Question: The primary difference between operational auditing

> What analytical procedures might be informative regarding the existence assertion?

> Which of the following control activities would best protect against the preparation of improper or inaccurate cash disbursements? a. All checks must be signed by an officer designated by the board of directors. b. All signed checks must be reviewed and

> What is a cutoff bank statement? How do auditors use it?

> In preparing for the audit of cash, the auditors perform analytical procedures concerning cash balances. Which of the following would be the best source of information for use in the estimate of cash? a. Prior-years’ balances. b. Management inquiry. c. C

> Which of the following would the auditor consider to be an incompatible operation if the cashier receives remittances? a. The cashier prepares the daily deposit. b. The cashier makes the daily deposit at a local bank. c. The cashier posts the receipts to

> Why is the Auditing Standards Board’s set of management assertions important to auditors? Do these assertions differ from those included in PCAOB standards? If so, how are they different?

> Which of the following would be considered an assurance engagement? a. Giving an opinion on a prize promoter’s claims about the amount of sweepstakes prizes awarded in the past. b. Giving an opinion on the conformity of the financial statements of a univ

> What is the concept of reasonable assurance? What are the key limitations of an internal control system?

> An auditor’s purpose in auditing the information contained in the pension footnote most likely is to obtain evidence concerning management’s assertion about a. Rights and obligations. b. Existence. c. Presentation and disclosure. d. Valuation.

> Simon Blank Construction Company has two divisions. The president (Chris Simon) manages the roofing division. Simon delegated authority and responsibility for management of the modular manufacturing division to John Gault. The company has a competent acc

> When auditing the accounts receivable account on the balance sheet, an auditor’s procedures most likely would focus primarily on management’s assertion of a. Existence. b. Completeness. c. Presentation and disclosure. d. Rights and obligations.

> During an audit of an entity’s stockholders’ equity accounts, the auditor determines whether there are restrictions on retained earnings resulting from loans, agreements, or state law. This audit procedure most likely is intended to verify management’s a

> An auditor selected items for test counts from the client’s warehouse during the physical inventory observation. The auditor then traced these test counts into the detailed inventory listing that agreed to the financial statements. This procedure most li

> Which of the following is a reason to obtain professional certification? a. Certification provides credibility that an individual is technically competent. b. Certification often is a necessary condition for advancement and promotion within a professiona

> Which of the following best describes the focus of the following engagements? Consulting Services Engagement Attestation Assurance Auditing Engagement Engagement Engagement a. Any information Financial statements Advice and decision Financial inform

> Which of the following topics is not addressed in the auditors’ report for a public entity? a. Responsibilities of the auditor and management in the financial reporting process. b. Absolute assurance regarding the fairness of the entity’s financial state

> What is meant by (a) vouching, (b) tracing, and (c) scanning? What is the difference between vouching and tracing?

> In auditing the accrued liabilities account on the Balance Sheet, an auditor’s procedures most likely would focus primarily on management’s assertion of a. Existence or occurrence. b. Completeness. c. Presentation and disclosure. d. Valuation or allocati

> Which of the following audit procedures probably would provide the most reliable evidence related to the entity’s assertion of rights and obligations for the inventory account? a. Trace test counts noted during physical count to the summarization of quan

> Substantial equivalency refers to a. An auditor’s tendency not to believe management’s assertions without sufficient corroboration. b. Providing consulting work for another firm’s audit client in exchange for the other firm’s providing consulting service

> When planning the audit of internal controls for an issuer, the audit team should a. Identify significant accounts, locations, and assertions. b. Conduct a walkthrough of the internal control process. c. Make inquiries of employees regarding the existenc

> The Sarbanes–Oxley Act of 2002 generally prohibits public accounting firms from a. Acting in a managerial decision-making role for an audit client. b. Auditing the firm’s own work on an audit client. c. Providing tax consulting to an audit client without

> Must the overall understanding of internal control always be followed by assessment and testing phases? Explain.

> The chairman of the board of Hughes Corporation proposed that the board hire as controller a CPA who had been the manager of the team that conducted Hughes Corporation’s audit engagement. The chairman thought that hiring this person would make the annual

> The 12 partners of a regional public accounting firm met in special session to discuss audit engagement efficiency. Jones spoke up, saying, “We all certainly appreciate the firm wide policies set up by Martin and Smith, especially in connection with the

> When an auditor reviews additions to the equipment (fixed asset) account to make sure that fixed assets are not overstated, she wants to obtain evidence as to management’s assertion regarding a. Completeness. b. Existence. c. Valuation and allocation. d.

> When auditing merchandise inventory at year-end, the auditor performs audit procedures to obtain evidence that no goods held on consignment are included in the client’s ending inventory balance. This audit procedure provides assurance about which managem

> When auditing merchandise inventory at year-end, the auditor performs audit procedures to ensure that all goods purchased before year-end are received before the physical inventory count. This audit procedure provides assurance about which management ass

> The risk to investors that a company’s financial statements may be materially misleading is called a. Client acceptance risk. b. Information risk. c. Moral hazard. d. Business risk.

> Identify the four cycles featured in Dunder-Mifflin’s accounting system featured in Exhibit 3.3A. Next, list the financial statement accounts that can be identified within each of the cycles identified as featured in Exhibit 3.3B.

> Jones, CPA, is planning the audit of Rhonda’s Company. Rhonda verbally asserts to Jones that all expenses for the year have been recorded in the accounts. Rhonda’s representation in this regard a. Is sufficient evidence for Jones to conclude that the com

> Kramer, CPA, consulted an independent appraiser regarding the valuation of fine art for a not-for-profit museum. Consultation with the appraiser in this case would a. Be considered as exercising proper due care. b. Be considered a failure to follow gener

> Identify three different categories of fraud risk factors. Next, for each category, what are some of the conditions that can help contribute to a higher likelihood of financial statement fraud?

> The objective in an auditor’s review of credit ratings of a client’s customers is to obtain evidence related to management’s assertion about a. Completeness. b. Existence. c. Valuation and allocation. d. Rights and obligations. e. Occurrence.

> Which of the following is most closely related to the responsibilities principle? a. The auditors’ responsibility to issue a report as a result of their examination. b. The requirement that auditors gather sufficient, appropriate evidence upon which to b

> Performance audits usually include [two answers] a. Financial audits. b. Economy and efficiency audits. c. Compliance audits. d. Program audits.

> The organization primarily responsible for ensuring that public officials are using public funds efficiently, economically, and effectively is the a. Governmental Internal Audit Agency (GIAA). b. Central Internal Auditors (CIA). c. Securities and Exchang

> What requirements are usually necessary to become licensed as a certified public accountant? a. Successful completion of the Uniform CPA Examination. b. Experience in the accounting field. c. Education. d. All of the above.

> Breaux & Co. CPAs require that all audit documentation indicate the identity of the preparer and the reviewer. This procedure provides evidence relating to which of the following? a. Independence. b. Adequate competence and capabilities. c. Adequate plan

> The primary objective of compliance auditing is to a. Give an opinion on financial statements. b. Develop a basis for a report on internal control. c. Perform a study of effective and efficient use of resources. d. Determine whether client personnel are

> What is meant by a “top-down” approach to evaluation of internal controls?

> Independent auditors of financial statements perform audits that reduce a. Business risks faced by investors. b. Information risk faced by investors. c. Complexity of financial statements. d. Timeliness of financial statements

> A challenge facing auditors is the wide array of professional guidance available to them in the audits of different types of entities. Required: Describe Statements on Auditing Standards and Auditing Standards. In your description, identify which profes

> The Sarbanes–Oxley Act of 2002 prohibits public accounting firms from providing which of the following services to an audit client? a. Bookkeeping services. b. Internal auditing services. c. Valuation services. d. All of the above.

> What are the five types of general analytical procedures? List five sources of information for analytical procedures.

> Visit the website of the Institute of Internal Auditors (www.theiia.org), the Institute of Management Accountants (www.imanet.org), the Association of Certified Fraud Examiners (www.acfe.com), or the Information Systems Audit and Control Association (www

> Bankers who are processing loan applications from companies seeking large loans will probably ask for financial statements audited by an independent CPA because a. Financial statements are too complex for the bankers to analyze themselves. b. They are to

> According to the AICPA, the purpose of an audit of financial statements is to a. Enhance the degree of confidence that intended users can place in the financial statements. b. Express an opinion on the fairness with which they present financial position,

> What steps do audit teams follow in examining internal control over financial reporting?

> A determination of cost savings obtained by outsourcing cafeteria services is most likely to be an objective of a. Environmental auditing. b. Financial auditing. c. Compliance auditing. d. Operational auditing.

> In an attestation engagement, a CPA practitioner is engaged to a. Compile a company’s financial forecast based on management’s assumptions without expressing any form of assurance. b. Prepare a written report containing a conclusion about the reliability

> Internal Control Questionnaire Items: Assertions, Tests of Controls, and Possible Errors or Frauds. Following is a selection of items from the payroll processing internal control questionnaire in Exhibit 5.15. 1. Are names of terminated employees reporte

> It is always a good idea for auditors to begin an audit with the professional skepticism characterized by the assumption that a. A potential conflict of interest always exists between the auditor and the management of the enterprise under audit. b. In au

> Cutoff tests designed to detect valid sales that occurred before the end of the year but have been recorded in the subsequent year would provide assurance about management’s assertion of a. Presentation and disclosure. b. Completeness. c. Rights and obli

> What type of opinion(s) would the audit team issue on the effectiveness of internal control over financial reporting if a material weakness in internal control exists? How would the standard report be modified?

> Each state has unique rules for certification concerning education, work experience, and residency. Visit the website for your state board of accountancy and download a list of the requirements for becoming a CPA in your state. Although not all of the st

> What is an audit committee? What are its duties?

> You are engaged to examine the financial statements of Spillane Company for the year ended December 31. Assume that on November 1, Spillane borrowed $500,000 from Second National Bank to finance plant expansion. The long-term note agreement provided for

> List and briefly explain each of the Auditing Standards Board’s management assertions. List at least one key question that auditors must answer with evidence related to each management assertion.

> What are the two primary ways to conduct substantive tests? Explain how the tests are different.

> Audits may be characterized as (a) financial statement audits, (b) compliance audits, (c) economy and efficiency audits, and (d) program results audits. The work can be done by independent (external) auditors, internal auditors, or governmental auditors

> Your neighbor, Loot Starkin, invited you to lunch yesterday. Sure enough, it was no “free lunch” because Loot wanted to discuss the annual report of Dodge Corporation. He owns Dodge stock and just received the annual report. Loot says, “Our auditors prep

> Bigdeal Corporation manufactures paper and paper products and is trying to decide whether to purchase Smalltek Company. Smalltek has developed a process for manufacturing boxes that can replace containers that use fluorocarbons for expelling a liquid pro

> Your audit manager has asked you to explain the PCAOB assertions by using an account on the balance sheet at your audit client. For the accounts receivable account, please define each of the PCAOB assertions, using the accounts receivable account as a wa

> Give some examples of everyday work an entity’s management can use to enact the monitoring component of internal control. When are such activities control activities, and when are they monitoring activities?

> Complete the following chart indicating the corresponding Auditing Standards Board assertions and whether the assertion relates to transactions, balances, or disclosures. PCAOB Assertion Corresponding ASB Assertion Nature of Assertion Existence or O

> Which of the following is a device designed to help the audit team obtain evidence about the accounting and control activities of an audit client? a. A narrative memorandum describing the control system. b. An internal control questionnaire. c. A flowcha

> Which of the following elements of a system of quality control is related to firms receiving independence confirmations from its professionals with respect to clients? a. Acceptance and continuance of client relationships and specific engagements. b. Eng

> In most audits of large entities, control risk assessment contributes to audit efficiency, which means that a. The cost of substantive procedures will exceed the cost of control evaluation work. b. Auditors will be able to reduce the cost of substantive

> What is the difference between financial statement auditing and financial accounting?

> What is meant by the nature of the company, and why is it important to inherent risk assessment?

> How does an audit team use materiality on an audit engagement?

> To test the operating effectiveness of a control, an audit team might use a combination of each of the following tests except for a. Inquiry of client personnel. b. Observation of company operations. c. Confirmation of balances. d. Inspection of document

> According to the PCAOB, during the audit of internal controls for an issuer, the ultimate objective of testing the design effectiveness of internal controls is to a. Determine whether the company’s controls are processing company data effectively. b. Det

> The most important fundamental component of an entity’s internal control is a. Effectiveness and efficiency of operations. b. People who operate the control system. c. Reliability of financial reporting. d. Compliance with applicable laws and regulations

> Once the auditor detects a control deficiency, which of the following steps must he or she take first? a. Perform tests of other controls related to the same assertion as the control deemed ineffective. b. Evaluate the severity of the deficiency on the a

> The auditor should assess control risk for each relevant assertion by evaluating the evidence obtained from all sources, including a. The auditor’s testing of controls for the audit of internal control on a public company. b. Misstatements detected durin

> Matters that could affect the necessary extent of testing for a control activity as it related to the degree of auditor reliance on a control activity would not include the following: a. The frequency of the performance of the control by the company duri

> When testing a control activity’s operating effectiveness, procedures the auditor performs to test operating effectiveness would likely include a. Inquiry of appropriate personnel. b. Reading over the company’s code of conduct. c. Reperformance of the co

> If the auditor plans to assess control risk at less than the maximum and rely on controls, and the nature, timing, and extent of further audit procedures are based on that lower assessment, the auditor must a. Obtain evidence that the controls selected f

> Which of the following recognizes that an audit conducted under generally accepted auditing standards may not detect all material misstatements? a. Absolute assurance. b. Professional judgment. c. Reliability of audit evidence. d. Reasonable assurance.

> Following is a list of various professional services. Identify each by its apparent characteristics as audit engagement, attestation engagement, or assurance engagement. Because audits are a subset of attestation engagements, which are a subset of assura

> Auditors’ understanding of the internal control in an entity provides information for a. Determining whether members of the audit team have the required competence and capabilities to perform the audit. b. Ascertaining the independence in mental attitude

> What is meant by material information in accounting and auditing?

> Why is it important for an auditor to carefully assess inherent risk on each audit engagement?

> Ray, the owner of a small entity, asked Holmes, CPA, to conduct an audit of the entity’s records. Ray told Holmes that the audit was to be completed in time to submit audited financial statements to a bank as part of a loan application. Holmes immediatel

> Which of the following information would be included in the introductory paragraph of the auditors’ report on internal control over financial reporting if the report is presented separately from the auditors’ report on the entity’s financial statements?

> If the auditors encounter a significant scope limitation in evaluating a public company’s internal control over financial reporting, which of the following types of opinions on the effectiveness of the company’s internal control over financial reporting

> Which of the following statements is not true with respect to the auditors’ report on internal control over financial reporting? a. The report will be dated as of the date of the financial statements. b. The report will express an opinion on the effectiv

> The purpose of separating the duties of hiring personnel and distributing payroll checks is to separate the a. Authorization of transactions from the custody of related assets. b. Operational responsibility from the record-keeping responsibility. c. Huma

> When completing the audit of internal controls for a public company, AS 2201 requires auditors to report on Management's Report on An Audit of Internal Control Internal Control a. No No b. Yes No C. No Yes d. Yes Yes

> What are the four major elements of the broad definition of assurance services?

> Which of the following does not accurately summarize auditors’ requirements regarding internal control? Public Entity Nonpublic Entity a. Understanding Yes Yes b. Documenting Yes Yes c. Evaluating control risk Yes Yes d. Test contr

> When completing the audit of internal controls for an issuer, the severity of an internal control deficiency depends on a. Whether there is a reasonable possibility that the company’s controls will fail to prevent or detect a misstatement of an account b

> A material weakness is a situation in which a. It is probable that an immaterial financial statement misstatement would not be detected on a timely basis. b. There is a remote likelihood that a material misstatement would be detected on a timely basis. c

> Spreadsheet software would be most useful for which of the following audit activities? a. Testing internal controls over computerized accounting applications. b. Preparing an audit plan. c. Preparing a comparison of current-year expenses with those from

> What information would you expect to find in a permanent audit file?

> What advantages are derived from using CAATs in the financial statement audit? When answering this question please specifically consider performing when an auditor has to perform recalculations and selecting a sample of accounts receivable balances to be

> What are CAATs?

> Define audit trail. How could a computerized system’s transaction audit trail in an advanced system differ from one in a simple system or a manual system?