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principles of auditing

Questions and Answers of Principles of Auditing

Tickett & Run LLP is a city firm of Chartered Certified Accountants. The firm’s accounts are produced by the administration partner but are subject to audit by Blanket, Mange, another firm of
Rapidrise Ltd is a firm of plumbers’ and electricians’ merchants which has expanded very rapidly to a turnover of some £3 million in five years. There are three founder director/shareholders and
Who owns an accountant's working papers?
Internal auditors often assist management in performing internal review assignments covering, for example, human resources, procurement (purchasing), marketing and treasury activities. Such reviews
Reports produced by internal auditors are different from audit reports produced by external auditors performing audits under International Standards on Auditing. The reports are produced for
The audit of Binkle Ltd for the year ended 31 December 2X10 was completed on 2 February 2X11. Materiality was judged to be £150 000. As all tests yielded satisfactory results, the auditors, Tickitt
What are the responsibilities of directors in connection with illegal acts?
Tickett & Run have recently been appointed auditors to Massive Holdings PLC, a group of ten companies based in the North of England. Massive has subsidiary companies, all of which are wholly owned,
Cuthbert Ltd outsources most of its accounting function to Speedy Accounting Services Ltd. They have found the relationship with Speedy very effective. However, recently it has come to Cuthbert’s
Tickitt & Run are conducting the final audit of Woodhood PLC who are importers and dealers in timber and manufacturers of packing materials. The accounts show results which are comparable to those of
An unqualified audit report normally states that the financial statements to which the report refers give a true and fair view of the state of the company's affairs at the Statement of Financial
Pingo Manufacturing Ltd imports electronic components and assembles them in a factory to make consumer gadgets which appeal to a younger market. They have traded successfully for many years because
After the year end, but before the Auditors' Report is signed, there is a big fire at Megablast plc and their biggest factory burns down throwing the future of the company into doubt. How should this
You are planning the external audit of Steady Eddy Ltd (Steady Eddy) whose principal activity is the provision of road haulage services. You have been provided with the following information in
List the auditors' procedures.
List the possible auditors' reports.
For each of the following statements indicate whether the statement is true or false.a. The procedures for a compilation of financial statements include inquiries concerning a company's accounting
The following questions relate to a public accountant's responsibilities for unaudited financial statements. Select the best response.a. In performing a compilation of financial statements of a
The following questions relate to specialized reporting circumstances. Select the best response. a. When reporting on financial statements prepared on a comprehensive basis of accounting other than
You have been asked to prepare unaudited financial statements for the Marek Company for the year ended December 31, 19X5. Marek does not want the notes to financial statements to disclose that the
You have prepared tax returns for the Hicks & Hocks Corporation for several years. Hicks called you and requested 50 additional copies of the return this year. You have never prepared audited or
W.E. Jolson, CPA, has issued the following report on the Bambino Lumber Company's balance sheet: I have audited the balance sheet of Bambino Lumber Co. for the period ended December 31, 19X1. Due to
The following report was prepared by M. Salvemini, CPA, to accompany unaudited financial statements: We have prepared the statement of net worth, dated November 30, 19X1, that is attached hereto.
Assume that you prepared Moore Corporation's federal income tax return. Shortly thereafter Moore came to your office and requested that you prepare financial statements for the corporation solely
R. Gilsdorf, CPA, has prepared the following report on the cash basis financial statements of the ABC Company. I have audited the balance sheet and income statement of ABC Company as of December 31,
May & Day CPAs are engaged by XYZ Company to audit the records of gross sales of ABC Stores Corporation. ABC Stores leases space in a shopping center owned by XYZ Company that is located on Island
The American National Bank has prepared an application form for long-term loans that must be prepared and signed by an independent CPA. The one-page form contains blanks for filling in financial
The Kohler Company, your client, is considering the acquisition of the Krunt Corporation. The assets of Krunt are composed primarily of receivables and inventory. Kohler is having its engineers
Day, a small manufacturing company, has appointed you to make an audit and issue an opinion for the 19X9 calendar year. In January 19X9, the nine shareholders (all individuals) elected to be taxed as
For the following statements indicate whether the statement is true or false.a. Operational auditing is a type of auditing that is performed only by governmental auditors and internal auditors.b.
The following questions relate to aspects of operational auditing. Select the best response. a. Governmental auditing often extends beyond examinations leading to the expression of opinion on the
An internal auditor states: I view operational auditing as a natural extension for my traditional responsibilities. My operational audit work is built on and integrated with my financial auditing. In
The Veterans Administration agency rents to its employees government-owned housing at its field stations. GAO auditors examined the rentals being collected for about 15 per cent of the quarters and
Financial auditing and operational auditing have several similarities and differences. List the important similarities and differences of an operational audit and an audit of financial statements.
A city government's mayor engaged an independent CPA firm to conduct an operational audit of city services for sanitation (garbage collection) and maintenance of streets and sewers. The purpose of
The president of a manufacturer of plastic containers questioned the efficiency of current office procedures. The internal audit department was requested to conduct an operational audit of the
A state government funds nursing homes operated by cities within the state. The county board is concerned because the nursing homes are experiencing significant budget overruns. The state auditor
A state public service commission requests an operational audit of the efficiency and effectiveness of a state-owned public utility.Required:a. What type of auditor might be engaged to conduct the
Will you accept the following as good voucher?(a) A bill of Rs. 5,000 submitted by a salesman for his travelling allowance(b) A cash memo for Rs. 500 for a perambulator of a company producing rolled
How do you vouch the following?(a) Custom duty paid on import of machinery(b) Income from house property(c) Royalty payable to a foreign collaborator (d) Traveling expenses (e)
What are the differences between auditing and accountancy?
Give the type or types of evidences generally available in respect of the following:(a) Construction work-in-progress(f) Contingent liability in respect of bills(b) Leasehold land discounted(c)
How do you verify the following items?(a) Raw material stock (g) Machine purchased on H. P. system(b) Land (h) Patterns and designs(c) Preliminary expenses (i) Freehold properties(d) Investment (j)
How will you as an auditor deal with the following?(a) Cash(d) Unpaid dividends(b) Provision for taxation(e) Goods in transit(c) Leasehold properties(f) Disposal of plant
State which of the following statements are true:(a) If capital expenditure is treated as revenue expenditure the profit for the year is understated, but in the long run, because of depreciation,
Mention important items for which auditor would refer to each of the following:(a) Board’s meeting minutes book(b) Shareholders’ meeting minutes book
What is dividend?
What is long-form audit report?
How is an auditor of banking company appointed?
“Verification of advances is an important function of an auditor of a bank.” Explain.
State the duties of a bank auditor in writing long form audit report in respect of the following aspects:• Cash • Books and records• Investments • Inter-branch accounts• Advances • Audit
“In the case of a bank only a balance sheet audit is carried out.” Justify.
Explain in brief the specific problems, which the auditor has to look into in every bank.
Discuss briefly important areas you will review as an auditor in conducting the audit of a bank.
What is investigation?
What is investigation? Distinguish investigation from audit.
Are investigation and audit the same?
What do you understand by ‘investigation’? Explain the general procedure followed in an investigation.
How can misappropriation of cash and goods be checked?
A fraud is suspected in a business house and you are asked to carry out an investigation.Explain briefly how you would proceed in this matter.
Discuss in brief the powers of inspector.
What special points should be borne in mind by you in carrying out an investigation on behalf of a person who wants to purchase business as a going concern?
What are the important purposes of investigation?
What are the points to be borne in mind in carrying out an investigation on behalf of a banker who wants to lend money to a borrower, which is a company?
Mention the circumstances under which an investigation of a company can be ordered by the central government? What should be the procedure of investigation in such a case?
The Directors of a private limited company of which you are an auditor ask you to fix the value of its equity shares. Discuss the factors you would consider to evaluate the shares.
What are the general powers and duties of an investigator appointed by the central government? Discuss the investigator’s report according to the Companies Act.
A going concern having become sick has approached the state government for taking over the undertaking. You have been asked to investigate into the affairs of the concern. Chalk out the procedure of
You are appointed to find out the possible reasons of shortfall in the working capital of a company. Discuss how you would investigate the matter.
Define ‘propriety audit’. Distinguish between traditional audit and propriety audit. What are the benefits of propriety audit? Is there any provision for such audit in case of companies under the
Discuss the reasons as to why the conduct of a chartered accountant in practice is considered material if he(a) solicits professional work(b) engages in undercutting(c) accepts appointment as an
Define ‘Professional Misconduct’ and state how professional misconduct and professional ethics are related. Give few instances of professional misconduct with case decisions.
In view, of the provisions of the Chartered Accountants Act, 1949 state and justify your views on the following cases(a) Whether you would accept offer of appointment as auditor of a firm in which
Enumerate the instances of professional misconduct of a chartered accountant in practice, which, however, does not require action by the high court.
Draft an audit programme covering eight special points for examining the accounts of(a) Sports club(d) College hostel(b) Medical college(e) Publishing concern(c) Travelling agent
Is the audit of sole-proprietorship business compulsory?
Discuss the appointment, scope of work, rights and duties of an auditor of a soleproprietorship business.
Is the audit of partnership business compulsory?
What are the advantages of the audit of a partnership firm? What special points should be included in the audit report in respect of such an audit?
“The auditor of an individual or a firm has no statutory obligation to comply with.”Comment.
Describe the steps to be taken by the auditor before commencement of a new audit of a partnership firm.
Can an auditor be appointed by a partner or his legal representative to audit the accounts of a firm?
State the special points to be considered while conducting audit on behalf of the following perons:• A sleeping partner • A retiring partner • The legal representatives of a deceased partner
Does the audit of accounts of a partnership firm differ from that of a company? If so, in what respect?
Describe the procedure of auditing for government accounts and the accounts of public sector undertakings.
Describe the main features which affect auditing of public sector undertaking.
You have been approached by promoters to give an opinion on the financial statements to be included in the prospectus of a proposed corporation to be named U-Park Corporation. U-Park will own and
The following questions relate to the auditor's responsibility for reporting on inconsistency of application of accounting principles. Select the best response. a. Raider uses the last-in, first-out
J.O. Cole, a sole proprietor, operates a trucking business. Cole also has assets and liabilities in connection with other activities. You are retained to audit the accounts of the J.O.C. Truck Lines
The following questions relate to the auditor's responsibility with respect to litigation, claims, and assessments. Select the best response.a. When auditing contingent liabilities, which of the
For each of the following statements indicate whether the statement is true or false.a. The objective of the fourth standard of reporting is to enable users of financial statements to determine the
The following questions relate to circumstances resulting in departure from the auditor's standard report. Select the best response. a Which of the following will not result in modification of the
The following questions relate to circumstances resulting in departure from the auditor's standard report. Select the best response.a. The management of Stanley Corporation has decided not to account
The following questions relate to the auditor's responsibility when associated with comparative financial statements. Select the best response. a When financial statements of a prior period are
A client, without consulting its CPA, has changed its accounting so that it is not in accordance with generally accepted accounting principles. During the regular audit engagement the CPA discovers
The client of a CPA is a partnership. The drawings of the managing partner are considerably in excess of the partner's pro rata share of earnings. Other partners are not aware of the excess drawings
Included with financial statements of the Bowie Manufacturing Company is a typical standard report. Based on this opinion, could you properly conclude that the company is applying generally accepted
You are engaged in your second annual audit of the financial statements of the Nittany Corporation, a medium-sized manufacturing company with 25 stockholders that manufactures optical instruments.
The financial statements for the Old Salt Shipbuilding Company, prepared for the year ended June 30, 19X9, contain the following note:It is the Company's consistent accounting practice to recognize
You have assigned your assistant to the audit of the Bell Sales Company's fire insurance policies. All routine audit procedures with regard to the fire insurance register have been completed (i.e.,

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