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principles of auditing and other assurance services

Questions and Answers of Principles Of Auditing And Other Assurance Services

Reaffirmed in the 1980s and 1990s, the privity doctrine, first established in Ultramares Corp. V. Touche (1931), now requires a three-point linkage test established in a New York Court of Appeals
Among other things. Evergreen must show:a. Misstated financial statements.b. Scienter.c. Compliance with truth-in-lending laws.d. Gross negligence.Choose the correct answer.Gilmore, Inc., a privately
In this case. Evergreen is most likely a:a. Foreseeable third party.b. Foreseen beneficiary.c. Primary beneficiary.d. Client.Choose the correct answer.Gilmore, Inc., a privately owned manufacturer of
Alsap Corporation's April 1999, $35 million initial public offering included Singer & Revine's unqualified opinion on Alsap's December 31, 1998 audited financial statements. Owing to material
An auditor may be held liable under the Securities Act of 1933 for materially false or misleading financial statements if the security purchaser:a. Can establish reliance on the registration
Which of the following correctly portrays the scope of Section 10 (b) of the Securities Exchange Act of 1934?a. Section 10(b) protects shareholders of securities listed on a national stock
A client sues Jane Corning, an independent accountant, for negligence, alleging that, because she failed to apply generally/ accepted auditing standards, she failed to discover large thefts of
Accountants' liability to third parties under common law:a. Has not changed substantially over the years.b. Is identical to accountants' liability under the Securities Act of 1933.c. Is identical to
Columbus, Inc., a publicly traded corporation, is audited by Corrente & Corrente, CPAs. Because of inaccurate disclosures and serious losses from trading Columbus' securities, Columbus shareholders
Lincoln purchased Tally Corporation securities in a public offering subject to the Securities Act of 1933. Rosemere & Co., CPAs, issued an unqualified opinion on Tally Corporation's most recent
Which of the following, if material, would be a fraud?a. Errors in the application of accounting principles.b. Clerical errors in accounting data underlying the financial statements.c.
Which of the following is an inappropriate reaction to a material fraud detected in a publicly traded company?a. Report the matter to the SEC.b. Discuss the matter with at least one level of
Which of the following statements best describes an auditor's responsibility to detect fraud?a. The auditor is responsible for failing to detect fraud when the failure clearly results from not
If an auditor is certain a fraud has a material effect on financial statements and the client agrees to adjust the statements accordingly the auditor should:a. Withdraw from the engagement.b.
An auditor's responsibility for illegal acts by clients:a. Depends on any contingent monetary effects and loss contingencies resulting from the act.b. Requires that he or she assess the risk of
The Foreign Corrupt Practices Act requires that:a. Auditors of publicly held companies report all illegal payments to the SEC.b. Publicly held companies establish audit committees consisting only of
Reno Poll, chief executive officer of Lincoln Avenue Bank, phoned Valerie Valentine, an audit partner in Tally & Rosemere LLP and the engagement partner for Bloomfield Plating Company, an electrolyte
Milady's Fashions, Inc., a discount retailer of women's apparel, has an excessively large inventory on hand and is in urgent need of additional cash. The company is bordering on bankruptcy
Baldoni & Literick, LLP issued an unqualified opinion on the September 30, 1999 financial statements of Service Paper Company, a publicly owned paper products company. Owing both to an increasing
Gordon & Groton, CPAs, were the auditors of Jordan & Company, a brokerage firm and member of several national and international stock exchanges. Gordon & Groton audited and reported on the financial
Andrew Christie, a recently hired entry level staff accountant in Fallon & Goff, LLP, was assigned to audit the receivables at the Edgemere Company, a publicly traded manufacturer of roofing
Cragsmore & Company, LLP was engaged to audit the financial statements of Marlowe Manufacturing, Inc., a publicly traded corporation. Prior to preparing the audit report, Susan Cragsmore, a partner,
Jackson, an early career staff member in Harrison & Weeks, LLP, began but did not finish the audit of inventory in the Bosco Corporation, a manufacturer and marketer of expensive watches. During the
Several years ago. Dale Holden organized Holden Restaurants. Holden started with one small restaurant, but over time the restaurant became quite popular due largely to the quality of the food and
Several months prior to beginning an audit engagement of the Taunton Manufacturing Company, you point out to Taunton's CFO, Marsha Wade, that as part of your responsibilities, you will design the
The partner in charge of your firm is concerned that staff members may not be aware of current professional standards about communicating material errors, fraud, and illegal acts to parties other
The CPA firm of Winston & Mall was engaged to audit the financial statements of the Fast Cargo Company, a retailer. The auditors tested a sample of 100 disbursement transactions, all of which were to
Martinson, Brinks & Sutherland, LLP audited the financial statements of Masco Corporation, a medium-size wholesaler that leased warehouse facilities. Masco sought bank financing for the leases,
The Foreign Corrupt Practices Act can seriously impact the business operations of many corporations, especially Securities and Exchange Commission registrants who are subject both to the unlawful
The financial press has been, and continues to be, replete with references to legal liability cases—and to wildly excessive monetary judgments—against public accounting firms under both common
The Private Securities Litigation Reform Act of 1995 and the U.S. Supreme Court's decision in Central Bank of Denver v. First Interstate Bank of Denver represent major victories in the profession's
What are heuristics, and why are they of concern to auditors?
Explain the terms sufficient, competent, and evidential matter as used in the third standard of field work.
An auditor attempts to obtain the most persuasive evidence available. What general criteria can an auditor apply to evaluate the competence of evidence?
Identify and briefly explain management's financial statement assertions, and explain the relationship among assertions, audit objectives, and audit procedures.
Identify and briefly describe the major files that are typically maintained separately from audit working papers.
Describe a typical arrangement of working papers.
Explain the nature and purpose of an audit committee.
Briefly describe an auditor's decision process when deciding to accept or continue an engagement.
Why does an auditor obtain an understanding of a client's business and industry before beginning an audit engagement?
What are the purpose and typical contents of a preliminary audit planning memorandum?
What is the objective of the interim phase of an audit engagement?
Why is coordination with the client prior to beginning year end audit work especially important?
Subsequent events occur after the last day of a client's fiscal year and on or before the report date. Why would an auditor be concerned about transactions and events subsequent to the period
In 1997 and 1998, an auditor found that approximately 4 percent of processed sales invoices were not mathematically accurate. In late 1998, the client implemented a control requiring that all sales
Which of the following statements about the competence of evidence is always true?a. Evidence gathered by an auditor from third parties is reliable.b. Accounting data developed when control risk is
Tests of controls:a. Are intended to detect material misstatements in financial statement accounts.b. Are concerned with how internal control policies or procedures are applied.c. Are evaluations of
Substantive tests of details:a. Are intended to detect material misstatements in financial statement accounts.b. Are concerned with how internal control policies or procedures are applied.c. Are
Analytical procedures:a. Are intended to detect material misstatements in financial statement accounts.b. Are concerned with how internal control policies or procedures are applied.c. Are evaluations
A public company's audit committee should consist of:a. Representatives of management, shareholders, suppliers, and customers.b. The audit partner, chief financial officer, legal counsel, and at
An independent auditor has been approached to perform an audit. Research suggests that the auditor may fail to:a. Distinguish between a regulated and nonregulated industry.b. Coordinate audit dates
To avoid misunderstandings between a practitioner and client, engagement arrangements are written in:a. A legal letter.b. An engagement letter.c. A client representation letter.d. A letter on
Which of the following procedures would an auditor most likely perform when planning an audit?a. Review prior year audit working papers.b. Inquire about potential litigation, claims, and
A purpose of reviewing first quarter financial results during audit planning is to:a. Identify unexpected fluctuations occurring in account balances since the prior year financial statements.b.
When is an assurance service an attestation?
What is the scientific method of inquiry, and how does it relate to auditing?
Identify the major types of audits performed in the U.S. today.
Why is there a need for financial statement audits?
What services are generally provided to clients by public accounting firms?
Why has Congress criticized nonattest services?
What does management assert in the disclosure: "Trade receivables . . . $1,200,000"?
What roles are served by the AICPA's two standard-setting bodies for auditing and for accounting & review services?
How are auditing and accounting related?
Alexion Corp. has engaged a public accounting firm to issue a report on the accuracy of product quality specifications included in trade sales agreements. This is an example of a/an:a. Financial
Unlike consulting services, assurance services:a. Make recommendations to management.b. Report on how to use information.c. Report on the quality of information.d. Are two-party contracts.Choose the
A financial statement audit:a. Confirms that financial statement assertions are accurate.b. Lends credibility to the financial statements.c. Confirms that financial statements are presented fairly.d.
Which of the following best describes why an independent auditor reports on financial statements?a. Independent auditors are likely to detect fraud.b. Competing interests may exist between management
Financial statement audits:a. Reduce the cost of capital.b. Report on compliance with laws and regulations.c. Assess management's efficiency and effectiveness.d. Overlook information risk.Choose
Primary responsibility for the assertions in financial statements rests with the:a. Audit partner assigned to the engagement.b. Senior auditor in charge of field work.c. Staff auditor who drafts the
A public accounting firm's primary role in performing nonattest services is to:a. Hedge against declines in the firm's audit practice.b. Establish the firm as a consultant.c. Provide advice
Which of the following types of audits is designed to determine whether a governmental entity's procurement practices are sound?a. A financial statement audit.b. An operational audit.c. A program
Which of the following authoritative bodies issues pronouncements relevant to attestation service engagements?a. Accounting and Review Services Committee.b. Auditing Standards Board.c. Public
The role of the Auditing Standards Board is to:a. Define accepted auditing procedures applicable in practice.b. Develop auditing standards for new Statements of Financial (or Governmental) Accounting
To compete with manufacturers like Cray Research, the Singer Corporation, a manufacturer of mid-range supercomputers, makes oral claims of product superiority to engineers and scientists, their
The Wall Street Journal reported that the National Association of College Admissions Counselors, a professional organization for admissions officers and high school guidance counselors, had
The Carter Wright Corporation entered into a consulting contract with Andersen Consulting to outsource Carter Wright's information processing to Andersen. The $3.5 million, multi-year contract would
Within the chapter, three different types of audits were identified:• Financial statement audit.• Operational audit.• Compliance audit.Each type of audit is designed for a particular purpose
During the past several decades, auditing has gained a considerable amount of attention both within the financial community and within academic curricula. For example, independent audits are now
One of your classmates, Kristin Lea, a chemistry major, is puzzled about what an auditor does. She says to you, "My only impression about auditors comes from Bob Cratchit, Tiny Tim's father, in
The following two statements are representative of attitudes and opinions sometimes encountered by independent auditors:a. Today's audit consists of test checking, a dangerous policy since test
Feiler, the sole owner of a small hardware business, has been told that the business should have financial statements reported on by an independent certified public accountant.Having some bookkeeping
Marc David is an employee-stockholder of the Lexington Corporation. Because he has extensive accounting experience. Marc proposes to the other stockholders that he, rather than a public accounting
Appointment in 1939 of the AICPA's Committee on Auditing Procedure, the first authoritative audit standard-setting body in the U.S., was a response to public sector demands that the private sector ".
What is dividend?
Who can conduct cost audit under the Companies Act, 2013?
What do you mean by ‘capitalization of reserve’?
How do you distinguish between reserve and provision?
What is sinking fund? How and why it is created?
How secret reserve is created and utilized?
What is the difference between ‘capital reserve’ and ‘revenue reserve’?
What do you mean by ‘capital reserve’? How does the capital reserve differ from capitalization of reserve? Can capital reserve or capitalized reserve is available for distribution of dividend?
What is meant by ‘Capitalization of reserves’? State the advantages of such capitalization to the business and to the shareholders. What is the duty of an auditor in respect of capitalization?
What is secret reserve? Why it is created? Discuss the duties of an auditor in regard to secret reserve with reference to provision of the Indian Companies Act.
What is meant by ‘special reserve’? What are the purposes of creation of such reserves? What are the duties of the auditor regarding special reserve?
What do you mean by the term ‘depreciation’?
Is it necessary to make provision for depreciation?
State the main factors to be considered for determining the amount of depreciation.
Is it legally compulsory to charge depreciation on assets?
Discuss the provisions of the Companies Act regarding arrear depreciation.
Is there any statutory necessity to make disclosures of depreciation in company accounts?

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