2.99 See Answer

Question: Describe what is meant by the cycle

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

> 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?

> Explain why the auditor can be persuaded only with a reasonable level of assurance, rather than convinced, that the financial statements are correct.

> 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.

> 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

> Contrast the auditor's liability under the Securities Act of 1933 with that under the Securities Exchange Act of 1934.

> Is the auditor's liability affected if the third party was unknown rather than known? Explain.

> Compare and contrast traditional auditors' legal responsibilities to clients and third-party users under common law. How has that law changed in recent years?

> Explain how an engagement letter might affect an auditor's liability to clients under common law.

> What is meant by contributory negligence? Under what conditions will this likely be a successful defense?

> What knowledge does the auditor need about the client's business in an audit of historical financial statements? Explain how this knowledge may be useful in performing other assurance or consulting services for the client.

> Individuals are licensed as CPAs by individual states. Information on the requirements for each state can be found on the National Association of State Boards of Accountancy (NASBA) web site (www.nasba.org). The Uniform CPA Examination is administered by

> Describe financial reporting of the consolidated activities of the U.S. government. Has the federal government received an unqualified audit opinion on its consolidated financial statements? If not, provide some reasons why it has not.

> “The FASAB sets standards for federal agencies that relate to external financial reporting, much like the GASB sets standards for state and local governments for external financial reporting.” Do you agree or disagree with this statement? Explain

> “Net position for a federal agency is similar to net assets of a state or local government.” Do you agree or disagree? Explain.

> Explain the differences among these accounts: (1) Estimated Revenues used by state and local governments, (2) Other Appropriations Realized used by federal agencies in their budgetary track, and (3) Fund Balance with Treasury used by federal agencies

> Discuss the conceptual framework of accounting for federal agencies and compare it to the conceptual framework established by the GASB for state and local governments.

> Describe the institutional process for establishing generally accepted accounting principles for the federal government.

> Identify the principals of the Joint Financial Management and Improvement Program (JFMIP) and identify in which branch of the federal government each operates. What role does each one play in the federal accounting standard setting process?

> Name the financial statements that should be prepared for each federal agency in conformity with OMB Circular A–136.

> Identify the budgetary accounts used in federal agency accounting and explain the sequential flow of budgetary authority through the accounts in your own words.

> The trial balance of the Federal Science Administration, as of August 31, 2011, follows: Required Prepare a statement of budgetary resources for the 11 months ended August 31, 2011, assuming that goods on order at the end of the prior year amounted to

> The Rural Assistance Agency operates three major programs as responsibility centers—the Food Bank, Housing Services, and Credit Counseling. Clients pay a fee for services on a sliding scale based on income. The following information is drawn from the acc

> Using the data from Problem 11–2, In Problem 11-2 Prepare the following: a. In general journal form, entries to close the budgetary accounts as needed and to close the operating statement proprietary accounts. b. In good form, a bal

> One amount is missing in the following trial balance of proprietary accounts, and another is missing from the trial balance of budgetary accounts of a certain agency of the federal government. This trial balance was prepared before budgetary accounts wer

> Choose the best answer. 1. Federal statutes assign responsibility for establishing and maintaining a sound financial structure for the federal government to which of the following: a. Comptroller General of the United States. b. Comptroller General, Secr

> The following excerpt is from the Inspector General’s transmittal letter to the Secretary of the Department of Transportation (DOT). U.S. Department of Transportation Office of the Secretary of Transportation Office of Inspector General Date: November 13

> Congress authorized the Flood Control Commission to start operations on October 1, 2011. Required a. Record the following transactions in general journal form as they should appear in the accounts of the Flood Control Commission. Record all expenses in

> A not-for-profit organization has hired you to conduct an audit. The audit has been requested by the organization’s board of directors. A mission of the organization is to provide for the education of children in the economically distre

> A city has approached you concerning the audit of its 2011 financial statements. State law requires the city to have an audit and submit the audited financial report to the state. New elections at the beginning of the fiscal year resulted in a change in

> Mountain Lake Mental Health Affiliates, a nongovernmental not-for-profit organization, has contacted Bill Wise, CPA, about conducting an annual audit for its first year of operations. The governing board wishes to obtain an audit of the financial stateme

> Your firm recently signed a letter of engagement to audit CitCo, the local city and county government. Over your morning cup of coffee, you open the local newspaper and read the following: Police are investigating how two computer servers belonging to Ci

> Explain the importance of diagnosis-related groups (DRGs) in the cost accounting systems of a health care provider.


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