Please answer the following questions in detail...

QUESTION 1 Audit procedures Businesses often have litigation against them that the auditor has to identify and adequately disclose. List the financial assertions that apply to Contingencies. For each assertion indicate two or three audit procedures that would address that assertion. Organize you answer as follows: Financial statement assertion Audit procedure(s) QUESTION 2 Sufficient appropriate evidential matter Discuss the importance of the phrase "sufficient appropriate evidence is to be obtained..." How do auditing standards define sufficiency and appropriateness? QUESTION 3 Explain the meaning of due professional care. QUESTION 4 What are the three broad types of audit procedures? What is the purpose of each test? QUESTION 5 What are four ways that Sarbanes-Oxley impacted the auditing profession? QUESTION 6 What are three drivers of audit quality according to the Financial Reporting Council (FRC)'s \"The Audit Quality Framework\"? QUESTION 7 Describe 3 of the failures that allowed the Enron fraud to occur? QUESTION 8 What are the steps in management's evaluation of internal control over financial reporting? QUESTION 9 You have been engaged to perform a compilation service for Raven Company. Management informs you that it will not include the required disclosures in the financial statements. What effect will this have on the engagement? QUESTION 10 Discuss the information management should provide related to litigation, claims and assessments. Also describe the purpose of the letter of audit inquiry, who writes it, who it is addressed to, and the important inquiries that are made of the client's lawyer in the letter of audit inquiry. QUESTION 1 Audit procedures Businesses often have litigation against them that the auditor has to identify and adequately disclose. List the financial assertions that apply to Contingencies. For each assertion indicate two or three audit procedures that would address that assertion. Organize you answer as follows: Financial statement assertion Audit procedure(s) Existence Inquiry of management Send confirmation request to legal counsel Inquiry of management Vouch legal expenses Review nature of legal services to determine if a liability might exist Inquiry of management Confirmation from legal counsel Examine payments related to in-progress litigation Inquiry of management Confirmation of legal counsel Review court rulings Inquiry of management Confirmation of legal counsel Completeness Rights and Obligations Valuation and Allocation Presentation and Disclosure QUESTION 2 Sufficient appropriate evidential matter Discuss the importance of the phrase "sufficient appropriate evidence is to be obtained..." How do auditing standards define sufficiency and appropriateness? The third standard of field work of the generally accepted audit standards states that "sufficient appropriate evidential matter is to be obtained" by performing various audit procedures in order to support the audit opinion regarding the financial statements under audit. The sufficiency and competency of evidence is of critical importance to the audit as it affects the nature, timing and extent of audit testing to be performed by the audit team. Competency of evidence includes the quality or reliability of the evidence obtained. It must be valid and relevant to management's assertions or it is not a proper form of evidence. Typically, the competency of audit evidence can be judged by an auditor based upon the underlying internal control, the independence of outside sources and the auditor's own knowledge of the evidence. Sufficiency deals with the amount or nature of the evidence that will be obtained such as the accounting data itself and the corroborating data. These concepts also bear functional relationships to audit risk assessment. For instance, the less competent the evidence is, the more sufficient the evidence that must be obtained. In other words, as in the audit risk model, the higher the risk of poor internal control over evidence, the more audit work that must be performed to mitigate detection risk. This is how the risk of material misstatements existing in the financial statements and not being discovered by the auditor is reduced. QUESTION 3 Explain the meaning of due professional care. Due professional care refers to the skill and care of a professional expected in an audit. Following Generally Accepted Auditing Standards (GAAS) is one benchmark for due professional care. However, following GAAS is not always sufficient. If a reasonably prudent person would have done more, the professional should do at least as much. Due professional care is also determined by evaluating whether someone with similar skills in a similar situation would have performed the same way as the auditor QUESTION 4 What are the three broad types of audit procedures? What is the purpose of each test? Tests of controls-Audit procedures designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements, typically at the assertion level. Substantive procedures-Audit procedures designed to detect material misstatements in accounts which include tests of details and substantive analytical procedures Risk assessment procedures- Procedures performed by the auditor to obtain information for identifying and assessing the risks of material misstatement in the financial statements whether due to error or fraud. Risk assessment procedures by themselves do not provide sufficient appropriate evidence on which to base an audit opinion, but are used for purposes of planning the audit. QUESTION 5 What are four ways that Sarbanes-Oxley impacted the auditing profession? Increased auditor independence Enhanced the role and importance of the audit committee Required reporting on internal control over financial reporting Provided oversight of the external auditing profession by the Public Company Accounting Oversight Board (PCAOB) QUESTION 6 What are three drivers of audit quality according to the Financial Reporting Council (FRC)'s \"The Audit Quality Framework\"? There are five primary drivers of audit quality, including (1) audit firm culture, (2) the skills and personal qualities of audit partners and staff, (3) the effectiveness of the audit process, (4) the reliability and usefulness of audit reporting, and (5) factors outside the control of auditors that affect audit quality. QUESTION 7 Describe 3 of the failures that allowed the Enron fraud to occur? Accounting Rules-Accounting became more rule-oriented and complex. Accounting allowed practitioners to take obscure pronouncements, such as those dealing with Special Purpose Entities that were designed for leasing transactions, and apply the pronouncement to other entities for which such accounting was never intended. Enthusiastic Financial Analyst Community-Financial analysts that were riding the bubble of the dot-com economy concluded they did not have tools to appropriately value many of the emerging companies. Biased Banking and Investment Banking- Many large financial institutions were willing participants in the process because they were rewarded with large underwriting fees for other Enron work. Lack of an Independent External Auditor-At the time of Enron, the largest five external auditing firms referred to themselves as professional service firms with diverse lines of business. All of the firms had large consulting practices. Arthur Andersen performed internal audit work for Enron, in addition to performing the external audit. The consulting fees of many clients dramatically exceeded the audit fees. Partners were compensated on revenue and profitability. Worse yet, auditors were hired by management who sometimes succeeded in pressuring auditors to acquiesce to aggressive financial reporting preferences Weak Management Accountability- Management was virtually not accountable to anyone as long as the company showed dramatic stock increases justified by earnings growth. Incompetent Corporate Governance- Although the board appeared to be independent, most of the board members had close ties to management of the company through philanthropic organizations. QUESTION 8 What are the steps in management's evaluation of internal control over financial reporting? Integrated audit process includes the following steps: 1. Identify financial reporting risks. 2. Identify control that mitigate financial reporting risk 3. Assess design effectiveness 4. Select and perform testing procedures to evaluate operating effectiveness 5. Document operating effectiveness 6. Evaluate control deficiencies 7. Provide public disclosure of management report QUESTION 9 You have been engaged to perform a compilation service for Raven Company. Management informs you that it will not include the required disclosures in the financial statements. What effect will this have on the engagement? The request by the client to omit substantially all of the required disclosures may be honored if the CPA believes that such omission is not undertaken to mislead the users. Such omission implies that the CPA is familiar with the users and knows enough about the financial statements to conclude that the omission is not intended to mislead the users. The compilation report should include a paragraph that indicates that the disclosures have been omitted. QUESTION 10 Discuss the information management should provide related to litigation, claims and assessments. Also describe the purpose of the letter of audit inquiry, who writes it, who it is addressed to, and the important inquiries that are made of the client's lawyer in the letter of audit inquiry. Management is the primary source of information concerning litigation, claims and assessments and is supposed to provide the auditor with a description and evaluation of litigation, claims and assessments against them and assurance that the accounting and disclosure requirements under SFAS No. 5 have been met. A level of materiality should be agreed to between the client and the auditor. To corroborate the information provided by management, other sources of information used by the auditor include correspondence and invoices from the lawyers, corporate minutes, contracts, and bank confirmations. The letter of audit inquiry though, written by the client to their chief legal counsel, is the primary source of corroborative evidence concerning the litigations, claims and assessments against the client. Because of the privileged relationship between the client and the lawyer, the client has to request any information from the lawyer. The lawyer is requested to comment on the completeness of management's list and to describe the nature, progress, and likelihood and range of possible losses of those cases that they have devoted substantial time to and to respond directly to the auditor. The lawyer is also supposed to indicate any limitations on their responses. Their refusal to respond adequately is a scope limitation on the audit that would preclude an unqualified opinion, but an inability to evaluate likelihood and range of loss because of inherent uncertainties is not considered a scope limitation