discovered during analytical procedures?
How can spreadsheet software be used to assist with the analytical procedures process?
Compare the advantages of graphic presentation methods to numeric methods in analytical procedures.
List the advantages and disadvantages of analytical procedures using statistical methods.
Assume that Federoco Limited has no significant errors or irregularities in its accounts. Analytical procedures have identified several significant fluctuations. What could have caused these
The following questions deal with analytical procedures. Choose the best response.a. The auditor will likely obtain each of the following bene¬ fits from using analytical procedures except(1) better
The following questions deal with analytical procedures. Choose the best response.(a) As a result of using analytical procedures, the auditor determines that the gross profit has declined from 30
You learned in Chapter 1, Chapter 5 and subsequent chapters that many of the accounts of a company are related, and changes should occur in the same direction. For exam¬ ple, a decrease in capital
You learned in Chapter 1, Chapter 5 and subsequent chapters that many of the accounts of a company are related, and changes should occur in the same direction. For exam¬ ple, a decrease in capital
Analytical procedures are substantive tests that are extremely useful in the initial audit planning stage.Requireda. Explain why analytical procedures are considered to be substantive tests.b.
A senior partner stated, "Analytical procedures are a useful technique except that the wrong people in the firm are performing the procedures."Required State what you think the partner meant.
An auditor has conducted a comparative analytical review for Bogsworth Company and has found significant differences in the following accounts:Fixed assets Accumulated depreciation Accounts
"We have had a fairly good year," said the president of Frankruary Limited. "Sales exceeded $2 million for the first time in our history, though net income didn't keep pace with the sales increase
Which of the nine accounts receivable balance- related audit objectives can be partially satisfied by confir¬ mations with customers?
An auditor is determining the appropriate sample size for testing inventory valuation using MUS. The popula¬ tion has 2,620 items valued at \($12,625,000\). The tolerable mis¬ statement for both
The following questions concern analytical proce¬ dures in the sales and collection cycle. Choose the best response.a. As a result of analytical procedures, the independent auditor determines that
The following questions deal with confirmation of accounts receivable. Choose the best response.a.In connection with her examination of Beke Supply Corp. for the year ended August 31, 2002, Sylvia
Andre Auto Parts Inc. sells new parts for foreign automobiles to auto dealers. Company policy requires that a prenumbered shipping document be issued for each sale. At the time of pickup or shipment,
John Gossling, a public accountant, is examining the financial statements of a manufacturing company with a sig¬ nificant amount of trade accounts receivable. Gossling is sat¬ isfied that the
The following are the entire outstanding accounts receivable for Jake's Bookbinding Company Ltd. The popu¬ lation is smaller than would ordinarily be the case for statis¬ tical sampling, but an
In the audit of Price Seed Company Ltd. for the year ended September 30, the auditor set a tolerable misstatement of \($50,000\) at an ARIA of 10 percent. An MUS sample of 100 was selected from an
You intend to use MUS as a part of the audit of sev¬ eral accounts for Roynpower Manufacturing Inc. You have done the audit for the past several years, and there has rarely been an adjusting entry
You have been assigned to the first examination of the accounts of North Battleford Corp. for the year ending March 31, 2002. Accounts receivable were confirmed on December 31,2001, and at that date
You have examined the financial statements of Boiestown Limited for several years. Internal control for accounts receivable is very satisfactory. Boiestown Limited operates on a calendar-year basis.
In the confirmation of accounts receivable for Millbank Service Company Inc., 85 positive and no negative confirmations were mailed to customers. This represents 35 percent of the dollar balance of
Loofa Limited is a dry goods chain selling mainly sta¬ ples: practical clothing for the family, work clothes, shoes, notions, piece goods, and a relatively small amount of house- wares. Its 170
Describe systematic sample selection, and explain how an auditor would select 35 numbers from a population of 1,750 items using this approach. What are the advantages and disadvantages of systematic
The following items apply to sampling from large populations. Select the most appropriate response for each question.a. From a random sample of items listed from a client's inventory count, a public
The following questions relate to physical unit attribute sampling and monetary unit attribute sampling. Select the most appropriate response.a.In a dollar-unit sampling plan, the probability that
The following questions refer to the use of sampling in auditing. For each one, select the best response.a. Felix Santos decides to use stratified sampling. The basic reason for using stratified
a. For each of the following independent problems, design an unbiased random sampling plan using the random number table in Table 11-2. The plan should include defining the sampling unit,
. The plan should include defining the sampling unit, establishing a numbering system for the population, and establishing a correspon¬ dence between the random number table and the popu¬ lation.
For the examination of the financial statements of Scotia Inc., Rosa Schellenberg, a public accountant, has decided to apply nonstatistical audit sampling in the tests of sales transactions. Based on
An audit partner is developing an office training pro¬ gram to familiarize her professional staff with statistical deci¬ sion models applicable to the audit of dollar-value balances. She wishes to
You have just completed the accounts receivable con¬ firmation process in the audit of Danforth Paper Company Ltd., a paper supplier to retail shops and commercial users.Following are the data
Sampling, whether statistical or judgmental, is an integral part of the audit process. Its use raises fundamental auditing issues which have become the subject of profes¬ sional literature and
CA's firm is joint auditor of the TC Bank and is responsible this year for the audit of securities. As in prior years, audit procedures have been carried out during the year on security transactions
Under what circumstances is it acceptable to perform tests of controls for sales and cash receipts at an interim date?
Danny Ng, a public accountant, has decided to use attribute sampling during the audit of sales transactions. There are 100,000 sales transactions, and the preliminary assessment of control risk is
The following questions deal with internal controls in the sales and collection cycle. Choose the best response.a. For effective internal control, the billing information should be entered by the(1)
For each of the following types of misstatements, parts (a) through (c), select the control that should have pre¬ vented the misstatement.a. A manufacturing company received a substantial sales
The following questions deal with audit evidence for the sales and collection cycle. Choose the best response.a. Auditors sometimes use comparison of ratios as audit evidence. For example, an
12-17 Deirdre Brandt, a public accountant, tested sales transactions for the month of March in an audit of the financial statements for the year ended December 31, 2001. Based on the excellent
The following errors or fraud and other irregularities are included in the accounting records of Joyce Manufactur¬ ing Ltd.:1. The credit limit for a new customer was entered as $20,000 rather than
The following are common audit procedures for tests of sales and cash receipts:1.Compare the quantity and description of items on dupli¬ cate sales invoices with related shipping documents.2. Trace

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