Question: Assume that you have been assigned to

> Can a person believe that wages are inflexible downward for, say, one year and also believe in a self-regulating economy? Explain your answer.

> According to Keynes, an increase in saving and decrease in consumption may lower total spending in the economy. But how could this happen if the increased saving lowers interest rates (as shown in the last chapter)? Wouldn’t a decrease in interest rates

> What factors will shift the AD curve in the simple Keynesian model?

> What does it mean to say that “the market” feeds Cleveland, Austin, Atlanta, or Indianapolis?

> According to Keynes, can an increase in saving shift the AD curve to the left? Explain your answer.

> In which factors will a change lead to a change in consumption?

> Explain how a rise in autonomous spending can increase total spending by some multiple.

> What is the relationship between the MPC and the multiplier?

> How is Keynes’s position different from the classical position with respect to wages, prices, and Say’s law?

> Describe the relationship of the (actual) unemployment rate to the natural unemployment rate in each of the following economic states: (a) A recessionary gap, (b) An inflationary gap, and (c) long-run equilibrium.

> What is the state of the labor market in; (a) A recessionary gap, (b) An inflationary gap, (c) long-run equilibrium?

> What does it mean to say that the economy is in a recessionary gap? In an inflationary gap and In long-run equilibrium?

> According to classical economists, does an increase in saving shift the AD curve to the left? Explain your answer.

> Explain why saving rises as the interest rate rises.

> On most days more people want to see the taping of the The Tonight Show Starring Jimmy Fallon (in New York City) than there are seats in the taping studio. What might explain this shortage?

> Consumers start to expect higher future incomes. The price level will _______________ and Real GDP will _______________.

> Morgan, CPA, is approached by a prospective audit client who wants to engage Morgan to perform an audit for the current year. In prior years, this prospective client was audited by another CPA. Identify the specific procedures that Morgan should follow i

> Distinguish between batch processing and online real-time (OLRT) processing. In which of these systems is strong internal control over input most easily attained? Explain.

> A primary requirement of effective internal control is a satisfactory plan of organization. Explain the characteristics of a satisfactory plan of organization for an information systems department, including the relationship between the department and th

> Many companies have part or all of their IT processing done by cloud service providers. a. What controls should the company maintain to ensure the accuracy of processing done by a cloud service provider? b. How do auditors assess internal control over ap

> An integrated test facility (ITF) is a method used primarily by internal auditors for testing IT based system controls. Discuss the advantages and disadvantages of implementing an ITF.

> Discuss how generalized audit software can be used to aid the auditors in examining accounts receivable in a fully IT-based system.

> The use of test data is one method of performing tests of processing controls in an IT-based system. Identify and discuss several other methods by which auditors may test internal processing controls over IT activity.

> Auditors encounter the use of user operated computers on almost every audit engagement. a. How do user operated computers differ from large computer systems? b. When are the auditors concerned with internal control over the use of user operated computers

> Randall, Inc., is a private company that manufactures heavy machinery. The company has an active audit committee and board of directors. The audit committee consists of two outside directors and Howard Kress, the company chief financial officer. The audi

> Internal auditing is a staff function found in virtually every large corporation. The internal audit function is also performed in many smaller companies as a part-time activity of individuals who may or may not be called “internal auditors.” The differe

> Many CPA firms are taking a business risk approach to audits. Define what is meant by business risk. Provide an example of a business risk that could result in a risk of material misstatement of the financial statements.

> During your first audit of a medium-size manufacturing company, the owner, John Bell, explains that in order to establish clear-cut lines of responsibility for various aspects of the business, he has made one employee responsible for the purchasing, rece

> Assume that you are auditing the financial statements of Wexler, Inc. As you are reviewing the work on internal control, you become concerned about the adequacy of documentation. Describe the required documentation of internal control matters.

> Management is responsible for establishing effective internal control for its organization, including measures to prevent, deter, and detect fraud. Appendix 7A describes antifraud programs and measures. Required: a. What are the three major categories o

> Adherence to generally accepted auditing standards requires, among other things, a proper understanding of the existing internal control. The most common approaches to documenting the understanding of internal control include the use of a questionnaire,

> Henry Bailey, CPA, is planning the audit of The Neighborhood Store, a local grocery cooperative. Because The Neighborhood Store is a small business operated entirely by part-time volunteer personnel, internal control is weak. Bailey has decided that he w

> The auditors’ consideration of internal control begins with obtaining an understanding of the client’s internal control. Required: a. Describe the remaining stages of the auditors’ consideration. b. Provide examples of audit procedures that are performe

> Auditors may restrict substantive procedures based on the results of tests of controls. Required: a. Discuss and contrast the concepts of the planned assessment of control risk and the revised assessment of the risk after tests of controls have been per

> The definition of internal control as contained in COSO’s Internal Control–Integrated Framework and the professional standards is quite broad and comprehensive. Required: a. Define internal control and its purpose. b. Explain the major concepts that are

> Management is responsible for designing and maintaining its organization’s internal control. In designing internal control, management must consider controls related to each of the five major internal control components: the control environment, risk ass

> Perform an Internet search to access the text of the Securities Exchange Act of 1934. Read and summarize the internal control requirements of Section 13(b)(2) of the act.

> Describe the two types of misstatements due to fraud. Which one generally is of more concern to the auditors?

> In every audit engagement, the auditors should identify fraud risks that may require an audit response. Described below are four circumstances or factors that may create an increased risk of material misstatement of the financial statements due to fraud.

> SEC filings of certain public companies can be accessed from EDGAR (Electronic Data Gathering, Analysis, and Retrieval system), which has the following Internet address: www.sec .gov/edgar.shtml. Required: a. Describe four significant business risks of

> Richard Foster, an assistant auditor, was assigned to the year-end audit work of Sipher Corporation. Sipher is a small manufacturer of language translation equipment. As his first assignment, Foster was instructed to test the cutoff of year-end sales tra

> In designing further audit procedures, the auditors should assess the risks of material misstatement of the financial statements. Required: a. Describe the auditors’ general approach to such risk assessment. b. Identify potential responses to financial

> Listed below are several of the auditors’ general objectives in performing substantive procedures on an asset account: 1. Establish the existence of assets. 2. Establish that the company has rights to the assets. 3. Establish the completeness of recorded

> John Wells, CPA, is planning the audit of CVG Services, Inc. As a result of his risk assessment procedures, Wells has identified several fraud risks. Required: a. Explain in detail how Wells might respond to risks of material misstatement of the financi

> The auditors sometimes decide to allocate the amount of materiality for planning to various financial statement accounts. Required: a. Explain why auditors typically decide to allocate materiality for planning to individual financial statement accounts.

> In planning every audit, the auditors are required to consider materiality for audit purposes. Described below are financial statement data from two separate companies: Required: a. Develop an estimate of the appropriate materiality amount for planning

> Auditors should plan and perform their audits to provide reasonable assurance of detecting material misstatements in financial statements, including those resulting from fraud. Required: a. Distinguish between fraudulent financial reporting and misappro

> A CPA has been asked to audit the financial statements of a nonpublic company for the first time. All preliminary discussions have been completed between the CPA, the company, the predecessor auditors, and all other necessary parties. The CPA is now prep

> Criticize the following statement: “Throughout this audit, for all purposes, we will define a ‘material amount’ as $500,000.”

> Explain the meaning of the term documentation as it pertains to computers and an information systems department. How might a client’s documentation be used by the auditors?

> Explain briefly what is meant by an “online real-time system.”

> An information systems department usually performs numerous IT processing functions that would be separated in a manual system. Does this imply that separation of duties is not a practical means of achieving internal control in a computerized system? Exp

> Distinguish general control activities from application control activities and give examples of the types of controls included in each of these broad categories.

> What is cloud computing?

> Distinguish between user control activities and manual application control activities.

> What is meant by a local area network?

> Describe the audit technique known as tagging and tracing. What is the purpose of the technique?

> Do auditors usually begin their consideration of internal control over IT activities with a review of general or application control activities? Explain.

> Discuss what is meant by the phrase “shopping for accounting principles.” What mechanisms have served to prevent this practice by management?

> Discuss the nature of end user computing.

> Is it probable that the use of IT will eventually eliminate the audit trail, making it impossible to trace individual transactions from their origin to the summary totals in the financial statements? Explain.

> Explain briefly what is meant by electronic data interchange (EDI). How does EDI affect a company’s audit trail?

> Explain briefly what is meant by a malware and ransomware.

> What are the advantages of a virtualized client/server infrastructure?

> Describe briefly the controls that should be established over the operation of a workstation to prevent use by unauthorized personnel.

> What is the difference between an Internet-based and an intranet-based information system?

> What is meant by “authentication of the user” and how may authentication be achieved?

> Define and give the purpose of each of the following controls: a. Record counts b. Limit test c. Validity test d. Hash totals e. Missing data test

> What is blockchain technology and how could it eventually change financial reporting and auditing?

> State the purpose and nature of an engagement letter.

> The number of personnel in an information systems department may limit the extent to which segregation of duties is feasible. What is the minimum amount of segregation of duties that will permit satisfactory internal control?

> List and describe the major components of an information system.

> One basic concept of internal control is that no one employee should handle all aspects of a transaction. Assuming that a general category of transactions has been authorized by top management, how many employees (or departments) should participate in ea

> Identify the four types of control activities and describe how each type contributes to effective internal control.

> Describe the two types of monitoring and provide an example of each.

> Describe what is meant by the risk assessment component of internal control and how it contributes to internal control.

> Name three factors you consider of greatest importance in protecting a business against losses through embezzlement.

> How does separation of the record-keeping function from custody of assets contribute to internal control?

> List the principles related to an organization’s control environment.

> List the five stages of the auditors’ overall approach in an audit of internal control performed in accordance with PCAOB requirements.

> In a public company, what requirements must members of the board of directors satisfy in order to serve on the audit committee?

> Distinguish between the two subsections of Section 404 of the Sarbanes-Oxley Act of 2002.

> You have discussed with the president of Vista Corporation several material weaknesses in internal control that have come to your attention during your audit. At the conclusion of this discussion, the president states that he will personally take steps t

> Comment on the following: The Committee of Sponsoring Organizations has issued frameworks on internal control and on enterprise risk management. A starting point for management of a company just beginning operations is to determine which one of the two t

> Identify the five components of an organization’s internal control.

> What is a management letter? What is the letter’s significance?

> How is the auditors’ understanding of the client’s internal control documented in the audit working papers?

> Under what circumstances are tests of controls efficient audit procedures?

> All experienced auditors would design exactly the same audit plan (program) for a particular audit engagement.” Do you agree? Explain.

> Suggest a number of sources from which you might obtain the information needed to prepare a description of internal control in the audit working papers.

> A prospective client informs you that all officers and employees of the company are bonded, and he requests that under these circumstances you forgo a consideration of internal control in order to reduce the cost of an audit. Construct a logical reply to

> What information should a CPA firm seek in its investigation of a prospective client?

> What are the purposes of the consideration of internal control required by generally accepted auditing standards?

> Describe the relationship between corporate governance and internal control.

> What consideration, if any, may external auditors give to the work of a client’s internal audit staff?

> Compare the objectives of the internal auditors with those of the independent auditors.

> When planning an audit, the auditors should assess the levels of risk and materiality for the engagement. Explain how the auditors’ judgments about these two factors affect the auditors’ planned audit procedures.

> How can a CPA make use of the preceding year’s audit working papers in a recurring audit?

> Auditing standards require the auditors to have a team meeting regarding the risk of fraud for the engagement. What is the purpose of this meeting?

> The overall audit strategy, the audit plan, and the time budget are three important working papers prepared early in an audit. What functions do these working papers serve in the auditors’ compliance with generally accepted auditing standards? Discuss.