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principles of auditing and other assurance services

Questions and Answers of Principles Of Auditing And Other Assurance Services

Appliances Repair and Service Corp. bills all cus¬ tomers rather than collecting in cash when services are pro¬ vided. All mail is opened by Tom Gyders, an accountant. Gyders is the most qualified
You were asked in February 2002 by the board of management of your church to review its accounting proce¬ dures. As part of this review, you have prepared the follow¬ ing comments relating to the
Lenter Supply Corp. is a medium-sized distributor of wholesale hardware supplies in southern Manitoba. It has been a client of yours for several years and has instituted excellent internal control
on page 319. Use a starting point of row 1013, column 3.d. Your supervisor suggests the possibility of performing other sales tests with the same sample as a means of effi¬ ciently using your audit
The following questions concern the determination of the proper sample size in attributes sampling using the following table:Requireda. For each of the columns numbered 1 through 7, decide the
on page 383.c. Using your understanding of the relationship between the following factors and sample size, state the effect on the initial sample size (increase or decrease) of changing each of the
introduce the seven parts of the planning phase of audits. Which part is understanding internal control and assessing control risk? Which parts precede and follow that understanding and assessing?
The following are general questions about internal control. Choose the best response.a. When considering internal control, an auditor must be aware of the concept of reasonable assurance which rec¬
The following questions deal with specific internal control situations. Choose the best response.a. In general, a material internal control weakness may be defined as a condition under which material
The following questions deal with examining inter¬ nal controls or assessing control risk. Choose the best response.a. The ultimate purpose of assessing control risk is to con¬ tribute to the
The division of the following duties is meant to pro¬ vide the best possible controls for the Meridian Paint Com¬ pany Ltd., a small wholesale store.*1- Assemble supporting documents for general
Recently, while eating lunch with some friends at a cafeteria at your university, you observe a practice that is somewhat unusual. As you reach the end of the cafeteria line, a server asks howT many
Lew Pherson and Marie Violette are friends who are employed by different public accounting firms. One day dur¬ ing lunch they are discussing the importance of internal con¬ trol in determining the
The following are partial descriptions of internal con¬ trol for companies engaged in the manufacturing business:1. Every day hundreds of employees clock in using time cards at Generous Motors
You are a manager with a public accounting firm. In the course of reviewing a file prepared by a new senior staff accountant, you notice there is no letter to the client concern¬ ing weaknesses in
Filmore and Gus, Chartered Accountants, are the auditors of Campbells' Toy Store (CTS), a local retail opera¬ tion, and you, CA, are in charge of the audit. In January 2002, you completed the
are the four types of tests auditors use to deter¬ mine whether financial statements are fairly stated? Identify which tests are performed to assess control risk and which tests are performed to
Explain what is meant by "reperformance." Give an example.
For each of the seven types of evidence discussed in Chapter 6, identify whether it is applicable for procedures to obtain an understanding of internal control, tests of controls, analytical
State the three-step approach to designing tests of controls.
Why is it desirable to design tests of details of bal¬ ances before performing tests of controls? State the assump¬ tions the auditor must make in doing that. What does the auditor do if the
Explain the relationship of materiality available for unanticipated misstatements, inherent risk, and control risk to planned tests of details of balances.
The following questions concern types of audit tests. Choose the best response.a. The auditor looks for an indication on duplicate sales invoices to see if the invoices have been verified. This is an
The following questions deal with tests of controls.Choose the best response.a. Which of the following statements relating to tests of controls is most accurate?(1) Auditing procedures cannot
The following are audit procedures from different transaction cycles:1. Create test data equivalent to one day's cheque issuance. Compare the total cash disbursement amount on the cheque listing to
The following internal controls for the acquisition and payment cycle were selected from a standard internal control questionnaire.1. Vendors' invoices are recalculated prior to payment.2. Approved
The following are three situations in which the audi¬ tor is required to develop an audit strategy:1. The client has inventory at approximately 50 locations in the three Maritime provinces. The
Brad Jackson was assigned to the audit of a client that had not been audited by any public accounting firm in the preceding year. In conducting the audit, he did no testing of the beginning balance
Yope Plastics Limited (YPL) is a federally incorporated company that manufactures moulded plastics for household and some industrial uses. It has a large number of customers throughout Canada. Some
It is September 2001. You, CA, have recently been assigned to the audit of the Canadian Chocolate Corp. (CCC). The partner who has just assumed responsibility for the engagement has asked you to
Assume Rosanne Madden, a public accountant, is using 5 percent of net income before taxes as her major guideline for evaluating materiality. What qualitative factors should she also consider in
Differentiate between identified misstatements, likely misstatements, and further possible misstatements. Explain why all three are important.
Define the "audit risk model" and explain each term in the model.
State the two categories of circumstances that affect audit risk, and list the factors that the auditor can use to indicate the degree to which each category exists.
The following questions deal with materiality.Choose the best response.a. Which one of the following statements is correct concern¬ ing the concept of materiality?(1) Materiality is determined by
The following questions concern materiality, risk, or evidence. Choose the best response.a. Edison Corporation has a few large accounts receivable that total $1,400,000. Victor Corporation has a
The following are different types of misstatements that can be encountered on an audit:1. The use of a method of valuing inventory that is not in accordance with generally accepted accounting
Shown on page 239 are statements of earnings and financial position for Prairie Stores Corporation.Requireda. Use professional judgment in reaching a preliminary judgment about materiality based on
Describe what is meant by "audit risk." Explain why each of the following statements is true.a. A public accounting firm should attempt to achieve the same audit risk for all audit clients when
State whether each of the following statements is true or false, and give your reasons.a. The audit evidence accumulated for every client should be approximately the same, regardless of the
The following questions deal with the use of the audit risk model.a. Assume that the auditor is doing a first-year municipal audit of Sackville, New Brunswick, and concludes that internal control is
Using the audit risk model, state the effect on control risk, inherent risk, audit risk, and planned evidence for each of the following independent events. In each of the events (a) to (k), circle
Pamela Albright is the manager of the audit of Stan¬ ton Enterprises Ltd., a public company that manu¬ factures formed steel subassemblies for other manufacturers. Albright is planning the 2001
Excerpts from a court case appear below. The lawyer is in the process of examining his client, a public accountant, accused of negligence in the conduct of an audit.Lawyer: Were you aware that the
The following questions pertain to the predecessor/successor auditor relationship. Choose the best responsea. When approached to perform an audit for the first time, the public accountant should make
Two public accountants were talking about their pro¬ fession while golfing one day. One commented that she thought that the decision to continue as auditor for a client was as important as the
In late spring, you are advised of a new assignment as the in-charge accountant of your public accounting firm's recurring annual audit of a major client. Lancer Inc. You are given the engagement
The minutes of the board of directors of the Mary- gold Catalogue Company Ltd. for the year ended December 31, 2001, were provided to you.The minutes of the meeting of October 11,2000, were read and
7-24 CA has been the auditor of Niles Ltd., a medium¬ sized manufacturing company, for just over two years. After CA billed the company for the first year audit, Mr. Hiles, the president, called CA
Identify the seven major steps in planning audits.
List the four types of information the auditor should obtain or review as a part of gaining background information for the audit, and provide one specific example of how the information will be
Jennifer Bailey is an experienced senior auditor who is in charge of several important audits for a medium-sized firm. Her philosophy of conducting audits is to ignore all previous years' and
Why is it essential that the auditor not leave questions or exceptions in the working papers without an adequate explanation?
The following questions concern the planning of the engagement. Select the best response.a. Which of the following is an effective audit planning and control procedure that helps prevent
The following questions concern working papers. Choose the best response.a. Which of the following is not a primary purpose of audit working papers?(1) To coordinate the examination.(2) To assist in
Why is it essential that the auditor not leave ques¬ tions or exceptions in the working papers without an ade¬ quate explanation?
List three major considerations that are useful in pre¬ dicting the likelihood of management fraud in an audit. For each of the considerations, state two actions the auditor can take to evaluate its
The following questions concern the reasons auditors do audits, or responsibilities during audits. Choose the best response.a. Which of the following best describes the reason why an independent
The following questions deal with errors or fraud and other irregularities. Choose the best response.a. An independent auditor has the responsibility to design the audit examination to provide
The classes of transactions and the titles of the jour¬ nals used for Phillips Equipment Rental Co. Ltd. are shown in the following chart.Requireda. Identify one financial statement balance that is
The following is the detailed chart of accounts for Atlantic Metal Specialties Ltd.BALANCE SHEET ACCOUNTSRequireda. Explain the differences among a chart of accounts, a gen¬ eral ledger trial
The following are specific balance-related audit objectives applied to the audit of accounts receivable (a through h) and management assertions (1 through 7). The list referred to in the specific
The following are specific transaction-related audit objectives applied to the audit of cash disbursements (a through f), management assertions (1 through 7), and gen¬ eral transaction-related audit
The following are two specific balance-related audit objectives in the audit of accounts payable. The list referred to in the objectives is the aged accounts payable trial balance produced using the
The following are nine general balance-related audit objectives for the audit of any balance sheet account (1 through 9) and eleven specific balance-related audit objec¬ tives for the audit of
Leslie Donald is the audit manager responsible for the annual audit of ABC Electronics Ltd. (ABC), a Canadian pub¬ lic company involved in the manufacture and distribution of highly competitive
CA has been the auditor for several years of Widget Limited, a widely owned public company which operates a wholesaling business. During the last few years, the com¬ pany's net income has been
The following questions concern the appropriateness and persuasiveness of evidence. Choose the best response.a.Which of the following types of documentary evidence should the auditor consider to be
The following questions deal with analytical proce¬ dures. Choose the best response.a. Significant unexpected fluctuations identified by analyti¬ cal procedures will usually necessitate a(n)(1)
The following are examples of documentation typi¬ cally obtained by auditors:1. Vendors' invoices 2. General ledgers 3. Bank statements 4. Cancelled payroll cheques 5. Payroll time cards 6. Purchase
List two examples of audit evidence the auditor can use in support of each of the following:a. Recorded amount of entries in the purchase journalb. Physical existence of inventoryc. Accuracy of
As auditor of Star Manufacturing Corp., you have obtained a trial balance taken from the books of Star one month prior to year end:Notes:There are no inventories consigned either in or out.All notes
The following audit procedures were performed in the audit of inventory to satisfy specific balance-related audit objectives as discussed in Chapter 5. The audit procedures assume the auditor has
Your comparison of the gross margin percentage for Singh Drugs Ltd. for the years 1998 through 2001 indicates a significant decline. This is shown by the following information:A discussion with
In the audit of Worldwide Wholesale Inc., you per¬ formed extensive ratio and trend analysis. No material exceptions were discovered except for the following:1. Commission expense as a percentage of
As part of the analytical procedures of Mahogany Products, Inc., you perform calculations of the following ratios:Required For each of the preceding ratios:a. State whether there is a need to
A lawyer you know is working on a case for one of his clients who has commenced legal proceedings against an industrial company and its auditor in connection with the company's failure. The auditor,
You, CA, have been engaged by your provincial insti¬ tute to perform a practice inspection of Dow and Harder, Chartered Accountants (DH). This inspection involves a review of audit files for a DH
Explain the need for a code of professional ethics for public accountants. In which ways should the public accoun¬ tants' code of ethics be similar to and different from that of other professional
List the three parts which normally comprise a code of professional conduct, and state the purpose of each.
What are the four facets of independence discussed in the chapter? Explain why each is a necessary component of a public accountant's independence.
Many people believe that a public accountant cannot be truly independent when payment of fees is dependent on the management of the client. Explain a way of reducing this appearance of lack of
The auditor's working papers usually can be pro¬ vided to someone else only with the permission of the client. What is the rationale for such a rule?
The rules of conduct of CAs, CGAs, and CMAs require them to report a breach of the rules of conduct by a member to their profession's disciplinary body. What should they do before making such a
Identify and explain factors that should keep the quality of audits high even though advertising and tender¬ ing are allowed.
Why do you think the rules of conduct of the profes¬ sional accounting bodies which pertain to public accounting ban contingent fees for audits?
The following questions concern independence and the rules of professional conduct or GAAS. Choose the best response.a. What is the meaning of the generally accepted auditing standard that requires
The following questions concern possible violations of the rules of conduct discussed in the chapter. Choose the best responsea. In which one of the following situations would a public accountant be
Each of the following scenarios involves a possible violation of the rules of conduct discussed in the chapter. Indicate whether each is a violation and explain why if you think it is.a. John Brown
Each of the following situations involves possible violations of the rules of conduct that apply to professional accountants discussed in the chapter. For each situation, state whether it is a
The Canada Business Corporations Act requires all com¬ panies incorporated under it to have audit committees.Requireda. Describe an audit committee.b. What are the typical functions performed by an
Diane Harris, public accountant, is the auditor of Fine Deal Furniture, Inc. In the course of her audit for the year ended December 31,2001, she discovered that Fine Deal had serious going concern
Marie Janes encounters the following situations in doing the audit of a large auto dealership. Janes is not a partner.1.The sales manager tells her that there is a sale on new cars (at a substantial
Gilbert and Bradley formed a corporation called Financial Services, Inc., each man taking 50 percent of the authorized common stock. Gilbert is a public accountant and a member of one of the
Barbara Whitley had great expectations about her future as she sat at her graduation ceremony in May 2000. She was about to receive her Masters of Accountancy degree, and the following week she would
In 1995, Giles Nadeau was a bright, upcoming audit manager in the Winnipeg office of a national public account¬ ing firm. He was an excellent technician and a good "people person." Giles also was
The following questions concern public accounting firms' liability under common law. Choose the best response.a. Natasha Sharp, a public accountant, was engaged by Peters & Sons, a partnership, to
The following questions deal with important con¬ cepts with respect to auditor's legal liability. Choose the best response.a.The most significant aspect of the Haig v. Bamford case was that it (1)
Helmut & Co., a public accounting firm, was the new auditor of Mountain Ltd., a private company in the farm equipment and supply business. The previous auditor, Lopez and Williams, had been
Brown, Cosden & Co., a medium-sized public accounting firm, was engaged to audit Joslin Supply Inc. Several staff were involved in the audit, all of whom had attended the firm's in-house training

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