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principles of auditing

Questions and Answers of Principles of Auditing

What matters might you emphasize as an auditor in an audit report even though an unqualified opinion is issued?
What is a going concern? When is the assumption of going concern not appropriate according to ISA 570?
Give five indications that there are going concern problems. What are some procedures in connection with dispelling going concern questions?
What must an auditor do if his going concern questions are not resolved?
Some uncertainties may lead to a qualification of opinion in many countries. What are these uncertainties? What is an essential consideration when deciding whether to issue a qualified opinion versus
In what circumstances does materiality require a qualified opinion? An adverse opinion?A disclaimer of opinion?
What is one auditor characteristic most of the developed countries stress? Do you think this is important? Why or why not?
When reporting fraud how would an auditor proceed if he were in France, UK, Germany or Mexico?
. What steps should an auditor take if he becomes aware of a fact unknown to him at the statement date which materially affects the financial statements occurring after the financial statements are
Describe the finalization process required to finish the auditor's report
Discuss examples of financial reporting concerns for each of the five components of internal control: control environment, risk assessment, control activities, information and communication, and
What are the two broad approaches to discussing management's responsibilities in published management reports on internal control? Discuss each briefly.
On what specific areas do directors’reports on internal control published to date focus?
What are the COSO recommendations for management reports on internal controls?
Basic Elements of Audit Report. When fieldwork was finished on 31 December 20X0, the following standard unqualified auditor's report was given by Eldridge and Lloyd, Chartered Accountants (CAs), of
Form of the Audit Report. The most common type of audit report is the standard unqualified report.RequiredReview Illustration 11.1, the standard wording of the IAS audit report, and Illustration
Unqualified Audit Report. Upon completion of all field work on 23 September 20X1, the following audit report was rendered by Alexander Dlouhy, Auditor, to the directors of Rabochaya Raum Company of
Qualified Opinion. Based on ISA 700, there are at least two circumstances where the auditor may not be able to express an unqualified opinion.RequiredA. What are these two circumstances?B. Describe
Adverse Audit Opinion. Bheda Bhasya, Ltd.a company from Ahmadabad, India, without consulting its Chartered Accountant (CA), has changed its accounting so that it is not in accordance with
Disclaimer of Opinion. Ahmad Ali, Technicien Superior, was the auditor for Rebab Ramal Company, a medium-sized wholesaler based in Beriut, Lebanon. Rebab Ramal leased warehouse facilities and sought
Miscellaneous Audit Reports. Two independent, unrelated auditor's reports are given below. The company being reported on, in each case, is profit-oriented and publishes generalpurpose financial
Modification of Unqualified Opinion. Jorge Leyva, Licenciado en Contaduria Publico, has completed the examination of the financial statements of Medina Construccién of Caracas, Venezuela, for the
Going Concern. In the audit of Cerberus, SA, of Bydgoszcz, Poland, Merek Olzewski, Certified Public Accountant (CPA), found indications that Cerberus may have going concern problems.RequiredA. List
Going Concern. Wilfrado Prada, Revisor Official de Contas (ROC), during the audit of Communique Exterior, SA, of Setubal, Portugal, found financial indications that there might be a going concern
Limitation on Scope. Lorts Corporation of Maastricht, the Netherlands, (whose fiscal year will end 31 December 20X8) informs you on 18 December 20X8 that it has a serious shortage of working capital
Statements Not in Conformity with Financial Accounting Standards. Jan Rjady, Akuntan Publik, is engaged in the examination of the financial statements of Soadwao Company of Bandung, Indonesia, and
Reports Involving Other Auditors. Pomposo Coporacién of Mexico City, Mexico, an audit client of yours, is a manufacturer of consumer products and has several wholly owned subsidiaries in foreign
Events After Balance Sheet Date. Rodrigo Acosta, Contador Publico Autorizado (CPA), was engaged by the board of directors of Estrellita Company of Guayaguil, Equador, to audit Estrellita’s calendar
Miscellaneous Conditions Affecting Audit Report. In the following independent situations, assume that you are the audit partner.1 When you requested permission to inspect the minutes of the board of
Reports on Internal Controls. Discuss the similarities and differences between the Cadbury report recommendations and the COSO recommendations for management reports on internal controls.
Directors Report on Corporate Governance. Nordtek, A/S, a manufacturer of fine skiing equipment based in Skien, Norway, has manuals of policies and procedures for monitoring and reporting on internal
According to ISA 500 what two techniques are used to measure audit evidence?
What is the relationship between substantive testing and control risk?
What is search for unrecorded liabilities?What procedures will an auditor use in this search?
Differentiate between the most reliable evidence to the least reliable evidence.
Define persuasiveness of evidence, relevance of evidence and timeliness of evidence.
What are the six evidence-gathering techniques? Define each.
What are the three major categories of documentary audit evidence in the order of their reliability?
What is vouching? Explain its process.
What are the two types of confirmation that an auditor uses? What is the difference between the two?
Explain how inherent risk and control risk influence an auditor's choice of positive confirmation over negative confirmation and vice versa.
List the six evidence-gathering techniques in order of reliability. List the six evidencegathering techniques in order of cost from highest to lowest.
What procedures should an auditor follow when inventory is under the custody of a third party?
What are the five types of analytical procedures? Briefly discuss each.
Define test of transactions and test of balances.
What is a search for unrecorded liabilities?What procedures will an auditor use in this search?
Sufficient Appropriate Audit Evidence. The auditor finds it necessary to rely on audit evidence that is persuasive rather than conclusive and will often seek audit evidence from different sources or
Evidence-Gathering Techniques. An auditor obtains audit evidence by one or more of the following evidence gathering techniques: inquiry, observation, inspection (physical evidence or examination of
Inquiry, Analytical Procedures and Observation. In the examination of financial statements, auditors must judge the validity of the audit evidence they obtain. For the following questions, assume
Inspection. Cathy von Craushaar, Wirtschaftsprufer, is in charge of the audit of the financial statements of Erwartung Erhaben, AG, of Stuttgart, Germany, for the year ended 31 December 20X4. The
Inspection. Discuss what you would accept as satisfactory documentary evidence in support of entries in the following.A. Sales journal.B. Sales returns register.C. Voucher or invoice register.D.
Confirmation. You have been instructed to audit the financial statements of Kingfisher Manufacturing Company of Nottingham, UK.You are furnished the following condensed balance sheet:Your assistant
Accounts Receivable Confirmations — Positive and Negative. In their work on accounts receivable use of confirmations is of great importance.RequiredA. What is an audit confirmation?B. What
Attendance at Physical Inventory Counting. A processor of frozen foods carries an inventory of finished products consisting of 50 different types of items valued at approximately $2,000,000.About
Analytical Procedures. At the beginning of the annual audit of Porster, BV, wholesale distributor of Valkenburg, the Netherlands, Lynna Heijn, Registeraccountant, was given a copy of Porster’s
Extent of Reliance on Analytical Procedures.The extent of reliance that the auditor places on the results of analytical procedures depends on the materiality of the items involved, other audit
Ratio and Trend Analysis. When an auditor discovers a significant change in a ratio when compared with the prior year’s ratio, the auditor considers the possible reasons for the change.RequiredGive
Substantive Tests: — Analytical Procedures, Balances and Transactions. Substantive tests include (1) tests of the details of transactions(2) tests of the details of balances and(3) analytical
Tests of Balances. Using the activity format for the balance sheet account cash, identify the indirect testing effects on the components of directly testing the ending balance for
Tests of Balances. Your client is the Nicholas van Myra Central, a shopping centre with 30 store tenants. All leases with the store tenants provide for a fixed rent plus a percentage of sales, net of
Tests of Transactions — Property, Plant and Equipment. List five substantive tests that the auditors could employ that may determine that all property, plant and equipment retirements have been
Substantive Tests: Balances and Transactions.As part of the systematic process of gathering and evaluating evidence regarding assertions about economic actions and events, tests of balances and tests
What is the primary procedure that auditors rely on for discovering litigation? This procedure is concerned with requests for evidence relating to what?
Discuss the two areas for which an attorney may limit his/her response to the auditors request? If an attorney refuses to provide information to an auditor how can this impact the outcome of an audit?
What type of information might an auditor expect to find in a management representation letter?
What should a manager do should he discover evidence that contradicts the representation of management?
What are commitments? Give some examples. Where in an annual report can you find information about an entity's commitments?
What is a related party? What are two aspects of related party transactions of which an auditor must be aware?
Name the procedures an auditor is required to perform under ISA 550 regarding completeness of related party information provided by management.
What should an auditor do should he become aware of a fact which may materially affect the financial statement after the auditor's report?
According to ISA 610 what are the two types of subsequent events? Briefly describe the impact on the financial statements of each type of event.
What procedures might an auditor consider to identify events that may require adjustment of, or disclosure in, the financial statement?
Why is it useful to do analytical procedures during the completion of an audit?On what does an auditor performing a final review focus?
Discuss the reasons why independent reviews of working papers are carried out.
What should an auditor do if going concern is questionable? How may this affect the auditor's report?
What is the difference between known misstatements, likely misstatements and undetected misstatements?
What type of report might an auditor issue to the board of directors in Germany that their US counterparts might not? Do you agree or disagree with this practice? Why or why not?
. What are auditors required to discuss with the audit committee?
Describe the difference between documentation, work papers and working papers.
Apart from documenting the audit, how else may working papers be used?
What should working papers contain?How do working papers relate to auditor judgement?
Define permanent file and current file and list the contents of each.
Independent Review Checklist. Compare the general checklist used by an audit firm to assure that the review of the audit work is thorough and complete (Illustration 10.3) with the checklist used by a
Inquiry of Clients Attorney. To discover litigation, claims, and assessments that affect the client, the auditor relies on both her own field procedures and a letter from the client's legal
Inquiry of Clients Attorney. Morgan LeFay, AS, of Horsens, Denmark, auditor Jan Ogier, Satatautoriseret Revisor, determines that LeFay has paid legal fees to four different law firms during the year
Management Representation Letter. In instances when other sufficient appropriate audit evidence cannot reasonably be expected to exist, the auditor should obtain written representations from
Disclosures. In an audit of the Tai Mekong Corporation of Ubon Ratchathani, Thailand, as of 31 December 20X4, it was discovered that the following situations exist. No entries have been made in the
Related Parties. D’orsay Dore, SA is being audited by Clement & Grandcourt, Expert Comptable. During the course of the audit Clement & Grandcourt discover D’orsay Dore sold inventory to
Subsequent Facts and Events. Jan van Weg, Registeraccountant (RA), is nearing the completion of an audit of the financial statements of Janus, BV, for the year ended 31/12/20X0. Van Weg is currently
Subsequent Facts and Events. The following unrelated events occurred after the balance sheet date but before the audit report was prepared:1 The granting of a retroactive pay increase to selected
Subsequent Facts and Events. In connection with their audit of the financial statements of Swan Mfg. Corporation of Ayutthay, Thailand for the year ended 31 December 20X4, Virameteekul, Kanchana &
Corporate Governance Disclosures. The board of directors of Celestial City Corporation of Taejon, Korea, is issuing a corporate governance report. In this audit year Celestial City lost 1,280,000,000
Working Paper Review. Berins & Trichet, Reviseurd ’Entreprises, of Brussels, Belgium has a policy of having their audit papers reviewed by both the partner in charge and an independent
Going Concern. When an auditor finds the ability of a company to continue as a going concern is questionable, the auditor will use certain audit procedures to obtain further evidence (Illustration
Matters for Attention of Partners. Mneme Monos, a Greek manufacturer of computer chip memories, is being audited by you and you are to make a report to the partner in charge, Abderus Calliope, Soma
Legal Aspects of Working Papers. Cisse and Kamotho, Kenya Certified Public Accountants (CPA(K)), were employed for several years by the Masama Balira Company of Kenya to make annual audits. As a
Preparation of Work Papers. You are instructing an inexperienced staff accountant on her first auditing assignment. She is to examine an account. An analysis of the account has been prepared by the
Preparation and Planning. Roget Buckland was recently appointed auditor of Waterfield Ltd, a public company. He had communicated with the company’s previous auditor before accepting the audit.
What is the difference between management risk assessment and auditor risk assessment?
What are the five steps to evaluate internal control?

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