1. Which of the following are included as an auditor’s responsibility?

Use professional judgement

Discover all errors and fraud

Act with due care

Use professional skepticism

Issue an unmodified opinion

 

2. The audit expectation gap is caused by unrealistic user expectations. Which of the following is an unrealistic user expectation?

The auditor tests a sample of transactions

The auditor guarantees the future viability of the entity

An unmodified opinion is an indicator of complete accuracy

The auditor provides reasonable assurance

The auditor finds all errors and fraud

 

3. Bravo Bags is a luggage retailer that operates out of a shopping mall. As required by the landlord, Bravo Bags has hired Brad Pope, CPA, to provide a report to the landlord indicating whether Bravo Bags has met the requirements of its lease agreement in terms of reporting the store’s sales information.

Which of the following are true for Bravo Bags?

No assurance can be provided because the requirements of an assurance engagement are not met.

Remoteness is why the landlord may be requesting a report on the store sales information.

The required parties for an assurance engagement are met—the landlord is the intended user, the auditor is the practitioner, and Bravo Bags is the responsible party.

An auditor could not perform this engagement as they would not have the expertise.

The auditor could issue a Notice to Reader and meet the landlord’s objectives.

This is not a financial statement audit, and only financial statements can be audited.

The landlord would like to enhance the reliability of the sales figures reported.

 

4. What type of audit report would be appropriate in each of the following scenarios?
 

a.		There is uncertainty relating to a pending exceptional litigation matter that is adequately disclosed in the notes.
b.		The client’s records are inadequate and the auditor is unable to obtain sufficient appropriate evidence.
c.		There is a GAAP departure concerning a highly material item.
d.		The client will not allow the auditor to contact the client’s legal counsel.
e.		The client’s accounting records have been destroyed.
f.		There is a material misstatement in the client’s inventory account. The misstatement is deemed to be material but not pervasive to the financial statements.
g.		Inventories are misstated. The misstatement is deemed to be material and pervasive to the financial statements.

 

5. 

Situation 1

The accounting firm of Aschari and Di Tomaso was engaged to perform an audit of the financial statements of Pammenter Inc. During the audit, Pammenter’s senior managers refused to give the auditors the information they needed to confirm any of the accounts receivable. As a result, Aschari and Di Tomaso were not able to confirm the accounts receivable balance. However, they did not encounter any other problems during the audit.

Situation 2

The accounting firm of Jovanovic and St. Pierre has discovered, during its audit of Robson Chemicals Inc., that the client is being sued for $3 million. Allegedly, one of its products exploded and severely injured a customer. In the firm’s discussion with Robson’s lawyers, Jovanovic and St. Pierre ascertained that it is very likely that Robson will indeed have to pay this entire amount when the lawsuit is resolved. To provide for this, Robson’s chief financial officer has included information relating to the lawsuit in the notes to its financial statements, but did not otherwise reflect it in its financial statements.


Answer the following questions.

Using Situation 1 what type of audit opinion could be issued?

Unqualified

Unqualified with emphasis of matter paragraph regarding the confirmation of accounts receivable

Qualified due to a scope limitation

Qualified due to a GAAP departure

Adverse opinion

Denial of opinion

 

Using Situation 2 what type of audit opinion could be issued?

Unqualified

Unqualified with emphasis of matter paragraph regarding the confirmation of accounts receivable

Qualified due to a scope limitation

Qualified due to a GAAP departure

Adverse opinion

Denial of opinion

 

6. Securimax Limited has been an audit client of KFP Partners for the past 15 years. Securimax is based in Waterloo, Ontario, where it manufactures high-tech armour-plated personnel carriers. Securimax often has to go through a competitive market tender process to win large government contracts. Its main product, the small but powerful Terrain Master, is highly specialized, and Securimax does business only with nations that have a recognized, democratically elected government. Securimax maintains a highly secure environment, given the sensitive and confidential nature of its vehicle designs and its clients.

Clarke Field has been the engagement partner on the Securimax audit for the last five years.

The board of Securimax is considering changing from an audit engagement to a review engagement and has approached Clarke to discuss the implications of this change. Clarke suggests that KFP could perform the review engagement.

Securimax’s financial year end is December 31.

Which of the following are factors that should be considered by KFP?

An audit will be less expensive than a review

An audit will provide a greater level of assurance than a review

Banks only require a review, not an audit

If Securimax is planning an initial public offering, an audit would likely be recommended

Review engagement reporting is more limited than audit engagement reporting

Reasonable assurance is only provided with an audit