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principles of auditing

Questions and Answers of Principles of Auditing

What are the two different strategies an auditor can use when getting ready to evaluate internal control? If cost is a consideration which strategy should an auditor use? Why?
What are procedures to obtain an understanding? Give an example.
The nature, timing and extent of procedures performed by the auditor to obtain an understanding of internal controls will vary according to what criteria?
What in the accounting system would the auditor identify? What is a good starting point for an auditor to obtain understanding of the accounting process?
What does understanding of the overall flow of transactions through the system involve?
What should auditors look at to obtain a high level understanding of the computer environment? What should they consider regarding the computer system?
What are the three methods of documenting the internal control structure? Describe each.
What are the financial statement assertions by which control risk must be assessed? Define control risk.
What are reportable conditions? Give some examples.
When should control risk be set at a maximum?
Define ‘test of controls’. What is the difference between test of controls and procedures to obtain an understanding?
Tests of controls generally use what types of evidence-gathering procedures? Briefly describe each type.
What kind of questions might an auditor ask an employee user of accounting information responsible for monitoring the control procedures used to prepare the information?
Discuss the components which make up Information Technology (IT).
In certain entities evidence in electronic form makes it impractical for an auditor to reduce detection risk by performing only substantive tests. What procedures should the auditor perform?
Why does electronic data interchange(EDI) create a new environment for evidence?
What are the key issues that the auditor might consider because of the differences between traditional documentary and electronic evidence?
Discuss what the International Auditing Practices Committee (IAPC) technology report says about computer systems?
What are the characteristics of an effective information system?
Name the two types of controls used in a CIS system? Briefly discuss each.
What are the four components in general computer controls? Discuss each component.
What are the three ways to identify users?Give a control that is based on each.
What are the three components of application controls? Briefly discuss each.
How does traditional accounting software differ from accounting software we can expect in the future?
In using a computer for an audit what are the two most common techniques? Briefly explain each one.
Information System. The information system, especially the accounting system, significantly affects the potential for material misstatements as well as the design of substantive tests.RequiredA. What
Obtain Understanding of Internal Control.The auditor should obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit
Control Risk. ISA 400 requires auditors to document their assessment of control risk.RequiredA. Define control risk.B. Control risk should be assessed as high except in what circumstances?C. During
What is the objective of the test data approach? Give an example of a test data approach procedure.
Documentation Of The Internal Control System. The auditor’s documentation of the internal control system should reflect an understanding sufficient to plan the audit. Rio Duro is a retail clothing
Weaknesses in Internal Control. The Art Appreciation Society of Gateshead, UK, operates a museum for the benefit and enjoyment of the community. During hours when the museum is open to the public,
Tests of Controls. The nature of the tests of controls is that the tests generally consist of one or a combination of four types of evidencegathering techniques: 1) inquiry of client personnel (2)
Computer (CIS) Controls — General and Application. There are two types of controls used in a CIS system: general controls and application controls. General computer controls include controls over
Characteristics of Effective Information Systems. One of the areas of assurance services that auditors will offer in the future is systems reliability services to improve effectiveness of information
Electronic Evidence. BeAir is a travel agent located in McMinville, Oregon, USA. Ninety per cent of their travel bookings are through their internet site (www.beair.com). Ninety-eight per cent of all
Information Technology. Information technology provides both financial and nonfinancial data essential to the effective operation of an organization. Information technology processes the information
Computer (CIS) Controls — General and Application. Cuneyt Erbakan, Sworn Financial Adviser, has been assigned to the audit of Dido Fire Equipment, a medium-sized distributor of fire-starting
The Future Of Accounting Software. Within the first decade of the 21st century computing will have a major impact on the accounting profession. Virtually all businesses will interact with suppliers,
Auditing With the Computer: Test Data Approach and Parallel Simulation. Salus Populi, SA, of Pesaro, Italy, processes payroll for numerous employees through one large payroll program, which is
Computer Audit Topics. It is important that companies have internal audit departments with separate computer audit functions. Indeed, the computer audit profession has emerged in the past decade with
Control Procedures. Dreyfet department store maintains on-line prices on minicomputers in stores connected to the automatic cash registers. For most products the product and price are read into the
When obtaining knowledge of a company what type of material can auditors use? What ISA concept discusses this issue? Briefly discuss the standard.
What client documents should be reviewed to obtain knowledge as suggested by ISA 310?
Why is it important to have discussions with the client about their objectives?
Who are the members of an audit committee? What things might an auditor discuss with them during the initial meeting? What things might be discussed during the course of an audit?
What are corporate minutes? Why are they important to an auditor?
How many times during an audit should analytical procedures be performed as per ISA 520? What times do most practicing accountants recommend?
What does the term internal control mean according to ISA 400?
What does the internal control system comprise, according to ISA 400?
Define control environment. What do you think the control environment would be like in a small house-cleaning service with ten part-time employees run by a husband and wife?
What things may cause variation in the nature, timing and extent of procedures performed by an auditor?
What are the important criteria an external auditor must keep in mind when assessing an internal auditor?
What considerations are relevant when determining whether specialized CIS skills are needed?
How is materiality defined in the International Accounting Standards framework?
When conducting and audit the relationship between materiality and risk should be considered. What does this mean in statistical sampling terms? Give some examples.
What four factors are generally considered in determining materiality? Briefly discuss.
The relative importance of an error will depend largely on the auditor’s views about the users’ decision-making process. How would an auditor assign materiality if the primary users of the
What three factors should an auditor consider during initial judgement about materiality? What qualitative factors may be considered?
What guidelines are given by the AICPA and International Standards when an auditor is setting materiality? Discuss.
What are the definitions of the three audit risk components as per ISA 400?
According to COSO, what circumstances may merit increased attention by management when analysing risk?
What are some of the disadvantages of the SAS 47 audit risk model?
To assess inherent risk, the auditor uses professional judgement to evaluate numerous factors at the financial statement and the account balance and class of transaction levels. Give some examples of
The preliminary assessment of control risk should be set high except in what circumstances?What are the reasons the control risk are ordinarily set high?
What is documentation? Give some examples on how an auditor may document her work,
What should an auditor consider in determining detection risk?
Define audit planning memorandum. What can one expect to find in an audit programme?
Define audit programme. According to ISA 300 what is set out in an audit programme. What are some considerations relevant to determining the optimum combination of audit procedures for a specific
Knowledge of the Business. The auditor considers several matters when acquiring knowledge of the business in the planning phase.RequiredA. What general economic factors would the auditor consider?B.
Knowledge of the Business. Constantijn &Nianias, Soma Orkaton Logistons (SOLs), have been hired to audit Eidola Company, a biochemical company listed on the Athens Stock Exchange. Constantijn 8
Legal and Internal Auditing. An auditor's work to evaluate a client before the audit includes investigating legal obligations and considering the work of internal auditing.RequiredA. What legal
Analytical Procedures. Analytical procedures are typically done during the planning phase.RequiredA. Define analytical procedures.B. Other than during planning, when does an auditor conduct
Understanding of Accounting and Internal Control. ISA 400 states: “The auditor should obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop
Client Facilities Tour. When an auditor has accepted an engagement from a new client who is a manufacturer, it is customary for the auditor to tour the client's plant facilities. Discuss the ways in
Materiality. Materiality should be considered by the auditor when (a) determining the nature, timing and extent of audit procedures and (b) evaluating the effect of misstatements.RequiredA. Define
Audit risk. The following terms are related to audit risk:1 Audit risk 2 Inherent risk 3 Control risk 4 Detection risk 5 Inherent limitations of an auditRequiredFor each term:A. Provide a
Risk Analysis. Three methodologies are suggested for use in risk analysis: (1) Estimate the significance of a risk. (2) Assess the likelihood (or frequency) of the risk occurring. (3) Consider how
Inherent Risk. Microsoft and Netscape were in fierce competition for dominance of the Internet web browser and software market in 1996. Netscape entered the Internet web browser market first and
Audit Risk Model. Using the audit risk model, state the effect on (increase, decrease, no effect) (1) inherent risk (2) control risk (3)acceptable audit risk and (4) expected evidence required for
Inherent Risk. Consider the following factors:1 Integrity of management 2 Organization and management structure 3 Nature of the entity’s business 4 Industry factors 5 Financial statement accounts
Audit Risk Model. Sonya Bagri, Chartered Accountant (CA), is auditing the sales of Barlaam Books, which owns two retail book stores in New Delhi. She has decided to allow only 25 incomplete sales
Audit Planning Memorandum. Read the case of Constantijn & Nianias, Soma Orkaton Logistons (SOLs), audit of Eidola Company in Exercise 6-33, above. Eidola has asked Constantijn & Nianias to do their
Audit Planning and Preparation. You are advised of a new assignment as in-charge accountant of your Wirtschaftspriifer firm's recurring annual audit of a major client, the Lied Lieferung, GmbH. You
Procedures to Obtain an Understanding and Audit Planning. On 12 March 1997, Lars Bildman, Chief Executive of Astra USA, Inc., was arrested by US federal officers and charged with 35 counts, including
Materiality. The next two pages are the consolidated profit and loss account (income statement) and balance sheet for Nokia, an international manufacturer of portable telephones with headquarters in
How does ISA 400 define internal control system?
Do corporations believe fraud to be a problem according to KPMG reports?Explain.
Why do auditors focus on control over classes of transactions rather than account balances?
What two types of internal control are there?What type of audit is performed in each area of internal control?
What are the five interrelated components of internal control? Briefly discuss them.
When management commits itself to integrity and ethical values, is setting a good example to employees enough? Explain.
In what ways can a CEO affect the management philosophy of his or her entity?
What conditions may deserve special consideration when focusing on risk?
Control procedures are divided into three functions. Name these functions. Why are these divisions necessary?
What are proper authorization and physical controls? Give an example of each.
What kinds of documents does a company keep? In what way can these documents help an entity's control system?
How many different types of information systems might an entity make use of?
What things might an auditor consider when evaluating the information system of an entity?
What is the accounting system designed to do? What should be documented about an accounting system as part of the procedures to obtain an understanding?
What things will an auditor consider when evaluating the communication system?

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