Professional Documents
Culture Documents
b. Because of the risk of material misstatement, an audit should be planned and performed with an attitude of
6-20 (Objective 6-3) The following questions deal with errors and fraud. Choose the best response.
a. An independent auditor has the responsibility to design the audit to provide reasonable assurance of detecting errors and fraud that
might have a material effect on the financial statements. Which of the following, if material, is a fraud as defined in auditing standards?
b. What assurance does the auditor provide that errors, fraud, and direct-effect illegal acts that are material to the financial statements will
be detected?
6-27 (Objectives 6-6, 6-7) The following are specific transaction-related audit objectives applied to the audit of cash disbursement transactions (a
through f), management assertions about classes of transactions (1 through 5), and general transaction-related audit objectives (6 through 11).
Specific Transaction-Related Audit Objective
a. Recorded cash disbursement transactions are for the amount of goods or services received and are correctly recorded.
7-25 (Objectives 7-3, 7-4) The following questions concern persuasiveness of evidence. Choose the best response.
a. Which of the following types of documentary evidence should the auditor consider to be the most reliable?
c. Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the least persuasive type
of evidence?
d. Which of the following presumptions is correct about the reliability of audit evidence?
7-26 (Objectives 7-5, 7-6) The following questions concern audit documentation. Choose the best response.
a. Which of the following is not a primary purpose of audit documentation?
b. During an audit engagement, pertinent data are compiled and included in the audit files. The audit files primarily are considered to be
c. Although the quantity, type, and content of audit documentation will vary with the circumstances, audit documentation generally will
include the
d. The permanent file of an auditors working papers most likely would include copies of the
7-27 (Objective 7-4) The following are examples of documentation typically obtained by auditors:
7-28 (Objective 7-4) The following are examples of audit procedures:
8-25 (Objectives 8-1, 8-3) The following questions concern the planning of the engagement. Select the best response.
a. Which of the following is an effective audit planning procedure that helps prevent misunderstandings and inefficient use of audit
personnel?
8-28 (Objectives 8-2, 8-3, 8-4, 8-5) The following are various activities an auditor does during audit planning.
Chapter 17 Problem 28
c. The purpose of segregating the duties of hiring personnel and distributing payroll checks is to separate the
20-20
a. Identify whether each of the procedures is primarily a test of control or a substantive test of transactions.
b. Identify the transaction-related audit objective(s) of each of the procedures.
21-17
Which of the following controls will most likely justify a reduced assessed level of control risk for the occurrence assertion for purchases of
inventory?
21-18
When an auditor tests a clients cost accounting records, the auditors tests are primarily designed to determine that
21-19
Which of the following procedures is the auditor least likely to perform on the actual date the physical inventory count is observed?
21-20
a. For each of the preceding questions, state the purpose of the internal control.
b. For each internal control, list a test of control to test its effectiveness.
c. For each of the preceding questions, identify the nature of the potential financial misstatement(s) if the control is not in effect.
d. For each of the potential misstatements in part c, list a substantive audit procedure to determine whether a material misstatement exists
2. (TCO A) An auditor reads the letter of transmittal accompanying a county's comprehensive annual financial report and identifies a material
inconsistency with the financial statements. The auditor determines that the financial statements do not require revision. Which of the following actions
should the auditor take?
4. (TCO B) 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 a(an):
6. (TCO C) According to PCAOB standards, the nature and extent of required planning activities for an issuer audit are influenced by all of the following
factors, except for:
7. (TCO F) Analytical procedures must be used during which phase(s) of the audit?
8. (TCO F) In a financial statement audit, inherent risk is evaluated to help an auditor assess which of the following?
9. (TCO F) The primary purpose of performing analytical procedures in the planning phase of an audit is to
11. (TCO G) Which ratio is best used to assess a company's ability to meet its long-term debt obligations?
2. (TCO B) The following is a portion of a qualified audit report issued for a private company.
We have audited the accompanying balance sheet of Tamarak Corporation as of October 31, 2009, and the related statements of income, retained
earnings, and cash flows for the past year. These financial statements are the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
The company has included in property and debt in the accompanying balance sheet certain lease obligations that, in our opinion, should be expensed
in order to conform with generally accepted accounting principles. If these lease obligations were capitalized, property would be decreased by
$4,000,000, long-term debt by $2,000,000, and retained earnings by $180,000 as of October 31, 2009, and net income and earnings per share would
be decreased by $180,000 and $0.62, respectively, for the past year.
3. (TCO C) The following situation involves a possible violation of the AICPA's code of professional conduct. For this situation, (1) determine the
applicable rule number from the code, (2) decide whether or not the code has been violated, and (3) briefly explain how the situation violates (or does
not violate) the code. Your answer should be set up something like this:
Auditor Tex Gato of the CPA firm Smackey and Smackey, CPAs, enjoyed auditing his favorite client, Super Pup Dog Food, because the client would
allow him to take home to his dog a variety of dog food samples that amounted to a year's worth of dog food.
4. (TCO C) The following situation involves a possible violation of the AICPA's code of professional conduct. For this situation, (1) determine the
applicable rule number from the code, (2) decide whether or not the code has been violated, and (3) briefly explain how the situation violates (or does
not violate) the code. Your answer should be set up something like this:
Howard Cunningham & Co., CPAs, designates its firm as Members of the American Institute of Certified Public Accountants. All of the partners of the
firm are CPAs. However, one of the partners has recently chosen to allow her membership to lapse because of personal reasons.
5. (TCO C) Under the provisions of the Sarbanes-Oxley Act of 2002 (SOX), the audit committee of a public company has specific guidelines to which
employees must adhere. Discuss some of the mandated features of the audit committee of a public company under SOX.
6. (TCO D) Discuss some of the steps the AICPA and the accounting profession as a whole can and are taking to reduce practitioners' exposure to
lawsuits. You answer should provide at least five steps.
7. (TCO F) Match nine of the terms (AK) with the definitions provided below (19).
A - Foot
B - Compute
C - Scan
D - Inquire
E - Count
F - Trace
G - Recompute
H - Read
I - Examine
J - Observe
K - Compare
8. (TCO G) Discuss the essential activities involved in the initial planning of an audit.
2. (TCO K) An auditor should consider which of the following when evaluating the ability of a company to continue as a going concern?
(Points : 5)
4. (TCO H) Which of the following should be included as a written representation from management? (Points : 5)
5. (TCO E) An auditor would most likely be concerned with internal controls that provide reasonable assurance about the: (Points : 5)
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1.(TCO A) In performing an ATTEST Engagement A CPA would be required to do what as part of the engagement? (Points : 19)
2.(TCO B) When a CPA performs an Audit the Client is always looking to receive a CLEAN OPINION or an Unqualified Opinion. Explain
what your client must do for a CPA to justify that Unqualified Opinion? (Points : 19)
3.(TCO C) Based upon the below 4 situations explain your position of why or why not the following circumstances would have
violated the professions ethical standards when you are a practicing CPA?
4.(TCO D) Discuss five steps individual practicing auditors can take to minimize their legal liability.(Points : 19)
5.(TCO F) Sarbanes Oxley requires that per Section 404 that Internal Controls within a publicly held company are to be reviewed, evaluated
and tested at year end to insure that adequate controls are in place. In addition to understanding the Internal Controls present within your
clients company, the auditor must also evaluate whether these controls are in place, and implemented. How does an auditor evaluate these
controls to see that they are working and in place?(Points : 19)
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1. (TCO E) What is COSO? Describe the 5 elements of COSOs Internal Control-Integrated Framework. Provide an example of each of those
components and explain why they are important in providing Reliable Financial Reporting for a company. Please provide a complete
answer for full points. (Points : 30)
(a) Define business risk in association with an audit and describe several sources of such risk.
(b) How does business risk relate to the performance of preliminary analytical procedures in an audit?
(c) There are four major areas in planning an audit engagement and there are subparts to each of the four major areas. Please identify the
four major areas and the subparts that are associated with the major areas.(Points : 30)
3.(TCO H) Audit Risk consists of inherent risk, control risk, and detection risk.
(a) Please completely define each of the above.
(b) Indicate whether each of the statements below is true or false and explain your position:
(1) The risk that material misstatement will not be prevented or detected on a timely basis by internal controls can be reduced to zero by
having effective controls in place.
(2) Detection Risk is a function of the efficiency of an auditing procedure.
(3) Cash is more susceptible to theft than an inventory of coal because it has greater inherent risk?
(4) The Inherent risk of the theft of an inventory of cellphones at a mall store is greater than the misappropriation of cash at a COSTCO
Store?(Points : 30)
4.(TCO I) Accounts Receivable - For each of the following, please explain if an auditors review of the clients sales cutoff would detect these
problems:
(a) Would excessive goods returned for credit be detected by a sales cut-off test why or why not?
(b) Would unrecorded sales discounts be detected by a sales cut-off test why or why not?
(c) Lapping of year-end accounts receivable be detected by a sales cut-off test why or why not?
(d) Inflated sales for the year could it be detected by a sales-cut-off test why or why not?(Points : 30)
5.(TCO J) One of the major problems in a computer system is that incompatible functions may be performed by the same individual. Identify
from the below choices the control compensating for inadequate segregation of duties in a computer system. Explain why you have
selected your response.
(a) Echo Checks
(b) A check digit system
(c) Computer-Generated hash totals
(d) A computer access log (Points : 30)
6.(TCO K) You are the Senior Auditor for WWZ Co. and you have completed the testing of all the accounts. However, prior to issuing your
report, what are at least five other procedures or reviews that must be performed prior to issuing your report? Explain your
responses(Points : 30)
2. (TCO A) Distinguish between generally accepted auditing standards (GAAS) and generally accepted accounting principles (GAAP). What
professional organization establishes GAAS? What professional organization establishes GAAP?
3. Assume you are the partner in charge of the audit of Franklin Corporation's 2002 financial statements. The audit report has not yet been prepared. In
each independent situation following, indicate the appropriate opinion you should issue and why you would issue that opinion
4. State whether there is any violation of the AICPA Code of Professional Conduct, and the nature of the violation. Where there is a violation, evaluate
the potential legal liability the accountant may face. Justify your position
5. Discuss at least five of the actions that can be taken by individual CPAs, to protect themselves from legal liability
6. (TCO E) Bobby Thigpen, waiter at Relief Stop, has been taking cash from the restaurant. Thigpen prepares a customer's check from which the
customer pays. Thigpen then destroys the check, and prepares a new one with different items of lower cost. He presents the new check and indicated
amount on the check to the cashier, and saves the excess cash for himself. Question: Formulate three internal control features that the restaurant could
implement, to eliminate this defalcation
7. Three types of legal documents and records that auditors examine in the planning phase of an audit are the corporate charter and bylaws, corporate
minutes of meetings of the board of directors and stockholders, and contracts. Discuss the audit-relevant information contained in each of these three
types of documents that an auditor should be aware of early in the audit.
1. (TCO F) What are specific audit objectives? Explain their relationship to the general audit objectives. (Points: 25)
2.(TCO H) Explain why it is necessary to allocate the preliminary judgment about materiality to individual accounts (segments) in the financial
statements. Also explain why allocating to balance sheet accounts is more common than allocating to income statement accounts. (Points: 25)
Allocating the preliminary judgment about materiality to individual segments is necessary because evidence is accumulated for segments rather than
for the financial statements as a whole. Allocating to segments establishes a tolerable misstatement amount for each segment, which helps the auditor
decide the appropriate audit evidence to accumulate for each segment. Most practitioners allocate materiality to balance sheet accounts rather than
income statement accounts because there are fewer balance sheet than income statement accounts
3. (TCO I) For each of the following potential misstatements, provide one potential audit test that could be used to detect the misstatement
4. (TCO I) Describe how the auditor tests the classification objective for accounts receivable. (Points: 25)
The classification objective is tested by reviewing the aged trial balance for material receivables from affiliates, officers, directors, or other related
parties. If notes receivable or accounts that should not be classified as a current asset are included with the regular accounts, these should also be
segregated. Finally, if credit balances in accounts receivable are significant, it is appropriate to reclassify them as accounts payable
5. The design of tests of details of balances for inventory is affected by audit results from multiple cycles. Identify the cycles, other than the inventory
and warehousing cycle, that affect the audit of inventory
7. (TCO K) Match seven of the terms (a-p) with the description/definitions provided below (1-7):