A control deviation caused by an employee performing a control procedure that he or she is not authorized to perform is always considered a a. Deficiency in design. b. Deficiency in operation. c. Significant deficiency. d. Material weakness.
> What is sparse data? Give an example.
> What is Haddop and what are its basic components?
> What does the term “3 vs” refers to?
> Describe the Big Data phenomenon.
> What is connectivity? (Use a Crow’s Foot ERD to illustrate connectivity.)
> What is a relational diagram? Give an example.
> What is a table, and what role does it play in the relational model?
> Give an example of each of the three types of relationships.
> What is a relationship, and what three types of relationships exist?
> What is an ERDM, and what role does it play in the modern (production) database environment?
> Discuss the importance of data modeling.
> McCarthy, CPA, was engaged to audit the financial statements of Kent Company, a continuing audit client. McCarthy is about to audit Kent’s payroll transactions. Kent uses an in-house payroll department to process payroll data and to pre
> A CPA’s audit documentation (working papers) contains a narrative description of a segment of the Croyden Factory, Inc., payroll system and an accompanying flowchart (see below). Narrative The internal control system with respect to the personnel departm
> You have been hired by Morris & Son, Inc., to manage its human resource department. As a first step, you want to determine personnel needs and assigned duties in order to prevent errors and fraud in the financial statements. Required: How many people wo
> You are engaged to perform an audit of the Giordani Corporation for the year ended December 31, 2018. You have decided to perform the following cutoff test for payables and accruals. Select all items greater than $25,000 for two business days before and
> Coltrane, CPA, is auditing Jang Wholesaling Company’s financial statements and is about to perform substantive audit procedures on Jang’s trade accounts payable balances. After obtaining an understanding of Jang’s internal control for accounts payable, C
> In 2018, Kida Company purchased more than $10 million worth of office equipment under its “special” ordering system, with individual orders ranging from $5,000 to $30,000. “Special” orders entail low-volume items that have been included in an authorized
> The flowchart shown below depicts the activities relating to the purchasing, receiving, and accounts payable departments of Model Company, Inc. Required: Based only on the flowchart, describe the control activities that most likely would provide reason
> You are the auditor for KPDZ Corporation. You gathered comparative information for inventory and accounts payable and calculated the days purchases in accounts payable. Required: Prepare a list of possible concerns that you might have about potential m
> You are engaged to audit the Ferrick Corporation for the year ended December 31, 2018. Only merchandise shipped by the Ferrick Corporation to customers up to and including December 30, 2018, has been eliminated from inventory. The inventory as determined
> During the year, Strang Corporation began to encounter cash-flow difficulties, and 10-15 a cursory review by management revealed receivable collection problems. Strang’s management engaged Stanley, CPA, to perform a special investigation. Stanley studie
> What are the primary elements involved in the planning phase of an audit?
> The “Accounts Receivable—Confirmation Statistics” working paper shown on the next page was prepared by an audit assistant for the 2018 audit of Lewis County Water Company, Inc., a continuing audit cli
> Adam Signoff-On, CPA, was auditing Defense Industries, Inc. Signoff-On sent positive accounts receivable confirmations to a number of Defense’s government customers. He received a number of returned confirmations marked “We do not confirm balances becaus
> The Art Appreciation Society operates a museum for the benefit and enjoyment of 10-6, 10-9 the community. During the hours the museum is open to the public, two clerks who are positioned at the entrance collect a five-dollar admission fee from each nonme
> For each of the following situations, indicate the audit evidence that should be obtained to determine whether revenue should be recognized or not in the current period. Use the five-step approach for recognizing revenue to make your determination. 1. Yo
> You are in charge of the audit of Hipp Supply Company for the year ended December 31. In prior years, your firm observed the inventory and tested compilation and pricing. Various misstatements were always found. About 10 percent of the dollar value of th
> World-famous mining mogul Steve Wilsey hired the public accounting firm of Joe Wang Associates, PC, to conduct an audit of his new acquisition, Cougar Goldust, Inc. The gold inventory was scheduled to be taken on November 30. The perpetual records show o
> The accounting firm of Johnson and Johnson has decided to design a non statistical sample to examine the accounts receivable balance of Francisco Fragrances, Inc., at October 31. As of October 31, there were 1,500 accounts receivable accounts with a bala
> McMullen and Mulligan, CPAs, were conducting the audit of Cusick Machine Tool Company for the year ended December 31. Jim Sigmund, senior-in-charge of the audit, plans to use MUS to audit Cusick’s inventory account. The balance at Dece
> Doug Iceberge, senior-in-charge of the audit of Fisher Industries, has decided to test the following two controls for Fisher’s revenue process. 1. All sales invoices are supported by proper documentation, that is, a sales order and a sh
> List the various types of auditors and describe their respective roles in a sentence or two each.
> Nathan Matthews conducted a test of controls where the tolerable deviation rate was set at 6 percent and the expected population deviation rate was 3 percent. Using a sample size of 150, Matthews performed the planned test of controls. He found six devia
> Calgari Clothing Company manufactures high-quality silk ties that are marketed under a number of trademarked names. Joe & Vandervelte LLP has been the company’s auditors for five years. Lisa Austen, the senior-in-charge of the audit
> Using the sample sizes determined in Problem 8-27 and the number of deviations shown here, determine the sample deviation rate, computed upper deviation rate, and the auditor’s conclusion (i.e., testing results do or do not support oper
> Determine the sample size for each of the control procedures shown in the following table (assuming a very large population): Control Procedure Parameters 1 2 3 4 5% Risk of incorrect acceptance Tolerable deviation rate 5% 10% 10% 6% 7% 4% 3% Expect
> Using the sample sizes determined in Problem 8-25 and the number of deviations shown here, determine the sample deviation rate, the computed upper deviation rate, and the auditor’s conclusion (i.e., testing results do or do not support
> Determine the sample size for each of the control procedures shown in the following table (assuming a very large population): Control Procedure Parameters 1 2 3 4 Risk of incorrect acceptance 5% 5% 10% 10% Tolerable deviation rate 4% 5% 7% 8% Expect
> Jenny Jacobs, CPA, is planning to use attribute sampling in order to determine the degree of reliance to be placed on an entity’s system of internal control over sales. Jacobs has begun to develop an outline of the main steps in the sampling plan as foll
> Following is a set of situations that may or may not involve sampling. 1. An auditor is examining loan receivables at a local bank. The population of loans contains two strata. One stratum is composed of 25 loans that are each greater than $1 million. Th
> Brown, CPA, is auditing the financial statements of Big Z Wholesaling, Inc., a continuing audit client, for the year ended January 31, 2018. On January 5, 2018, Brown observed the tagging and counting of Big Z’s physical inventory and made appropriate te
> Assume that scenario (b) in Problem 7-36 is a material weakness. Prepare a draft of the auditor’s report for an audit of ICFR. Assume that First Coast’s auditor is issuing a combined report for the financial statement audit and audit of internal control.
> Define audit risk and materiality. How are these concepts reflected in the auditor’s report?
> For each of the following independent situations, indicate the type of report on ICFR you would issue. Justify your report choice. a. The management’s report on ICFR issued by Graham Granary, Inc., includes disclosures about corrective actions taken by t
> For each of the following independent situations relating to the audit of ICFR, indicate the reason for and the type of audit report you would issue. a. During the audit of Wood Pharmaceuticals, you are surprised to find several control deficiencies in t
> For each of the following independent situations, indicate the type of report on ICFR you would issue. Justify your report choice. a. Hansen, Inc., has restated previously issued financial statements to reflect the correction of a misstatement. b. Shu &
> For each of the following cases, indicate why management and the auditors determined that the control deficiency was a material weakness. Case 1: In our assessment of the effectiveness of internal control over financial reporting as of December 31, 2018,
> Entity-level controls can have a pervasive effect on the entity’s ability to meet the control criteria. Which one of the following is not an entity-level control? a. Controls to monitor results of operations. b. Management’s risk assessment process. c. C
> Which of the following is not a factor that might affect the likelihood that a control deficiency could result in a misstatement in an account balance? a. The susceptibility of the related assets or liability to loss or fraud. b. The interaction or relat
> The Sarbanes-Oxley Act of 2002 requires management to include a report on the effectiveness of ICFR in the entity’s annual report. It also requires auditors to report on the effectiveness of ICFR. Which of the following statements concerning these requir
> A primary advantage of using generalized audit software packages to audit the financial statements of an entity that uses an IT system is that the auditor may a. Consider increasing the use of substantive tests of transactions in place of analytical proc
> Which of the following most likely represents a weakness in internal control of an IT system? a. The systems analyst reviews output and controls the distribution of output from the IT department. b. The accounts payable clerk prepares data for computer p
> Why might understanding the characteristics of an entity’s business model be important for a financial statement auditor?
> Significant deficiencies and material weaknesses must be communicated to an entity’s audit committee because they represent a. Material fraud or illegal acts perpetrated by high-level management. b. Disclosures of information that significantly contradic
> Which of the following statements concerning control deficiencies is true? a. The auditor should communicate to management, in writing, all control deficiencies in internal control identified during the audit. b. All significant deficiencies are material
> In auditing ICFR for a public company, Emily finds that the entity has a significant subsidiary located in a foreign country. Emily’s accounting firm has no offices in that country, and the entity has thus engaged another reputable firm to conduct the au
> In auditing a public company, Natalie, an auditor for N. M. Neal & Associates, identifies four deficiencies in ICFR. Three of the deficiencies are unlikely to result in financial misstatements that are material. One of the deficiencies is reasonably like
> AnnaLisa, an auditor for N. M. Neal & Associates, is prevented by the management of Lileah Company from auditing controls over inventory. Lileah is a public company. Management explains that controls over inventory were recently implemented by a highly r
> When auditors report on the effectiveness of internal control “as of” a specific date and obtain evidence about the operating effectiveness of controls at an interim date, which of the following items would be the least helpful in evaluating the addition
> Use an Internet browser to search for the following terms: Electronic data interchange (EDI). Image-processing systems. Prepare a memo describing EDI and image-processing systems. Discuss the implications of each for the auditor’s consideration of audit
> Search the SEC’s website (www.sec.gov) or elsewhere on the Internet to identify a company that has been recently cited by the SEC for financial reporting problems related to inventory. Prepare a memo summarizing the inventory issues for the company.
> Auditors are required to obtain and support an understanding of the entity and its environment in order to identify business risks. Much of the information needed to identify the risks can be obtained from the company’s annual report, 10K, and proxy mate
> Earth Wear Clothiers makes high-quality clothing for outdoor sports. It sells most of its products through mail order. Use the Internet to obtain information about the retail mail-order industry.
> Define auditing, attest, and assurance services.
> Visit the Institute of Internal Auditors (IIA) home page (www.theiia.org) and familiarize yourself with the information contained there. Search the site for information about the IIA’s requirements for the objectivity and independence of internal auditor
> While it is a relatively rare event, companies do change auditors. Use the Internet to identify an auditor change? Pick one auditor change and investigate the information provided by management and the auditor for the reasons for the change. Information
> Visit the website of a catalog retailer similar to Earth Wear Clothiers and determine how it processes sales transactions, recognizes revenue, and reserves for returns.
> Search the Internet for information on labor costs in the retail catalog industry (e.g., LO 12-11 labor costs as a percentage of sales). Executive compensation ballooned in the 1990s, and as highlighted in Exhibit 12-1, there were notable com
> Identify five Internet sites that contain accounting or auditing resources. For each site identified, prepare a brief summary of the types of information that are available. For example, the PCAOB’s home page (www.pcaobus.org) contains extensive informat
> What are some possible causes of book-to-physical inventory differences?
> Why is it important for the entity to establish control activities over the classification of payroll transactions?
> What are the key authorization points in a payroll system?
> a. Go to the AICPA’s website (www.aicpa.org). Find the AICPA’s mission statement (currently under the link “About the AICPA” at the bottom of their homepage). Read and briefly summarize the AICPA’s mission as described in its mission statement. b. Go to
> Identify three possible disclosure issues for payroll expense and payroll-related liabilities.
> The auditor should evaluate the qualitative aspects of deviations found in a sampling application. What are the purposes of evaluating the qualitative aspects of deviations?
> Under what circumstances would an auditor give an adverse opinion on the effectiveness of an entity’s ICFR?
> Under what circumstances would an auditor disclaim an opinion on the effectiveness of an entity’s ICFR?
> What are the requirements under auditing standards for documenting the assessed level of control risk?
> List the tools that can document the understanding of internal control.
> While net income before taxes is frequently used for calculating overall materiality, discuss circumstances when total assets or revenues might be better bases for calculating overall materiality.
> Why does the “audit testing hierarchy” begin with tests of controls and substantive analytical procedures?
> The AICPA performs a number of functions that directly bear on independent auditors of nonpublic entities, including promulgation of rules and standards. List four types of rules or standards issued by the AICPA.
> Auditors use various audit techniques to gather evidence when an entity’s accounting information is processed using IT. Select the audit procedure from the following list and enter it in the appropriate place on the grid. Audit procedu
> Mead, CPA, was engaged to audit Jiffy Company’s financial statements for the year ended August 31. Mead is applying sampling procedures. During the prior years’ audits Mead used classical variables sampling in performing tests of controls on Jiffy’s acco
> You are an audit manager for Lipske & Griffin, CPAs, who is completing the audit of Gold City Regional Bank’s ICFR for the year ended December 31, 2018. The report will be submitted to the engagement partner who reviews matters thoroughly and agreed with
> Assume that scenario (a) in Problem 7-36 is a material weakness. Prepare a draft of the auditor’s report for an audit of ICFR. Assume that Lorenz’s auditor is issuing a separate report on internal control. Data from Problem 7-36: Following are examples
> In obtaining evidential matter in support of financial statement assertions, the auditor develops specific audit procedures to address those assertions. Required: Hillmart is a retail department store that purchases all goods directly from wholesalers o
> Management makes assertions about components of the financial statements. Match the management assertions shown in the left-hand column with the proper description of the assertion shown in the right-hand column. Management Assertion Description a.
> In obtaining evidence in support of financial statement assertions, the auditor develops specific audit procedures to access those assertions. Required: All’s Fair Appliance Company is an appliance wholesaler. Select the most appropria
> Following are audit procedures that are normally conducted in the purchasing process and related accounts. 1. Test a sample of purchase requisitions for proper authorization. 2. Test transactions around year-end to determine if they are recorded in the p
> Assertions are expressed or implied representations by management that are reflected in the financial statement components. The auditor performs audit procedures to gather evidence to test those assertions. Required: Your client is All’
> Match the term to the definition. a. Attribute sampling b. Desired confidence level 1. The possibility that the sample drawn is not representative of the population and leads to an incorrect conclusion 2. Relies on the auditor's judgment to determin
> Which of the following types of audit evidence is the least reliable? a. Pre numbered purchase order forms prepared by the entity. b. Bank statements obtained from the entity. c. Test counts of inventory performed by the auditor. d. Correspondence from t
> Which of the following presumptions is least likely to relate to the reliability of audit evidence? a. The more effective internal control, the more assurance it provides about the accounting data and financial statements. b. An auditor’s opinion is form
> Bentley Bros. Book Company publishes more than 250 fiction and nonfiction titles. Most of the company’s books are written by southern authors and typically focus on subjects popular in the region. The company sells most of its books to major retail store
> A written understanding between the auditor and the entity concerning the auditor’s responsibility for fraud is usually set forth in a(n) a. Internal control letter. b. Letter of audit inquiry. c. Management letter. d. Engagement letter.
> Before accepting an audit engagement, a successor auditor should make specific inquiries of the predecessor auditor regarding the predecessor’s a. Awareness of the consistency in the application of generally accepted accounting principles between periods
> Which of the following best describes the general character of the section of the “Principles Underlying an Audit of Financial Statements,” titled “Performance”? a. Description of the competence, independence, and professional care of persons performing
> Which of the following statements best describes management’s and the external auditor’s respective levels of responsibility for a public company’s financial statements? a. Management and the external auditor share equal responsibility for the fairness o
> Which of the following audit procedures would probably provide the most reliable evidence concerning the entity’s assertion of rights and obligations related to inventory? a. Tracing of test counts noted during the entity’s physical count to the entity’s
