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business
principles of auditing

Questions and Answers of Principles of Auditing

a. Contrast the conditions that may enable the principal auditor to (1) not make or (2) make reference to another auditor in the auditor's report.b. Explain the effects on the auditor's report when
In reporting on comparative financial statements, what are the effects on the auditor s report of(a) different opinions,(b) updating a prior year's opinion, (c) changing auditors?
a. Distinguish three situations involving information accompanying audited financial statements.b. Describe the auditor's responsibilities for each type of information.
Circumstances may occur in the audit of an entity's financial statements when the auditor concludes that it is necessary to add explanatory language to the report while still expressing an
Identify the three categories of activities that pertain to completing the audit.
a. Distinguish between the terms subsequent events and subsequent events period.b. Define the two types of subsequent events and indicate the accounting treatment of each type.c. What is the
a. What evidence is required in an audit of litigation, claims, and assessments?b. What is a letter of audit inquiry?c. What effects may failure of a lawyer to respond to a letter of audit inquiry
a. What objectives are met in obtaining a client representation letter?b. What is the impact of a client's refusal to provide a rep letter.
a. What are the objectives of making an overall review?b. Who should make this review?c. How should analytical procedures be used in this review?
a. What are the two objectives to be achieved in evaluating the findings?b. List four steps in meeting these objectives.
a. What are the purposes of the auditor's final assessment of materiality and audit risk?b. Distinguish between the terms known misstatement, likely misstatement, and aggregate likely misstatement.
What is included in the technical review of the financial statements, what aids are used in the review, and who makes the review?
a. How and by whom is the opinion on the financial statements formulated, and how is it communicated?b. How are proposed adjustments and disclosures generally resolved?
a. Identify the primary reviewers of working papers and the nature of their reviews.b. What are the objectives of the engagement partner's review?c. Why may a second partner review be desirable?
What are the effects on a report on reportable conditions when the auditor separately identifies and describes material weaknesses?
a. Indicate the form and timing of the auditor's communication with the audit committee on the conduct of the audit,b. What matters should be included in the communication?
What information should the auditor include in a notification of parties other than the client about the postaudit discovery of facts when he or she has been(a) able (b) unable to make a
a. What responsibility does the auditor have upon discovery of omitted procedures after the report date?b. Indicate the possible consequences of the auditor's investigation of omitted procedures.
Identify several types of cash accounts that should be included as cash balances on the balance sheet and several others that should not.
Which transaction cycles relate directly to cash and how?
a. State the account balance audit objectives for cash that are associated with each category of financial statement assertions,b. Indicate the relative degree of inherent risk associated with each
Cash balances often constitute a very small percentage of an entity's current or total assets. Why then isn't less effort allocated to auditing cash balances?
What special considerations relate to applying the concepts of materiality and preliminary audit strategies to the audit of cash balances?
a. Identify three different tests of details of transactions that can be performed in auditing cash balances.b. Which of these tests need not be performed when control risk pertaining to cash
How does a proof of cash differ from an ordinary bank reconciliation?
a. What is meant by the term kiting?b. What procedures can be used by the auditor to detect kiting?
a. What types of information does the auditor seek to have confirmed on the standard form to confirm account balance information with financial institutions?b. What assertions are addressed by the
a. What is a compensating balance?b. What is the auditor's primary source of evidence about this item, and to what assertion does it pertain?
How may the auditor vary his or her work on bank reconciliations based on the applicable acceptable level of detection risk?
Identify several considerations the auditor should make regarding management's presentation and disclosure of cash balances.
a. What is lapping?b. What circumstance is conducive to lapping?
a. What precautions are taken by the embezzler to prevent detection of lapping?b. What tests can the auditor use to detect lapping?
What internal control features are applicable to petty cash?
Identify the tests of details that an auditor may use in auditing petty cash.
What internal controls are applicable to a payroll bank account?
Identify the tests of details that an auditor may use in auditing a payroll bank account.
a. Describe the nature of the investment cycle.b. Does the investing cycle interface with any other cycles? Explain.
State the audit objectives for each of the management assertions that pertain to the investing cycle.
Describe the applicability of internal control structure components to the investing cycle.
a. Describe the nature of the financing cycle.b. Identify other cycles that interface with the financing cycle.
State the specific audit objectives that apply to the financing cycle.
Indicate the materiality, audit risk, and audit strategy matters that relate to the financing cycle.
Discuss the applicability of the internal control structure components to financing cycle transactions.
What factors pertain to determining the acceptable level of detection risk for long-term debt transactions?
Describe the nature of each of the following substantive tests and indicate the assertions to which each relates:a. Vouch entries to long-term debt accounts.b. Confirm debt.c. Recalculate interest
Identify the ratios that may be used in applying analytical procedures to stockholders' equity balances.
Define a special report according to AU Section 623.
Discuss the format of a report on condensed financial statements. What type of assurance is provided?
Discuss the CPA's responsibility if disclosures in interim financial statements are not adequate. What basis does the CPA use in evaluating the adequacy of disclosures in interim financial statements?
What understanding of a client’s affairs must a CPA have to compile financial statements?
What type of report should CPAs issue on financial statements if they have performed all necessary audit procedures but they are not independent?
Negative assurance may be expressed when an accountant is requested to report on thea. Compilation of prospective financial statements.b. Compliance with the provisions of the Foreign Corrupt
An auditor who conducts an audit in accordance with generally accepted auditing standards and concludes that the financial statements are fairly presented in accordance with a comprehensive basis of
Reports are considered special reports when issued in connection witha. Compliance with aspects of regulatory requirements related to audited financial statements.b. Pro forma financial presentations
Which of the following is a prospective financial statement for general use upon which an accountant may appropriately report?a. Financial projection.b. Partial presentation.c. Financial forecast.d.
The party responsible for assumptions identified in the preparation of prospective financial statements is usuallya. The client’s management.b. A third-party lending institution.c. The reporting
An accountant who reviews the financial statements of a nonpublic entity should issue a report stating that a reviewa. Is substantially less in scope than an audit.b. Provides negative assurance that
Performing inquiry and analytical procedures is the primary basis for an accountant to issue a (an)a. Compilation report on financial statements for a nonpublic entity in its first year of
When an accountant issues to an underwriter a comfort letter containing comments on data that have not been audited, the underwriter most likely will receivea. Positive assurance on supplementary
Comfort letters ordinarily are addressed toa. The Securities and Exchange Commission.b. Underwriters of securities.c. Creditor financial institutions.d. The client’s audit committee.
During a compilation of a nonpublic entity’s financial statements, an accountant would be least likely toa. Omit substantially all of the disclosures required by generally accepted ac¬ counting
Compiled financial statements should be accompanied by a report stating all the following excepta. The accountant does not express an opinion or any other form of assurance on the financial
When an accountant compiles a nonpublic entity’s financial statements that omit substantially all disclosures required by generally accepted accounting principles, the accountant should indicate in
When an accountant compiles projected financial statements, the accountant’s report should include a separate paragraph thata. Describes the differences between a projection and a forecast.b.
An accountant’s standard report on a compilation of a projection should not includea. A separate paragraph that describes the limitations on the presentation’s use¬ fulness.b. A statement that a
When an independent CPA is associated with the financial statements of a publicly held entity but has not audited or reviewed such statements, the appropriate form of report to be issued must include
If information accompanying the basic financial statements in an auditor- submitted document has been subjected to auditing procedures, the auditor may express an opinion that the accompanying
On March 12, 19X5, Brown & Brown, CPAs, completed the audit of the financial statements of Modern Museum, Inc., for the year ended December 31, 19X4. Modern Museum presents comparative financial
Walter Kunitake, CPA, has been asked by the management of Russell Company, a nonpublic real estate agency, to compile a set of financial statements as of the company’s year end, November 30,
Tickitt & Run are the auditors of BigBoy PLC and have been asked as a special-purpose audit engagement to express an opinion on the present liquidity of the company and, in particular, the ability of
Imperiol, a limited liability company, manufactures and distributes electrical and telecommunications accessories, household durables (e.g. sink and shower units) and building systems (e.g.
Why does the audit report contain a statement that the financial statements are representations of management?
Name five sources of generally accepted accounting principles other than the pronouncements of the rule-making bodies.
How is the standard audit report adapted to apply to consolidated financial statements?
The fourth standard of reporting requires the auditor’s report to contain either an expression of opinion regarding the financial statements taken as a whole or an assertion to the effect that an
How are management’s responsibility and the auditor’s responsibility represented in the standard auditor’s report? Management's responsibility Auditor's responsibility a. Explicitly Explicitly
Which of the following would not be required for financial statements to be “presented fairly” in conformity with generally accepted accounting principles?a. That generally accepted accounting
The auditor’s report should be dated as of the date on which thea. Report is delivered to the client.b. Fiscal period under audit ends.c. Field work is completed.d. Review of the working papers is
If a publicly held entity declines to include in its financial report supplementary information required by the FASB, the auditor should issuea. Either an adverse opinion or an “except for”
Soon after Boyd’s audit report was issued, Boyd learned of certain related party transactions that occurred during the year under audit. These transactions were not disclosed in the notes to the
Unaudited financial statements for the prior year presented in comparative form with audited financial statements for the current year should be clearly marked to indicate their status and I. The
After issuance of the auditor’s report, the auditor has no obligation to make any further inquiries with respect to audited financial statements covered by that report unlessa. A final resolution
If a document containing the auditor’s report includes a statement by management taking responsibility for the financial statements, the auditor's reporta. Should omit reference to management’s
You recently hired an accounting major, a graduate of a local university, to assist you in your CPA practice. She has been assisting you in the audit of the balance sheet of a small client. When you
The Commission on Auditor’s Responsibilities recommended the following form of audit report:Report of Independent Auditors Financial Statements The accompanying consolidated balance sheet of XYZ
What are examples of uncertainties that might affect the auditor’s report?
Describe how auditors may use FASB Statement No. 5 as guidance in determining whether and how to modify the audit report.
The principal auditor is satisfied with the independence and professional reputation of the other auditor who has audited the financial statements of a subsidiary. To indicate the division of
When a principal auditor decides to make reference to another auditor’s examination, the principal auditor's report should always indicate clearly, in the introductory, scope, and opinion
Management of Hill Company has decided not to account for a material transaction in accordance with the provisions of an FASB Standard. In setting forth its reasons in a note to the financial
When there is a significant change in accounting principle, an auditor’s report should refer to the lack of consistency ina. The scope paragraph.b. An explanatory paragraph between the scope
Green Company uses the first-in, first-out method of costing for its international subsidiary’s inventory and the last-in. first-out method of costing for its domestic inventory. The different
If an auditor believes there is a remote probability that resolution of an uncertainty will have a material effect on the financial statements, the auditor should issue a(an)a. Disclaimer of
An auditor did not observe a client’s taking of beginning physical inventory and was unable to become satisfied about the inventory by means of other auditing procedures. Assuming no other
The refusal of a client’s attorney to provide a representation on the legality of a particular act committed by the client is generallya. Sufficient reason to issue an adverse opinion.b. Considered
A limitation on the scope of an audit sufficient to preclude an unqualified opinion will usually result when managementa. Presents financial statements that are prepared in accordance with the cash
An auditor should disclose the substantive reasons for expressing an adverse opinion in an explanatory paragrapha. Preceding the scope paragraph.b. Preceding the opinion paragraph.c. Following the
The management of a client company believes that the statement of cash flows is not a useful document and refuses to include one in the annual report to stockholders. As a result of this
When financial statements are presented that are not in conformity with generally accepted accounting principles, an auditor may issue a(an) "Except for" opinion Disclaimer of opinion a. Yes Yes b.
An auditor’s report includes the following statement: “The financial statements do not present fairly the financial position, results of operations, or cash flows in conformity with generally

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