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principles of auditing

Questions and Answers of Principles of Auditing

Why should an internal control system be monitored over time? What issues are considered when evaluating the ongoing monitoring for internal control?
Internal Control Definition. According to the COSO report, ‘Internal control is a process, effected by an entity's board of directors, management and other personnel, designed to provide reasonable
Obtain Understanding of Internal Control.Johannes Mullauer, Wirtschaftsprufer, who has been engaged to audit the financial statements of Ais, GmbH, is about to start obtaining an understanding of the
Components of Internal Control. Internal control consists of five interrelated components.These are derived from the way management runs a business and are integrated with the management
Assess Internal Control Environment. Using the COSO criteria for assessing internal control environment (Illustration 7.4) describe a company with an effective control environment.
Control Environment. The board of directors of CD Mania, BV, a chain of retail music stores in the Netherlands, has just issued policies specifying standards of ethical behaviour for employees toward
Control Environment. Hasse Nilsson, Statautor Revisor, is in charge of the audit of a new client, US Clothing Store. It is owned by three men, Messrs Simpson, Andersson and Ding. Only one of the
Risk Assessment. Eva-Maria Saevert, Wirtschaftsprufer, obtained an understanding of the control procedures related to valuation for sales for her client Sammlung der Schweiz. The results lead her to
Risk Assessment. OK Yen, Ltd is a Japanese electronics games and amusements company specializing in pachinko games. Pachinko parlours are a big industry in Japan, whose 18,000 pachinko parlours in
Control Activities. A company’s internal control structure is strengthened by including procedures that have specific functions or purposes. For example, the control procedures may include a
Separation of Duties. Aurello Pellegrini, Dottore Commercialista (CONSOB), is approached by his client who has just reorganized his medium-sized manufacturing company to make it more structured by
Separation of Duties. The division of the following duties is meant to provide the best possible controls for the Ma Foi Magasin, a small wholesale store in Dijon, France.1 V¥ Assemble supporting
Separation of Duties. Papagei Stuck Corporation fabricates products, using very expensive components purchased from suppliers.Therefore, the company attempts to tightly control raw materials’
Proper Documentation. Properly designed and utilized forms facilitate adherence to prescribed internal control structure policies and procedures. One such form might be a multicopy purchase order,
Information and Communications. Hayes & Hu, Ltd, personal financial advisers in the Notting Hill district of London, has asked Joseph Smallman, Chartered Accountant (CA), to recommend a computer
Information and Communications. Luxury Auto Leases, Inc. of New Mexico, USA, has offices in Tucumcari, Santa Fe, and Albuquerque.Lisa Dockery, the company president has an office in Santa Fe and
Monitoring. Monitoring is done in two ways: through ongoing activities and individual evaluations.RequiredA. From what sources does ongoing monitoring come? What issues might be considered?B. When
Control Environment. Review 1996 articles in Business Week and Fortune, Internet or Lexis- Nexis databases and answer the following question: ‘What are the effects Bill Gates has on the control
Internal Control Activities An example of a lack of internal controls with a disastrous result was the bond trading loss in the New York Office of Daiwa Bank in 1995. Over 11 years 30,000
What are the seven financial statement assertions made by management according to ISA 500?
Name two types of risk in the Audit Process?Briefly discuss each.
What three elements make up audit risk?Define each.
, What is meant by materiality? What is the SAS 47 definition of materiality?
Ifa balance to an account has a $10 million error could an auditor say it is a material error?Why or why not?
What are the ISA standards that are used by an auditor to guide her through the first phase of an audit?
At what phase of the audit is materiality assessed?
What is test of controls? Where is the evidence for these tests obtained? Give an example.
What are substantive tests? What is the difference between a substantive test and a test of controls? Give an example of a substantive test.
What additional procedures are done when an auditor is close to the end of her audit?
Management Assertions and Audit Objectives.The following are management assertions (1-7), and audit objectives applied to the audit of accounts payable (a—h).Management assertion 1 Existence 2
Materiality. The concept of materiality is important in an audit of financial statements and expression of opinion.RequiredA. How are materiality (and immateriality)related to the proper presentation
Audit Process Model. What are the four Phases of an Audit? Discuss each. Determine which is the most important of the four and explain why.
Audit Process Model. Based on the standard Audit Process Model, trace the procedures an auditor would use to audit a retail clothing business (continuing client) from the initial client contact to
Audit Objectives and Financial Statement Accounts. Look at the financial statements of a major public company. Pick three accounts and discuss the financial statement assertions that might be
Why is knowledge of the internal control system necessary to prepare an audit plan?
To what extent can an existing auditor discuss the affairs of his client with a new auditor?
If money is owed to the auditor, what can an auditor do and what risks are involved?
What is a principal auditor? What must he consider when the work of another auditor is used?
What can impair the objectivity of an audit?
Discuss the difference between a modified audit report and an unmodified audit report.
What should be included in an engagement letter? What are some reasons a client might change the terms of the engagement? What are the two basic types of engagement proposals?
What must be considered by the auditor when sending an engagement letter to a component of the business?
Name four sound business reasons why audit fees may be lowered from the previous year’s rate?
Client Evaluation. The audit firm of F. A. Bloch and Co. has been approached by the following companies who wish to retain Bloch for audit work:1 Interlewd, an internet company, whose website
First Time Engagement Evidence. ISA 510 states that when auditing a first time engagement‘the auditor should obtain appropriate evidence that: (a) the opening balances do not contain misstatements
Use of Other Auditor. Rene Lodeve, Reviseur d’Entreprises, has been hired by BelleRei, NV, a Liége, Belgium, company. Lodeve will audit all accounts except those of a subsidiary in Spain, which
Audit Fees. Ursula Chona, Contador Publico (CP Titulado), an auditor from Medellin, Columbia, was referred a client by a local attorney and she has agreed to accept the client for a financial
Engagement Letter. Stephen Hu, CPA, from Taipei, Taiwan, has just accepted a new client, Kiwan Xou. The company will be audited under the ISA and IAS standards. The client will be given an audit
Audit Staffing. Inge Broholm is an audit manager with Ashe, Auktoriserad Revisors. She has been placed in charge of this year’s audit of Uplift Corporation. After assessing her staff needs for the
Quality Review. Charalambos Viachoutsicos is assigned the responsibility of setting up a quality review programme at his St Petersburg, Russia, audit firm, Levenchuk.RequiredA. What should the
Audit Proposal. Juao Castelo, Revisor Oficial de Contas (ROC), is required to write a client audit proposal for two clients, one continuing (JJinne) and one new (Autodafe).Required A. Based on the
Description of the Business:Compu Group Corporation designs, develops, manufactures and markets a wide range of personal computing products, including desktop personal computers, portable computers,
Evaluate this quote: ‘Every international business, large or small, should have an annual audit by an independent auditor.’ Why must an auditor review the financial statements of a company each
What was the main reason the International Accounting Standard Committee (IASC) was founded? How have the international auditing standards strengthened the international accounting standards?
What does the practice and theory of international audit include aside from knowledge of ISAs?
What is the definition of an audit according to the International Standards on Auditing?Briefly discuss the key terms in the definition.
What steps does an auditor take in order to assess the reliability and sufficiency of information contained in the accounting records?
What is the existence assertion? What is the rights and obligation assertion? How does an auditor test an assertion?
What are some professional responsibilities discussed in the IFAC Code of Ethics for Professional Accountants?
What are the differences and similarities in audits of financial statements, compliance audits and operational audits? What is an operational audit designed to do?
What type of organizations can expect to have a compliance audit? Why?
What are the two types of auditors? Briefly define them.
How does Philip Wallage’s view of the audit process compare the empirical scientific cycle to the financial audit process?
What is meant by ‘due professional care’?Why is it important?
What are the five components of internal control? Give a sentence on each.
Based on the Evaluation and Judgement phase (IV) of the audit process model on what judgements are the overall conclusions formed?
Name three influential international organizations in the field of accounting other than the IFAC?
Expectations Gap. The general public think that an auditor guarantees the accuracy of financial statements. Is this true? Why? What other things does the public believe about audited financial
Audit. The London, Tokyo and New York Stock Exchange, among others, require an annual audit of the financial statements of companies whose securities are listed on it. What are the possible reasons
Operational Audits. List four examples of specific operational audits that could be conducted by an internal audit in a manufacturing company. Describe how you would conduct each.
Reasons for Audits. Give reasons why the following organizations should have annual audits by an independent external auditor:(a) The US Federal Reserve Board(b) A retail company traded on the London
Auditing Tasks. Each of the following represents tasks that auditors frequently perform:1 Compilation of quarterly financial statements for a small business that does not have any accounting
Objectives of an Audit. Tracy Keulen, the sole owner of a small bakery, has been told that the business should have financial statements reported on by an independent Registeraccountant (RA). Keulen,
Auditor Traits. Here are some traits that might be beneficial for an auditor: technical accounting and auditing ability, supervisory ability, public relations ability, good judgement and general
Auditor Responsibility. Four friends who are auditing students have a discussion. Jon says that the primary responsibility for the adequacy of disclosure in the financial statements and footnotes
Audit Terms and Concepts. Each auditing term in Column One below bears a close relationship to a term in Column Two.Required Identify the most closely related terms in Columns One and Two. Organize
Attitudes about Auditors. The following three statements are representative of the attitudes and opinions sometimes encountered by professional auditors.1 An audit by an independent auditor is
Internal and External Audit. Khaled Al-Zubari, an executive recruiter, is a member of the Board of Directors of Mantilla Corporation. At a recent board meeting, called to discuss the financial plan
Qualifications of Auditors. From the library or the Internet web site Auditing texticom (click ‘CASES’ and ‘Cases from Principles of Auditing: An International Perspective’) get a copy of the
Due Professional Care. Discuss lawsuits resulting from negligence of ‘due professional care’.Required A. Consult the library, a database like Lexis, Nexis or the Internet for lawsuits resulting
Give a brief outline of the historical development of auditing.
Discuss the potential impact of the Cadbury and COSO report on the audit profession.
What are the most significant components of the audit expectation gap? Briefly discuss potential or existing actions by the audit profession aimed at closing these gaps.
Describe the nature, composition and potential sanctions of disciplinary courts.
Discuss the conditions that have to be met in order to hold an auditor successfully liable.
Summarize differences between the privity, foreseen users and reasonably foreseeable users standards.
Describe the legal possibilities to limit the financial risks for auditors as a result of litigation.
What do you think of a system of proportionate liability?
Briefly discuss the service package that is currently offered by large audit firms.
Identify and define the two components of audit quality.
What is the theoretical basis for the assumption that Big Five firms provide higher technical audit quality than non-Big Five firms?
Briefly discuss the determinants of the audit fee level.
Discuss the new objects of assurance services.
History of Auditing. In this chapter, the history of auditing has been briefly described, from an international perspective.RequiredIdentify the major differences with the developments specific for
Agency Theory. Identify principals and agents in the cases mentioned below. Describe the contributions and ‘prices’ associated with these relationships, identify potential risks for the principal
Audit Regulation. Comment on the following statements:A. Audited financial statements are entirely accurate.B. An unqualified audit opinion guarantees that the audited company will remain in business
Auditor's Opinion on the Occurrence of Fraud. Sundback, CGR, is the auditor for Upseerin Manufacturing, a privately owned company in Espoo, Finland, which has a 30 June fiscal year. Upseerin arranged
Opinion on the Occurrence of Illegal Acts.Ostling, Auktoriserad Revisor, accepted an engagement to audit the financial statements of Sandnes Company of Goteborg, Sweden.Ostling’s discussions with
Legal Liability to Third Parties. Suppose you are a judge in the following civil case.Plaintiff Sue Bank, a banker, accuses auditor Big Zero of having performed a negligent audit in the financial
Audit Quality and Audit Fee Determination.Company Hochbau, a construction company, has decided to change auditors, as a result of continuous communication problems with the existing auditors. As the

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