What is the purpose of the Principles of Professional Conduct? Identify the six principles.
> The following questions concern auditor responsibilities related to the assessment of risks of material misstatement. Choose the best response. a. Which of the following procedures would a CPA most likely perform during the planning stage of the audit? (
> The following questions concern audit evidence and audit documentation. Choose the best response. a. According to PCAOB audit standards, audit documentation must be retained for b. Which of the following types of audit evidence is generally the most reli
> Describe two of the more common judgment traps and biases.
> The following questions deal with client acceptance, audit planning, and materiality. Choose the best response. a. In which of the following circumstances would an auditor of an issuer be least likely to reevaluate established materiality levels? (1) The
> Auditing standards require the auditor to obtain an understanding of the entity and its environment as a basis for assessing the risks of material misstatements. Business models differ across organizations and industries, leading to unique business proce
> The following questions concern auditor responsibilities in an audit of financial statements. Choose the best response. a. The auditor’s responsibility regarding material misstatements caused by fraud is (1) less than the auditor’s responsibility regardi
> The following questions deal with internal control and audit evidence in the sales and collection cycle. Choose the best response. a. Tracing shipping documents to sales invoices provides evidence that (1) sales billed to customers were actually shipped.
> The following questions concern audit reports other than unmodified opinion audit reports with standard wording. Choose the best response. a. As compared to an unmodified opinion, an opinion qualified due to a material departure from generally accepted a
> The following questions concern auditor responsibilities related to the identification and assessment of fraud risk. Choose the best response. a. While performing a preliminary assessment for a new client audit, the auditor determines that the client has
> The following questions concern auditor professional responsibilities. Choose the best response. a. The concept of materiality would be least important to an auditor when considering the (1) adequacy of disclosure of a client’s illegal act. (2) effects o
> The following are general questions about assessing control risk, testing controls, and reporting on internal controls. Choose the best response. a. During the planning stage of an audit, the auditor initially assessed both inherent risk and control risk
> The following independent scenarios describe auditor behavior on an audit engagement. 1. The audit engagement partner, Marc Johnson, recently received a subpoena for workpapers related to an audit engagement on which his audit firm has been named as a de
> The following questions deal with assurance services and types of audits. Choose the best response. a. Which of the following is considered an assurance engagement? (1) Bookkeeping (2) Preparation (3) Compilation (4) Audit b. Which of the following engag
> Distinguish between an unmodified opinion audit report that contains an emphasis-of-matter explanatory paragraph and a qualified report.
> The following questions concern CPA firms’ liability under common law or statutory law. Choose the best response. a. Which of the following elements is required to be proven by the plaintiff to hold an accountant liable for gross negligence but not for a
> The following questions address CPA firms and entities that regulate them. Choose the best response. a. An auditor of an entity subject to the rules of the SEC must conduct the financial statement audit in accordance with (1) PCAOB standards. (2) Stateme
> Suppose that you share a ride to a client with another audit staff member. Your colleague proposes that you both submit mileage reimbursement requests for each day of the audit even though you share rides. Explain the six-step approach to resolving an et
> Describe the relations among international auditing standards, AICPA auditing standards, and PCAOB auditing standards.
> The following sales procedures were encountered during the annual audit of Griezmann Wholesale Distributing Company: Customer orders are received by the sales order department. A clerk computes the approximate dollar amount of the order and sends it to t
> The following is a list of possible errors or fraud (1 through 8) involving sales and controls (a. through k.) that may prevent or detect the errors or fraud: Possible Errors or Fraud 1. Invoices are sent for shipped goods, and are recorded in the sales
> The following are commonly performed tests of controls and substantive tests of transactions audit procedures in the sales and collection cycle: 1. Review the prelisting of cash receipts to determine whether cash is prelisted daily. 2. Reconcile the reco
> Items 1 through 10 are selected questions of the type generally found in internal control questionnaires used by auditors to obtain an understanding of internal control in the sales and collection cycle. In using the questionnaire for a client, a “yes” r
> The following are partial descriptions of internal controls for companies engaged in the manufacturing business: 1. Every day, hundreds of employees clock in using their employee identification cards at Generous Motors Corporation. The data on these time
> Each of the following internal controls has been taken from a standard internal control questionnaire used by a CPA firm for assessing control risk in the payroll and personnel cycle. 1. Human resource policies require an investigation of an employment a
> Is the auditor’s liability under common law affected if the third party was unknown rather than known? Explain.
> The following internal controls were identified by the auditor while gaining an understanding of internal control for the sales cycle. 1. Access to the customer master file is restricted to authorized personnel. Customers are added to the master file onl
> Siva Kumar and Vera Collier are friends who are employed by different CPA firms. One day during lunch they are discussing the importance of internal control in determining the amount of audit evidence required for an engagement. Kumar expresses the view
> The following are five independent situations. 1. Joanie Brogan is a partner in an audit firm that operates as a limited liability partnership (LLP). The firm has been sued for an alleged audit failure related to an audit engagement handled by a differen
> For each of the following procedures taken from the quality control manual of a CPA firm, identify the applicable element of quality control from Table 2-3 on page 39. a. All potential new clients are reviewed before acceptance. The review includes consu
> Sarah O’Hann enjoyed taking her first auditing course as part of her undergraduate accounting program. While at home during her semester break, she and her father discussed the class, and it was clear that he didn’t really understand the nature of the au
> Why is there a special need for professional conduct by CPAs? How does this differ from the need for special conduct in other professions?
> This problem requires the use of ACL software, which can be accessed through the textbook website. Information about downloading and using ACL and the commands used in this problem can also be found on the textbook website. You should read all of the ref
> What is meant by determining the degree of correspondence between information and established criteria? What are the criteria for an audit of a company’s financial statements?
> The following are situations that may violate the AICPA Code of Professional Conduct. Assume, in each case, that the CPA is a partner, unless stated otherwise. 1. Elbert is a staff accountant at a CPA firm. Elbert’s wife works in human resources at one o
> Part 1. 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 a
> Compare the wording in the standard unmodified opinion audit report for a nonpublic entity under AICPA auditing standards in Figure 3-1 (p. 49) with the wording for a public company audit under PCAOB auditing standards in Figure 3-3 (p. 54). How are the
> Explain the difference in the requirements for reporting on the effectiveness of internal controls over financial reporting for integrated audits versus financial statement–only audits.
> Why are the financial statement audit findings relevant to the auditor’s opinion on the effectiveness of internal controls over financial reporting?
> What four types of procedures are used by auditors to test whether internal controls are operating effectively?
> In Figure 13-4, explain the differences among C3, C2, and C1. Explain the circumstances under which it would be a good decision to obtain audit assurance from substantive tests at point C1. Do the same for points C2 and C3. Figure 13-4: Audit Assur
> What is the purpose of a control risk matrix?
> Explain the conceptual framework for the Rules of Conduct and how it should be applied.
> Define the audit risk model and explain each term in the model
> Describe the three main techniques used to manipulate revenue.
> How do the COSO principles help an organization assess whether internal controls are designed and operating effectively?
> What are the three ways auditors respond to fraud risks?
> Why is an auditor’s independence so essential?
> Describe the types of procedures that constitute risk assessment procedures.
> At what two levels does the auditor assess the risk of material misstatement?
> Explain the difference between known and likely misstatements. Assume the auditor tests a sample of $100,000 of inventory and finds misstatements totaling $5,000. What is the likely misstatement if the account balance is $500,000?
> Explain the five elements that are part of a strategic understanding of the client’s business.
> What are the auditor’s possible defenses against lawsuits filed under the Securities Exchange Act of 1934?
> Explain the concept of professional skepticism and identify its two elements.
> What are the four major sources of auditors’ legal liability?
> Describe whether the auditor is more concerned about the occurrence or completeness objective related to cash receipts.
> What three types of authorizations are commonly used as internal controls for sales? Explain the importance of each.
> What are the purposes of the opinion section in the auditor’s report? Identify the most important information included in the opinion section.
> As part of the engagement team for the audit of JA Tire Manufacturing for the year ended December 31, 2019, you are responsible for auditing the sales and collection cycle. If you have not done so already, visit the textbook website to download the data
> A study was made to determine whether more Italians than Americans prefer white champagne to pink champagne at weddings. Of the 300 Italians selected at random, 72 preferred white champagne, and of the 400 Americans selected, 70 preferred white champagne
> A geneticist is interested in the proportions of males and females in a population who have a certain minor blood disorder. In a random sample of 100 males, 31 are found to be afflicted, whereas only 24 of 100 females tested have the disorder. Can we con
> State the null and alternative hypotheses to be used in testing the following claims and determine generally where the critical region is located: (a) The mean snowfall at Lake George during the month of February is 21.8 centimeters. (b) No more than 20%
> In a study to estimate the proportion of wives who regularly watch soap operas, it is found that 52 of 200 wives in Denver, 31 of 150 wives in Phoenix, and 37 of 150 wives in Rochester watch at least one soap opera. Use a 0.05 level of significance to te
> A survey was conducted in two Virginia cities to determine voter sentiment about two gubernatorial candidates in an upcoming election. Five hundred voters were randomly selected from each city and the following data were recorded: At the 0.05 level of
> A survey was conducted in Indiana, Kentucky, and Ohio to determine the attitude of voters concerning school busing. A poll of 200 voters from each of these states yielded the following results: At the 0.05 level of significance, test the null hypothesi
> To determine current attitudes about prayer in public schools, a survey was conducted in four Virginia counties. The following table gives the attitudes of 200 parents from Craig County, 150 parents from Giles County, 100 parents from Franklin County, an
> A college infirmary conducted an experiment to determine the degree of relief provided by three cough remedies. Each cough remedy was tried on 50 students and the following data recorded: Test the hypothesis that the three cough remedies are equally ef
> The following responses concerning the standard of living at the time of an independent opinion poll of 1000 households versus one year earlier seem to be in agreement with the results of a study published in Across the Board (June 1981): Test the hypo
> According to a Johns Hopkins University study published in the American Journal of Public Health, widows live longer than widowers. Consider the following survival data collected on 100 widows and 100 widowers following the death of a spouse: Can we co
> A study was made by a retail merchant to determine the relation between weekly advertising expenditures and sales. (a) Plot a scatter diagram. (b) Find the equation of the regression line to predict weekly sales from advertising expenditures. (c) Estim
> A criminologist conducted a survey to determine whether the incidence of certain types of crime varied from one part of a large city to another. The particular crimes of interest were assault, burglary, larceny, and homicide. The following table shows th
> A random sample of 200 married men, all retired, was classified according to education and number of children: Test the hypothesis, at the 0.05 level of significance, that the size of a family is independent of the level of education attained by the fa
> A random sample of 90 adults is classified according to gender and the number of hours of television watched during a week: Use a 0.01 level of significance and test the hypothesis that the time spent watching television is independent of whether the v
> In an experiment to study the dependence of hypertension on smoking habits, the following data were taken on 180 individuals: Test the hypothesis that the presence or absence of hypertension is independent of smoking habits. Use a 0.05 level of signifi
> For Exercise 1.19 on page 31, test the goodness of fit between the observed class frequencies and the corresponding expected frequencies of a normal distribution with μ = 1.8 and σ = 0.4, using a 0.01 level of significance. Exer
> For Exercise 1.18 on page 31, test the goodness of fit between the observed class frequencies and the corresponding expected frequencies of a normal distribution with μ = 65 and σ = 21, using a 0.05 level of significance. Exerci
> A coin is thrown until a head occurs and the number X of tosses recorded. After repeating the experiment 256 times, we obtained the following results: Test the hypothesis, at the 0.05 level of significance, that the observed distribution of X may be fi
> Three marbles are selected from an urn containing 5 red marbles and 3 green marbles. After the number X of red marbles is recorded, the marbles are replaced in the urn and the experiment repeated 112 times. The results obtained are as follows: Test the
> A die is tossed 180 times with the following results: Is this a balanced die? Use a 0.01 level of significance. 1 2 3 4 f 28 36 36 30 27 23
> The grades in a statistics course for a particular semester were as follows: Test the hypothesis, at the 0.05 level of significance, that the distribution of grades is uniform. Grade A в с D F 14 18 32 20 16
> A mathematics placement test is given to all entering freshmen at a small college. A student who receives a grade below 35 is denied admission to the regular mathematics course and placed in a remedial class. The placement test scores and the final grade
> A machine is supposed to mix peanuts, hazelnuts, cashews, and pecans in the ratio 5:2:2:1. A can containing 500 of these mixed nuts was found to have 269 peanuts, 112 hazelnuts, 74 cashews, and 45 pecans. At the 0.05 level of significance, test the hypot
> Hydrocarbon emissions from cars are known to have decreased dramatically during the 1980s. A study was conducted to compare the hydrocarbon emissions at idling speed, in parts per million (ppm), for automobiles from 1980 and 1990. Twenty cars of each mod
> An experiment was conducted to compare the alcohol content of soy sauce on two different production lines. Production was monitored eight times a day. The data are shown here. Production line 1: 0.48 0.39 0.42 0.52 0.40 0.48 0.52 0.52 Production line 2
> Two types of instruments for measuring the amount of sulfur monoxide in the atmosphere are being compared in an air-pollution experiment. Researchers 370 Chapter 10 One- and Two-Sample Tests of Hypotheses wish to determine whether the two types of instru
> With reference to Exercise 10.39 on page 358, test the hypothesis that σ21 = σ22 against the alternative that σ21 = σ22, where σ21 and σ22 are the variances for the running times of films
> For Exercise 10.41 on page 358, test the hypothesis at the 0.05 level of significance that σ21 = σ22 against the alternative that σ21 = σ22, where σ21 and σ22 are the variances of the numb
> A study is conducted to compare the lengths of time required by men and women to assemble a certain product. Past experience indicates that the distribution of times for both men and women is approximately normal but the variance of the times for women i
> Large-Sample Test of σ2 = σ20: When n ≥ 30, we can test the null hypothesis that σ2 = σ20, or σ = σ0, by computing which is a value of a random variable whose sampling d
> A soft-drink dispensing machine is said to be out of control if the variance of the contents exceeds 1.15 deciliters. If a random sample of 25 drinks from this machine has a variance of 2.03 deciliters, does this indicate at the 0.05 level of significanc
> Past data indicate that the amount of money contributed by the working residents of a large city to a volunteer rescue squad is a normal random variable with a standard deviation of $1.40. It has been suggested that the contributions to the rescue squad
> The following is a portion of a classic data set called the “pilot plot data” in Fitting Equations to Data by Daniel and Wood, published in 1971. The response y is the acid content of material produced by titration, wh
> Aflotoxins produced by mold on peanut crops in Virginia must be monitored. A sample of 64 batches of peanuts reveals levels of 24.17 ppm, on average, with a variance of 4.25 ppm. Test the hypothesis that σ2 = 4.2 ppm against the alternative that σ2 = 4.2
> Past experience indicates that the time required for high school seniors to complete a standardized test is a normal random variable with a standard deviation of 6 minutes. Test the hypothesis that σ = 6 against the alternative thatσ < 6 if a random samp
> The content of containers of a particular lubricant is known to be normally distributed with a variance of 0.03 liter. Test the hypothesis that σ2 = 0.03 against the alternative that σ2 = 0.03 for the random sample of 10 containers in Exercise 10.23 on
> Show the necessary steps in converting the equation to the equivalent form b1 t = ryn-2 V1-r2
> Suppose that an experimenter postulates a model of the type Yi = β0 + β1x1i + €i i= 1, 2, . . . , n, when in fact an additional variable, say x2, also contributes linearly to the response. The true model is then g
> In Review Exercise 11.62, the student was required to show that simple linear regression model. Does the same hold for a model with zero intercept? Show why or why not. Exercise 11.62: Show, in the case of a least squares fit to the simple linear regr
> Consider the situation of Review Exercise 11.62 but suppose n = 2 (i.e., only two data points are available). Give an argument that the least squares regression line will result in (y1 − ˆy1) = (y2 − Ë&
> Show, in the case of a least squares fit to the simple linear regression model Yi = β0 + β1xi + €i, i= 1, 2, . . . , n, that E (4. – ŷ.) = E es = 0. i=1 1=1
> For a simple linear regression model Yi = β0 + β1xi + €i, i= 1, 2, . . . , n, where the i are independent and normally distributed with zero means and equal variances σ2, show that ¯ Y and
