Question: Explain why the auditor can be persuaded

> The national stock exchanges require listed companies to have an independent audit committee. Required a. Describe an audit committee. b. What are the typical functions performed by an audit committee? c. Explain how an audit committee can help an audit

> Each of the following situations involves possible violations of the AICPA's Code of Professional Conduct. For each situation, state whether it is a violation of the Code. In those cases in which it is a violation, explain the nature of the violation and

> Each of the following situations involves a possible violation of the AICPA's Code of Professional Conduct. For each situation, state the applicable section of the rules of conduct and whether it is a violation. a. Emrich, CPA, provides tax services, man

> The following situations involve the provision of nonaudit services. Indicate whether providing the service is a violation of AICPA rules or SEC rules including Sarbanes-Oxley requirements on independence. Explain your answer as necessary. a. Providing b

> State the allowable forms of organization a CPA firm may assume.

> What is the purpose of the AICPA's Code of Professional Conduct restriction on commissions as stated in Rule 503?

> What is the purpose of the client's performance measurement system? How might that system be useful to the auditor? Give examples of key performance indicators for the following businesses: (1) A chain of retail clothing stores; (2) An Internet portal;

> Explain why auditors need an understanding of the client's industry. What information sources are commonly used by auditors to learn about the client's industry?

> What is the purpose of an engagement letter? What subjects should be covered in such a letter?

> What factors should an auditor consider prior to accepting an engagement? Explain.

> What are the responsibilities of the successor and predecessor auditors when a company is changing auditors?

> Identify the eight major steps in planning audits.

> Planning is one of the most demanding and important aspects of an audit. A carefully planned audit increases auditor efficiency and provides greater assurance that the audit team addresses the critical issues. Auditors prepare audit planning documents th

> This problem requires the use of ACL software, which is included in the CD attached to the text. Information about installing and using ACL and solving this problem can be found in Appendix, pages 838-842. You should read all of the reference material pr

> The long-term debt schedule on page 207 (indexed K-1) was prepared by client personnel and audited by AA, an audit assistant, during the calendar year 2011 audit of American Widgets, Inc., a continuing audit client. The engagement supervisor is reviewing

> Grande Stores is a large discount catalog department store chain. The company has recently expanded from 6 to 43 stores by borrowing from several large financial institutions and from a public offering of common stock. A recent investigation has disclose

> You are the in-charge on the audit of Vandervoort Company and are to review the audit schedule shown above. Required a. List the deficiencies in the audit schedule. b. For each deficiency, state how the audit schedule could be improved. c. Prepare an imp

> Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data. They range from simple comparisons to the use of complex models involving many relationships and

> Consumers Union is a nonprofit organization that provides information and counsel on consumer goods and services. A major part of its function is the testing of different brands of consumer products that are purchased on the open market and then the repo

> Following are 10 audit procedures with words missing and a list of several terms commonly used in audit procedures. Audit Procedures 1. _____ the unit selling price times quantity on the duplicate sales invoice and compare the total to the amount on the

> The following are nine situations, each containing two means of accumulating evidence: 1. Confirm receivables with consumers versus confirming accounts receivable with business organizations. 2. Physically examine 3-inch steel plates versus examining ele

> The following audit procedures were performed in the audit of inventory to satisfy specific balance-related audit objectives as discussed in Chapter 6. The audit procedures assume that the auditor has obtained the inventory count sheets that list the cli

> The following are various audit procedures performed to satisfy specific transaction-related audit objectives as discussed in Chapter 6. The general transaction-related audit objectives from Chapter 6 are also included. Audit Procedures 1. Trace from re

> As auditor of the Star Manufacturing Company, you have obtained a. A trial balance taken from the books of Star one month before year-end: Dr. (Cr.) Cash in bank â€&brv

> Eight different types of evidence were discussed. The following questions concern the reliability of that evidence: Required a. Explain why confirmations are normally more reliable evidence than inquiries of the client. b. Describe a situation in which

> List two examples of audit evidence the auditor can use in support of each of the following: a. Recorded amount of entries in the acquisitions journal b. Physical existence of inventory c. Accuracy of accounts receivable d. Ownership of fixed assets e. L

> The following are examples of audit procedures: 1. Review the accounts receivable with the credit manager to evaluate their collectibility. 2. Compare a duplicate sales invoice with the sales journal for customer name and amount. 3. Add the sales journal

> The following are examples of documentation typically obtained by auditors: 1. Vendors' invoices 2. General ledger files 3. Bank statements 4. Cancelled payroll checks 5. Payroll time records 6. Purchase requisitions 7. Receiving reports (documents prepa

> The following questions concern audit documentation. Choose the best response. a. Which of the following is not a primary purpose of audit documentation? (1) To coordinate the audit. (2) To assist in preparation of the audit report. (3) To support the f

> Busch Corporation has an existing loan in the amount of $4.5 million with an annual interest rate of 5.5%. The company provides an internal company-prepared financial statement to the bank under the loan agreement. Two competing banks have offered to rep

> 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? (1) A sales invoice issued by the client and supported by

> Explain the purposes and benefits of audit documentation software.

> How does the auditor read and evaluate information that is available only in machine-readable form?

> Who owns the audit files? Under what circumstances can they be used by other people?

> Why is it essential that the auditor not leave questions or exceptions in the audit documentation without an adequate explanation?

> Distinguish between the following types of current period supporting schedules and state the purpose of each: analysis, trial balance, and tests of reasonableness.

> Define what is meant by a permanent file, and list several types of information typically included. Why does the auditor not include the contents of the permanent file with the current year's audit file?

> Explain why it is important for audit documentation to include each of the following: identification of the name of the client, period covered, description of the contents, initials of the preparer, date of the preparation, and an index code.

> List the purposes of audit documentation and explain why each purpose is important.

> Distinguish between attention-directing analytical procedures and those intended to eliminate or reduce detailed substantive procedures.

> What major characteristics of the organization and conduct of CPA firms permit them to fulfill their social function competently and independently?

> Your client, Harper Company, has a contractual commitment as a part of a bond indenture to maintain a current ratio of 2.0. If the ratio falls below that level on the balance sheet date, the entire bond becomes payable immediately. In the current year, t

> Identify the most important reasons for performing analytical procedures.

> Explain the importance of analytical procedures as evidence in determining the fair presentation of the financial statements.

> Distinguish between internal documentation and external documentation as audit evidence and give three examples of each.

> What are the characteristics of a confirmation? Distinguish between a confirmation and external documentation.

> List the eight types of audit evidence included in this chapter and give two examples of each.

> Identify the six characteristics that determine the reliability of evidence. For each characteristic, provide one example of a type of evidence that is likely to be reliable.

> Identify the two factors that determine the persuasiveness of evidence. How are these two factors related to audit procedures, sample size, items to select, and timing?

> Describe what is meant by an audit program for accounts receivable. What four things should be included in an audit program?

> What are the two AICPA resource centers to which CPA firms may belong? What are the primary purposes of the two centers?

> Discuss the similarities and differences between evidence in a legal case and evidence in an audit of financial statements.

> The use of audit software has increased dramatically in recent years. Software is now used to fulfill administrative functions in the audit environment, document audit work, and conduct data analysis. This problem requires students to visit the ACL web s

> Rene Ritter opened a small grocery and related-products convenience store in 1989 with money she had saved working as an A&P store manager. She named it Ritter Dairy and Fruits. Because of the excellent location and her fine management skills, Ritter Dai

> Following are seven audit activities. a. Examine invoices supporting recorded fixed asset additions. b. Review industry databases to assess the risk of material misstatement in the financial statements. c. Summarize misstatements identified during testin

> The following (1 through 18) are the balance-related, transaction-related, and presentation and disclosure related audit objectives. Balance-Related Audit Objectives 1. Existence 2. Completeness 3. Accuracy 4. Classification 5. Cutoff 6. Detail t

> The following are two specific balance-related audit objectives in the audit of accounts payable. The list referred to is the list of accounts payable taken from the accounts payable master file. The total of the list equals the accounts payable balance

> The following are specific presentation and disclosure-related audit objectives applied to presentation and disclosure for fixed assets (a through d) and management assertions (1 through 4). Specific Presentation and Disclosure-Related Audit Objective a.

> The following are specific balance-related audit objectives applied to the audit of accounts receivable (a through h) and management assertions about account balances (1 through 4). The list referred to in the specific balance-related audit objectives is

> The following are various management assertions (a through m) related to sales and accounts receivable. Management Assertion a. All sales transactions have been recorded. b. Receivables are appropriately classified as to trade and other receivables in th

> The following general ledger accounts are included in the trial balance for an audit client, Jones Wholesale Stationery Store. Accounts payable Insurance expense Accounts receivable Interest expense Accrued interest expense Inventory Accrued s

> The following questions deal with audits by CPA firms. Choose the best response. a. Which of the following best describes why an independent auditor is asked to express an opinion on the fair presentation of financial statements? (1) It is difficult to

> Auditors provide "reasonable assurance" that the financial statements are "fairly stated, in all material respects." Questions are often raised as to the responsibility of the auditor to detect material misstatements, including misappropriation of assets

> The following are selected portions of the report of management from a published annual report. REPORT OF MANAGEMENT Management's Report on Internal Control over Financial Reporting The Company's management is responsible for establishing and maintaining

> State the objective of the audit of financial statements. In general terms, how do auditors meet that objective?

> Identify the four phases of the audit. What is the relationship of the four phases to the objective of the audit of financial statements?

> Identify the management assertion and presentation and disclosure-related audit objective for the specific presentation and disclosure-related audit objective: Read the fixed asset footnote disclosure to determine that the types of fixed assets, deprecia

> Explain how management assertions, general balance-related audit objectives, and specific balance-related audit objectives are developed for an account balance such as accounts receivable.

> What are specific audit objectives? Explain their relationship to the general audit objectives.

> Distinguish between the existence and completeness balance-related audit objectives. State the effect on the financial statements (overstatement or understatement) of a violation of each in the audit of accounts receivable.

> An acquisition of a fixed-asset repair by a construction company is recorded on the wrong date. Which transaction-related audit objective has been violated? Which transaction-related audit objective has been violated if the acquisition had been capitaliz

> Distinguish between the general audit objectives and management assertions. Why are the general audit objectives more useful to auditors?

> Explain why CPAs need to be knowledgeable about information technology, including e-commerce technologies.

> Define what is meant by a management assertion about financial statements. Identify the three broad categories of management assertions.

> Why are sales, sales returns and allowances, bad debts, cash discounts, accounts receivable, and allowance for uncollectible accounts all included in the same cycle?

> Identify the cycle to which each of the following general ledger accounts will ordinarily be assigned: sales, accounts payable, retained earnings, accounts receivable, inventory, and repairs and maintenance.

> Describe what is meant by the cycle approach to auditing. What are the advantages of dividing the audit into different cycles?

> List two major characteristics that are useful in predicting the likelihood of fraudulent financial reporting in an audit. For each of the characteristics, state two things that the auditor can do to evaluate its significance in the engagement.

> Because management operates the business on a daily basis, they know more about the company's transactions and related assets, liabilities, and equity than the auditor. For example, it is extremely difficult, if not impossible, for the auditor to evaluat

> Distinguish between fraudulent financial reporting and misappropriation of assets. Discuss the likely difference between these two types of fraud on the fair presentation of financial statements.

> Distinguish between the terms errors and fraud. What is the auditor's responsibility for finding each?

> Distinguish between management's and the auditor's responsibility for the financial statements being audited.

> This problem requires you to access authoritative standards to compare the objective of an audit as defined by GAAS (www.aicpa.org) and International Standards on Auditing (ISA 200) (www.iaasb.org) and the objective of an audit of internal control over f

> International Standards on Auditing (ISAs) are issued by the International Auditing and Assurance Standards Board (IAASB). Use the IAASB web site (http://www.ifac.org/IAASB/) to learn more about the IAASB and its standard-setting activities. Required a.

> Jackson is a sophisticated investor. As such, she was initially a member of a small group that was going to participate in a private placement of $1 million of common stock of Clarion Corporation. Numerous meetings were held between management and the in

> Whitlow & Company is a brokerage firm registered under the Securities Exchange Act of 1934. The act requires such a brokerage firm to file audited financial statements with the SEC annually. Mitchell & Moss, Whitlow's CPAs, performed the annual audit for

> Sarah Robertson, CPA, had been the auditor of Majestic Co. for several years. As she and her staff prepared for the audit for the year ended December 31, 2010, Herb Majestic told her that he needed a large bank loan to "tide him over" until sales picked

> Groton, CPAs, were the auditors of Bank & Company, a brokerage firm and member of a national stock exchange. Gordon & Groton audited and reported on the financial statements of Bank, which were filed with the Securities and Exchange Commission. Several o

> Under Section 11 of the Securities Act of 1933 and Section 10(b), Rule 10b-5, of the Securities Exchange Act of 1934, a CPA may be sued by a purchaser of registered securities. The following items relate to what a plaintiff who purchased securities must

> Chen, CPA, is the auditor for Greenleaf Manufacturing Corporation, a privately owned company that has a June 30 fiscal year. Greenleaf arranged for a substantial bank loan that was dependent on the bank's receiving, by September 30, audited financial sta

> In order to expand its operations, Barton Corp. raised $5 million in a public offering of common stock, and also negotiated a $2 million loan from First National Bank. In connection with this financing, Barton engaged Hanover & Co., CPAs to audit Barton'

> The CPA firm of Bigelow, Barton, and Brown was expanding rapidly. Consequently, it hired several junior accountants, including a man named Small. The partners of the firm eventually became dissatisfied with Small's production and warned him they would be

> Lauren Yost & Co., a medium-sized CPA firm, was engaged to audit Stuart Supply Company. Several staff were involved in the audit, all of whom had attended the firm's in-house training program on effective auditing methods. Throughout the audit, Yost spen

> Following are 8 statements with missing terms involving auditor legal liability. 1. Under the Ultramares Doctrine, an auditor is generally not liability for _____ to third parties lacking _____. 2. The auditor will use a defense of _____ in a suit brough

> What are the major differences in the scope of the audit responsibilities for CPAs, GAO auditors, IRS agents, and internal auditors?

> The following questions deal with liability under the 1933 and 1934 securities acts. Choose the best response. a. Major, Major, & Sharpe, CPAs, are the auditors of MacLain Technologies. In connection with the public offering of $10 million of MacLain

> State several factors that have affected the incidence of lawsuits against CPAs in recent years.

> In what ways can the profession positively respond to and reduce liability in auditing?

> What potential sanctions does the SEC have against a CPA firm?

> Distinguish between the auditor's potential liability to the client, liability to third parties under common law, civil liability under the securities laws, and criminal liability. Describe one situation for each type of liability in which the auditor ca