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principles of auditing

Questions and Answers of Principles of Auditing

For each of the following potential misstatements for purchases transactions, indicate a necessary control procedure and a possible test of controls:a. Vouchers may be prepared for goods not ordered
a. What is the direction of testing controls for purchases transactions that pertains to the existence or occurrence assertion?b. What is the direction of testing controls for purchases transactions
a. State the functions that apply to cash disbursements transactions.b. For each cash disbursements function, indicate (1) the department that performs the function and (2) the principal document or
For each function pertaining to cash disbursements transactions, indicate the applicability, if any, of(a) proper authorization (b) independent checks.
For each of the following necessary controls pertaining to cash disbursements transactions, indicate the related potential misstatement and possible test of controls.a. Use and account for
a. Which assertion is of primary importance to the auditor in auditing accounts payable? Why?b. Indicate the relationship of control risk assessments for expenditure cycle transactions to the
a. Identify the substantive tests that apply to the completeness assertion for accounts payable.b. For each of the foregoing tests, indicate the other assertions to which they may relate.
Chris Cole believes the auditor's responsibilities for confirming accounts payable are the same as for accounts receivable. Do you agree with Chris? Explain.
Distinguish among the following tests and indicate the assertions to which each test pertains:a. Vouch recorded payables to supporting documentation.b. Examine subsequent payments.c. Determine that
What circumstances pertaining to property, plant, and equipment may warrant the following assessments of inherent risk (IR)?a. Low for the existence or occurrence assertion.b. Moderate or high for
Distinguish among the following substantive tests of plant assets and indicate the assertion(s) to which each test pertains:a. Apply analytical procedures.b. Inspect plant assets.c. Examine title
a. Describe the nature of the production cycle.b. Identify the major transaction class within this cycle.c. Name three other cycles that interface with the production cycle.
a. Identify several transaction class audit objectives for the production cycle.b. Identify several account balance audit objectives for the production cycle.
a. Discuss materiality from the perspective of the production cycle.b. Discuss inherent risk from the perspective of the production cycle.c. Why might the auditor use different audit strategies for
a. Explain several control environment factors that impact the production cycle.b. Identify several unique elements of an entity's accounting information system that pertain to the production cycle.
Identify the documents and records that provide a basis of authorization and control in the four functions that culminate in transferring completed production to finished goods.
What controls are important in determining and recording manufacturing costs?
What controls are important in protecting inventories and maintaining the correctness of inventory balances?
What factors should be considered by an auditor in specifying the acceptable level of detection risk for assertions pertaining to (a) merchandise inventory and (b) manufactured finished goods
Indicate several ratios and their formulas that may be used in applying analytical procedures to inventory balances.
a. Identify five tests of details of balances that may be applied to inventories.b. For the test of observing the client's physical inventory count, indicate(1) when this test is required, (2)
a. What documents and other information are used by the auditor in performing an inventory pricing test?b. How are confirmations used in the audit of inventory balances?
a. Describe the nature of the personnel services cycle.b. What cycles interface with this cycle.
a. Explain the materiality and audit risk associated with the personnel services cycle.b. What is the auditor's usual audit strategy for this cycle? Why?
State the audit objectives that pertain to management's assertions about personnel services transactions and balances.
Identify the functions in processing payroll transactions.
a. Indicate the responsibilities of the personnel department in the processing of payroll transactions.b. Describe the control procedures in preparing attendance and timekeeping data.
Explain the tests of control that involve (a) terminated employees and (b)witnessing a payroll distribution.
a. What is the likely acceptable level of detection risk for payroll expense account assertions? Why?b. What effect does this have on the design of substantive tests for payroll assertions?
Identify several analytical procedures that may be applied to payroll balances and indicate the assertions to which the evidence pertains.
a. What procedures should be performed to obtain evidence about the reasonableness of management's accrued payroll liabilities?b. Why is officers' compensation audit sensitive and what tests should
Which of the following statements is generally correct about the competence of evidential matter?a. The auditor’s direct personal knowledge, obtained through observation and inspection, is more
Which of the following elements ultimately determines the specific auditing procedures that are necessary in the circumstances to afford a reasonable basis for an opinion?a. Auditor judgment.b.
An auditor should communicate to the audit committee all of the following matters excepta. The implication of errors discovered during the audit.b. Unexpected account variations discovered during
Ajax Company’s auditor concludes that the omission of an audit procedure considered necessary at the time of the prior audit impairs the auditor’s present ability to support the previously
The auditor should obtain a level of knowledge of the entity’s business, including events, transactions, and practices, that will enable the planning and performance of an audit in accordance with
When can auditors disclose unlawful acts to the police?
How does the auditors’ professional duty of confidence affect disclosures to third parties?
What should auditors do if they discover an unlawful act?
What are the circumstances in which auditors can make disclosures without permission from their client?
List some physical controls.
Winfred Metal Reclamation Ltd, a small company, buys scrap metal residues from local companies and treats the residues to recover the metal which is then sold to other local companies.The company is
Define an audit.
What are the time limits for laying and delivery of accounts?
What financial statements must be prepared?
Mainbrace Ltd is a book publisher and retailer which trades via the Internet. The company was formed using a kit bought from a legal stationer, start up capital was provided by the major shareholder,
What other services do accountants provide in addition to auditing?
What specific reports do directors have to ensure are included in the accounts under the UK Corporate Governance Code?
What should the Auditors’ Report state?
Define small and medium-sized companies.
What exemptions are available to them?
What is the true and fair override?
What are the rules on publishing accounts in abridged form?
What additional reports are required from an auditor?
What are the rules on sending out accounts in summary form?
What documents are issued by the APB?
What material is contained in a Statement of Auditing Standards?
What is aSORP?
What is the relevance of FREDs for auditors?
In the audit of small companies what accounting standard is particularly important?
Why are accounting standards important to auditors?
Tickitt & Run are auditors of McColl Holdings PLC, a chemical manufacturer. The financial director has left the company recently to take up another post and McColl have so far been unable to find a
What are the rules on accountants’ remuneration?
In Newtown there are three small firms of qualified accountants and registered auditors who, between them, have most of the large businesses, farmers and landowners and other service providers as
You are an audit manager in Tickett & Run, a firm of Chartered Certified Accountants. Your specific responsibilities include planning the allocation of professional staff to audit assignments. The
Juliet B a partner in Tickitt & Run, Registered Auditors, receives a telephone call from the managing director of Chateaubriand Ltd which runs a chain of restaurants and bars. They wish to appoint
Viswa is a company that provides call centre services for a variety of organizations. It operates in a medium-sized city and your firm is the largest audit firm in the city. Viswa is owned and run by
Flowers Anytime sells flowers wholesale. Customers telephone the company and their orders are taken by clerks who take details of the flowers to be delivered, the address to which they are to be
What kinds of access to assets and records are there?
List some management controls.
List suitable controls over a petty cash system.
List some possible wages frauds.
You are working on the audit of your client Sweetie Ltd for the year ended 31 March 2X11.The company employs one hundred workers in a doughnut manufacturing plant. Wages are paid weekly.The following
List some limitations of internal control.
You have been presented with the following draft financial information about Hivex, a very successful company that develops and licenses specialist computer software and hardware. Its fixed assets
Define materiality.
What are the components of audit risk?
What is inherent risk?
What is a walk-through test?
You have recently been appointed auditor of Donkey Aid, a small registered charity which raises funds to rescue dis-tressed donkeys. The charity makes payments to individuals who adopt rescued
Down Market Department Stores PLC sell a high proportion of their merchandise on hire purchase (HP).The system for dealing with HP sales is highly organized and well controlled. The HP receivables
Hermit Galleries PLC are international art dealers with a turnover of £30 million a year.They specialize in Impressionist paintings and have an inventory valued at £10 million. Recently it has been
There are a number of different methods of obtaining audit evidence. Methods include:(i) analytical procedures;(ii) audit sampling:(iii) tests of controls:(iv) detailed testing of transactions and
(a) Explain how analytical review procedures can contribute to an audit.(b) Explain how the results of analytical review can influence the nature and extent of other audit work.(c) Give THREE
Sheek Clothing PLC is a retailer with 200 branches throughout the UK. Most of the branches are small.The inventory is a very significant item in the financial statements. Inventory is counted
What is the difference between a compliance test and a substantive test?
What is meant by: representative, population; sampling units?
Define analytical procedures.
Tickitt & Run are in the process of completing the audit of their client Fredbare Ltd, a manufacturer of swim- wear and sports clothing.They have just carried out the interim audit and have
Your firm is the external auditor of Bestwood Engineering Ltd which manufactures components for motor vehicles and sells them to motor vehicle manufacturers and wholesalers. It has a turnover of
You are responsible for the statutory audit of Servit Ltd (Servit) for the year ended 30 November 2X10. Servit provides industrial maintenance services to companies operating in the engineering
Why is it important?
You are the manager responsible for prospective new clients and you have visited Bolington Publishing PLC which publishes a small range of fiction paperbacks. The chief executive is Daniel Dunbar and
Define business risk.
You are a manager in Costello, a firm of Chartered Certified Accountants, which has recently adopted a business risk methodology. You have been involved in briefing clients about this 'top-down
What is COSO and how does it assist risk management?
The implications of business risk for the audit?
Osocheep Supermarkets Ltd have a main depot and five large supermarkets. Their financial year end is Thursday 31 March 2X11 and inventory is to be evaluated as at the close of business on that date.
Movit Ltd (Movit) is a company which hires out heavy plant used in the construction industry. All plant is hired out with a driver who is responsible for ensuring that the plant is immobilized and
Harrier Motors deals in motor vehicles, sells spare parts, provides after-sales servicing and undertakes car body repairs. During the financial year to 30 June 2X11, the company expanded its

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