Question: What duties are performed within the inventory

> Which of the following would an auditor most likely use in determining overall materiality when planning the audit? a. The anticipated sample size of the planned substantive tests. b. The entity’s income before taxes for the period-to-date (e.g., 6 month

> Tolerable misstatement is a. The amount of misstatement that management is willing to tolerate in the financial statements. b. Materiality for the balance sheet as a whole. c. Materiality for the income statement as a whole. d. Materiality used to establ

> The engagement partner and manager review the work of engagement team members to evaluate which of the following? a. The work was performed and documented. b. The objectives of the procedures were achieved. c. The results of the work support the conclusi

> Which of these statements concerning illegal acts by clients is correct? a. An auditor’s responsibility to detect illegal acts that have a direct and material effect on the financial statements is the same as that for errors and fraud. b. An audit in acc

> When planning an audit, an auditor should a. Consider whether the extent of substantive procedures may be reduced based on the results of tests of controls. b. Determine overall materiality for audit purposes. c. Conclude whether changes in compliance wi

> As generally conceived, the audit committee of a publicly held company should be made up of a. Representatives of the major equity interests (preferred stock, common stock). b. The audit partner, the chief financial officer, the legal counsel, and at lea

> Baker, CPA, was engaged to audit Mill Company’s financial statements for the year ended September 30. After studying Mill’s internal control, Baker decided to obtain evidence about the effectiveness of both the design and the operation of the controls th

> During the initial planning phase of an audit, a CPA most likely would a. Identify specific internal control activities that are likely to prevent fraud. b. Evaluate the reasonableness of the entity’s accounting estimates. c. Discuss the timing of the au

> If the independent auditors decide that it is efficient to consider how the work performed by the internal auditors may affect the nature, timing, and extent of audit procedures, they should assess the internal auditors’ a. Competence and objectivity. b.

> Visit the SEC’s website (www.sec.gov) and identify a company that has been recently cited for revenue recognition problems. Prepare a memo summarizing the revenue recognition issues for the company.

> Visit the SEC’s website (www.sec.gov), and identify a company that has been recently cited for financial reporting problems related to the recognition of expenses. Prepare a memo summarizing the expense issues for the company.

> Visit the website of a catalog retailer similar to Earth Wear Clothiers, and determine how it processes purchase transactions and recognizes expenses. Note that you may have to examine the entity’s annual report and 10-K.

> Which of the following is correct regarding the types of audits over which the ASB and the PCAOB, respectively, have standard-setting authority in the United States? ASB PCAOB a. Nonpublic company audits b. Public company audits Nonpublic company au

> The Public Company Accounting Oversight Board a. Is a quasi-governmental organization that has legal authority to set auditing standards for audits of public companies. b. Is a quasi-governmental organization that has legal authority to set accounting st

> Which of the following best describes the relationship between business objectives, strategies, processes, controls, and transactions? a. To achieve its objectives, a business formulates strategies and implements processes, which are carried out through

> Visit the GAO’s home page (www.gao.gov) and search for a recently completed audit. Prepare a summary of the GAO audit, including background on the issue and the GAO’s primary findings and recommendations.

> Which of the following best places the events of the last decade in proper sequence? a. Sarbanes-Oxley Act, increased consulting services to auditees, Enron and other scandals, prohibition of most consulting work for auditees, establishment of PCAOB. b.

> The revenue recognition accounting standard (ASC 606) specifies for a customer to have obtained control of a product in a bill-and-hold arrangement, all of the following criteria must be met: The reason for the bill-and-hold arrangement must be substanti

> Which of the following would be considered a non attest assurance service engagement? I. Expressing an opinion about the reliability of an entity’s financial statements. II. Reporting that a company’s sustainability metrics are complete and accurate. a.

> Operational auditing is oriented primarily toward a. Efficiency and future improvements to accomplish the goals of management. b. The accuracy of data reflected in management’s financial records. c. Verification that an entity’s financial statements are

> Which of the following is not a part of the role of internal auditors? a. Assisting the external auditors. b. Providing reports on the reliability of financial statements to investors and creditors. c. Consulting activities. d. Operational audits.

> A client has used an inappropriate method of accounting for its pension liability on the balance sheet. The resulting misstatement is material, but the auditor does not consider its effect to be pervasive. The auditor is unable to convince the client to

> The auditing standards that are used to guide the conduct of the audit are a. Implicitly referred to in the critical audit matters section of the auditor’s standard report. b. Explicitly referred to in the critical audit matters section of the auditor’s

> Which of the following statements best describes what is meant by an unqualified audit opinion? a. Issuance of an unqualified auditor’s report indicates that in the auditor’s opinion the client’s financial statements are not fairly enough presented in ac

> Preliminary engagement activities include a. Understanding the client and the client’s industry. b. Determining audit engagement team requirements. c. Ensuring the independence of the audit team and audit firm. d. All of the above.

> Which of the following is the most important reason for an auditor to gain an understanding of an audit client’s system of internal control over financial reporting? a. Understanding a client’s system of internal control can help the auditor assess risk

> Which of the following statements best describes the role of materiality in a financial statement audit? a. Materiality refers to the “material” from which audit evidence is developed. b. The higher the level at which the auditor assesses materiality, th

> For what primary purpose does the auditor obtain an understanding of the entity and its environment? a. To determine the audit fee. b. To decide which facts about the entity to include in the audit report. c. To plan the audit and determine the nature, t

> Doug Stevens, CPA, is interested in testing the fairness of the ending inventory balance during the audit of Morris Co. Doug has relatively little experience using statistical sampling methods and, quite frankly, doesn’t like to turn anything over to ran

> What is meant by the statement “The agency relationship between absentee owners and managers produces a natural conflict of interest”?

> Which of the following statements relating to attest and assurance services is not correct? a. Independence is an important attribute of assurance service providers. b. Assurance services can be performed to improve the quality or context of information

> Which of the following best describes relationships among auditing, attest, and assurance services? a. Attest is a type of auditing service. b. Auditing and attest services represent two distinctly different types of services— there is no overlap. c. Aud

> Which of the following best describes the reason why an independent auditor is often retained to report on financial statements? a. Management fraud may exist, and it is more likely to be detected by independent auditors than by internal auditors. b. Dif

> An independent audit adds value to the communication of financial information because the audit a. Confirms the exact accuracy of management’s financial representations. b. Lends credibility to the financial statements. c. Guarantees that financial data

> An auditor’s primary consideration regarding an entity’s internal controls is whether they a. Prevent management override. b. Relate to the control environment. c. Reflect management’s philosophy and operating style. d. Affect the financial statement ass

> An advantage of statistical sampling over non statistical sampling is that statistical sampling helps an auditor to a. Eliminate the risk of non sampling errors. b. Reduce audit risk and materiality to a relatively low level. c. Measure the sufficiency o

> Identify the three sections of the auditor’s standard unqualified report for a public company client.

> What kind of organization is the PCAOB, why was it formed, and what does it do?

> What are the major phases of an audit?

> The Committee on Basic Auditing Concepts has provided a widely cited definition of auditing. What does the phrase “systematic process” mean in this definition?

> You recently attended your five-year college reunion. At the main reception, you encountered an old friend, Dashawn Beagle, who recently graduated from law school and is now practicing with a large law firm in town. When you told him that you are a CPA a

> In understanding the entity and its environment, the auditor gathers knowledge about which categories of information?

> How is the sampling unit defined when monetary-unit sampling is used for statistical sampling? How is the sampling unit defined when classical variables sampling is used?

> In addition to policies and processes around payroll transactions, what other policies and processes are involved in the human resource management process?

> What control activities can an entity use to prevent unauthorized inventory production?

> List three substantive analytical procedures that can test the fairness of inventory and related accounts.

> List the three major steps in setting control risk in the inventory management process.

> List the inherent risk factors that affect the inventory management process.

> List the key segregation of duties in the inventory management process. What errors or fraud can occur if such segregation of duties is not present?

> Briefly describe each of the following documents or records: production schedule, materials requisition, inventory master file, production data information, and cost accumulation and variance report.

> Service Corporation hired an independent computer programmer to develop a simplified payroll application for its newly purchased computer. The programmer developed an online database microcomputer system that minimized the level of knowledge required of

> How does the inventory management process relate to the revenue, purchasing, and payroll processes?

> List five items for inventory and related accounts that may require disclosure.

> List the procedures the auditor should perform during the count of the entity’s physical inventory.

> Describe how an auditor audits standard costs.

> Why does inventory represent one of the more complex parts of the audit?

> Discuss two control environment factors that have a pervasive effect on the human resource management process that an auditor should consider.

> What risk factors associated with human resource management could pose significant inherent risks?

> List the key segregation of duties in the human resource management process. What errors or fraud can occur if such duties are not segregated?

> What duties are performed within the human resource, timekeeping, and payrollprocessing functions?

> Briefly describe each of the following documents or records: payroll register, payroll master file, and payroll master file changes report.

> Part II: Merry-Go-Round. Additional charges made against E&Y included the following (recall that MGR hired E&Y for turnaround consulting services): E&Y had a close relationship with Rouse Co., one of MGR’s primary landlords (E&Y was soliciting business f

> What are the two major types of transactions that occur in the payroll system? What financial statement accounts are affected by each of these types of transactions?

> Discuss how an auditor would substantively audit the accrued payroll taxes account.

> List two substantive analytical procedures that can be used to provide audit evidence related to the payroll expense accounts and the payroll-related liabilities.

> What is an example of a test of control or substantive test of transactions that can be performed using CAATs or audit data analytics for payroll transactions?

> List the procedures an auditor might use to search for unrecorded liabilities.

> List two substantive analytical procedures that can test accounts payable. What potential errors or fraud can be identified by each analytical procedure?

> Identify two tests of controls that could be performed using computer-assisted audit techniques (CAATs) for purchase transactions.

> What control activities typically ensure that the occurrence, authorization, and completeness assertions are met for a purchase transaction? What tests of controls are performed for each of these assertions?

> List two inherent risk factors that directly affect the purchasing process. Why should auditors be concerned about issues such as the supply of raw materials and the volatility of prices?

> List the key segregation of duties in the purchasing process. What errors or fraud can occur if such duties are not segregated?

> Part I: Merry-Go-Round (MGR), a clothing retailer located primarily in shopping malls, was founded in 1968.11 By the early 1990s, the company had gone public and had expanded to approximately 1,500 stores, 15,000 employees, and $1 billion in annual sales

> Briefly describe each of the following documents or records: purchase requisition, purchase order, receiving report, vendor invoice, and voucher. Why would an entity combine all documents related to a purchase transaction into a “voucher packet”?

> What major types of transactions occur in the purchasing process? What financial statement accounts are affected by each type of transaction?

> What are some of the typical procedures that might be applied to the audit of the tax provision by an auditor and/or tax specialist?

> What are the differences between accounts receivable and accounts payable confirmations?

> Identify four possible disclosure issues related to the purchasing process and related accounts.

> Distinguish among the three categories of expenses. Provide an example of each type of expense.

> List and discuss the three factors mentioned in the chapter that may affect the reliability of confirmations of accounts receivable.

> Describe how the auditor verifies the accuracy of the aged trial balance.

> List four analytical procedures that can be used to test revenue-related accounts. What potential misstatements are indicated by each of these analytical procedures?

> What are the two major controls for sales returns and allowances transactions?

> A walkthrough is one procedure used by an auditor as part of the internal control audit. A walkthrough requires an auditor to a. Tour the organization’s facilities and locations before beginning any audit work. b. Trace a transaction from every class of

> In understanding the accounting system in the revenue process, the auditor typically performs a walkthrough to gain knowledge of the system. What knowledge should the auditor try to obtain about the accounting system?

> The auditor needs to understand how selected inherent risk factors affect the transactions processed by the revenue process. Discuss the potential effect that industryrelated factors and misstatements detected in prior periods have on the inherent risk a

> When an entity does not adequately segregate duties, the possibility of cash being stolen before it is recorded is increased. If the auditor suspects that this type of defalcation is possible, what type of audit procedures can he or she use to test this

> Describe the credit function’s duties for monitoring customer payments and handling bad debts.

> Identify three other types of receivables the auditor should examine. What audit procedures would typically be used to audit other receivables?

> Distinguish between positive and negative confirmations. Under what circumstances would positive confirmations be more appropriate than negative confirmations?

> Describe the five-step process that is required for revenue recognition.

> What are the advantages and disadvantages of classical variables sampling?

> Describe the two methods suggested for projecting a non statistical sample result. How does an auditor determine which method should be used?

> How do the desired confidence level, risk of material misstatement, and tolerable and expected misstatements affect the sample size in a non statistical sampling application?

> If the financial reporting risks for a location are low and the entity has good entity level controls, management may rely on which of the following for its assessment? a. Documentation and test controls over specific risks. b. Self-assessment processes

> What is the decision rule for determining the acceptability of sample results when monetary-unit sampling is used?

> How does the use of probability-proportional-to-size selection provide an increased chance of sampling larger items?

> Identify the advantages and disadvantages of monetary-unit sampling.

> How are the desired confidence level, the tolerable misstatement, and the expected misstatement related to sample size?

> What is the decision rule for determining the acceptability of sample results when classical variables sampling is used?