Question 1: (25 marks)

1. An attitude of independence is most essential element of an audit by a firm of certified public accountants. Describe several situations in which the CPA firm might find it somewhat difficult to maintain this independent point of view.

2. What is a material amount from the perspective of auditors? Give an example of how that amount may differ based on the nature of the item.

(10 marks)

3. What does an operational audit attempt to measure? Does an operation audit involve more or fewer subjective judgements that a compliance audit or an audit of financial statements? Explain. To whom is the report usually directed after completion of an operational audit.

(10 marks)