Homework answers / question archive / COMPREHENSIVE ASSIGNMENT AUDITING I (ACCT 2007), Class Of Winter 2022 Multiple - choice Questions (15 total marks): 1) The primary reason that an auditor must be competent is so that they can   A) understand the engagement risks and the criteria used by the client

COMPREHENSIVE ASSIGNMENT AUDITING I (ACCT 2007), Class Of Winter 2022 Multiple - choice Questions (15 total marks): 1) The primary reason that an auditor must be competent is so that they can   A) understand the engagement risks and the criteria used by the client

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COMPREHENSIVE ASSIGNMENT AUDITING I (ACCT 2007), Class Of Winter 2022

Multiple - choice Questions (15 total marks):

1) The primary reason that an auditor must be competent is so that they can

 

A) understand the engagement risks and the criteria used by the client.

B) explain to staff how the bookkeeping should be done.

C) record the transactions properly for the underlying records.

D) capture the information properly in the computer files.

 

Answer:  ____

 

 

2. The Sarbanes-Oxley Act implementation requirements in the U.S. resulted in more strict independence requirements for auditors. The impact of this requirement in Canada was

 

A) the creation of the CPAB to oversee Canadian audit professionals.

B) revisions to the rules of professional conduct for CPAs.

C) additional training requirements for becoming an auditor.

D) modification of the type of opinion provided in an assurance engagement by an auditor.

 

Answer:  ____

 

3.In the audit of accounting data, the concern is with

 

A) evaluating whether recorded information reasonably reflects the economic events that occurred during the accounting period within specified dollar ranges.

B) determining if fraud has occurred.

C) determining if taxable income has been calculated correctly.

D) analyzing the financial information to be sure that it complies with government requirements.

 

Answer:  ____

 

4. To ensure the appropriateness of audit evidence, the auditor should

 

A) be sure to select a larger sample size for the items being tested.

B) add additional population items into the sample to improve sample variety.

C) select audit procedures that improve the reliability of the evidence gathered.

D) select a smaller sample size that is statistically valid.

 

Answer: ____

 

 

5.Most international and national accounting firms in Canada are comprised of professional accountants with the designation

 

A) CIA.

B) CPA.

C) CFE.

D) CISA.

 

Answer:  ____

 

6. Audit evidence can come in different forms with different degrees of persuasiveness. Which of the following is the least persuasive type of evidence?

 

A) bank statement obtained from the client

B) computations made by the auditor

C) prenumbered client sales invoices

D) a vendor's invoice

 

Answer:  ____

 

7. "Independence" in auditing means

 

A) remaining aloof from the client.

B) not being financially dependent on the client.

C) impartiality in performing professional services.

D) being an advocate for the client.

 

Answer:  ____

 

 

8. A measure of how willing the auditor is to accept that the financial statements may be materially misstated after the audit is completed and an unmodified opinion has been issued is the

 

A) inherent risk.

B) audit risk.

C) statistical risk.

D) financial risk.

 

Answer:  ____

 

 

 

 

 

9. How is use of an applicable accounting framework enforced via legislation?

 

A) The Canada Business Corporations Act and many provincial incorporating acts require that financial statements be prepared in accordance with CAS as set out in the CPA Canada Handbook.

 

B) PAs who do not prepare financial statements in accordance with such frameworks are expelled from their professional association.

 

C) tax authorities may sue corporations who do not prepare their financial statements in accordance with such frameworks.

 

D) financial executives may be sued if the financial statements prepared by their company are not in conformance with such frameworks.

 

Answer:  ___

 

 

10.The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to

 

A) the auditor.

B) management.

C) both management and the auditor equally.

D) management for the statements and the auditor for the notes.

 

Answer:  ____

 

 

11. What is the best description of the engagement letter?

 

A) a letter at the end of the audit engagement reviewing any concerns the auditors wish management to be aware of

 

B) a written agreement between the public accounting firm and the client as to the terms of the engagement for the conduct of the audit

 

C) a letter from a successor auditor to a predecessor auditor asking to review the working papers for the previous year

 

D) a letter soliciting a potential client

 

Answer:  ___

 

 

 

 

 

 

12.The Canada Business Corporation Act gave authority to Canadian accounting and auditing standard-setters by stating that financial statements

 

A) must be compiled in accordance with International Financial Reporting Standards.

B) should be prepared in accordance with the standards in the CPA Canada Handbook.

C) must be audited by accountants that reside in Canada.

D) should be prepared in accordance with local financial reporting standards.

 

Answer:  ___

 

 

13. An audit program is

 

A) a set of specifications of audit standards relevant to the financial statements being audited.

B) a set of documentation of the assertions under audit, the evidence obtained, and the conclusions reached.

C) a set of reconciliations of the account balances in the financial statements with the account balances in the auditee's general ledger

D) a set of detailed instructions for the entire collection of evidence for an audit area.

 

Answer:  ___

 

 

14. Who do the external auditors and the internal auditors usually report to?

 

A) senior management

B) audit committee

C) chief executive officer

D) director of internal audit

 

Answer:  ___

 

15. How frequently does the auditor decide with respect to the sample size to be selected?

 

A) once for the entire audit

B) for each transaction cycle

C) once for each type of audit procedure

D) for each audit procedure

 

Answer:  ___

 

 

 

Short-answer Questions (65 total marks):

 

1.Enumerate and define the seven methods of audit evidence collection(2 marks).

 

 

2. (2 marks).

 

A) Why do provincial CPA organizations conduct practice inspections.

B) How often are these CPA practice inspections done?

C) What are the implications of these CPA practice inspections?

 

 

3.Outline the components of the auditor's ethical decision-making framework(2 marks).

 

 

4. Below are 12 audit procedures. Classify each procedure according to the following types of audit evidence: 1) inspection, 2) external confirmation, 3) recalculation, 4) observation, 5) inquiry of the client, 6) reperformance, and 7) analytical procedure (3 marks).

 

Type of Evidence	Audit Procedures
	1. Observe client employees count inventory to determine whether company procedures are being followed.
	2. Physically count inventory items and record the amount in the audit working papers.
	3. Stand by the payroll time clock and watch to determine whether any employee "punches in" more than one time.
	4. Calculate the ratio of cost of goods sold to sales as a test of overall reasonableness of gross margin relative to the preceding year.
	5. Gather information about the client's internal controls by asking questions of client personnel.
	6. From the cash disbursements journal trace totals to the general ledger.
	7. Examine an equipment item to make sure a recent purchase of equipment was received and is in operation.
	8. Review the total of repairs and maintenance for each month to determine whether any month's total was unusually large.
	9. The auditor reperforms calculations of the debt covenant based on the financial information to ensure that the client's calculation was performed correctly.
	10. Re-foot entries in the sales journal to determine whether they were correctly totaled by the client.
	11. Perform a surprise count of petty cash to verify that the amount of the petty cash fund is intact.
	12. Obtain a written confirmation statement from the client's bank stating the client's year-end balance on deposit.

 

5. Briefly explain the three determinants of the persuasiveness of evidence(2 marks).

 

 

6. List the components of the auditor's ethical decision-making framework(2 marks).

 

 

7. The accounting firm of Morris & Morris, CPAs, is negotiating a fee with a new audit client. They agree the client will pay $120,000 if Morris & Morris issues a clean, unqualified opinion, $55,000 if a qualified opinion is issued, $35,000 if an adverse opinion is issued, and $12,000 if a denial of opinion is issued(3 marks).

 

Violation? Yes or No

Explanation:

 

 

8. What is the purpose of obtaining knowledge of the client's business? Identify at least three procedures that auditors could undertake in this area(2 marks).

 

9.Indicate whereall the rules of professional conduct for CPAs apply to(2 marks).

 

 

10. Indicate a circumstance when a public accountant is bound by ethics to refrain from disclosing any confidential information obtained during a professional engagement(2 marks).

 

11.Distinguish between entity level controls and transactional controls. Give an example of each(2 marks).

 

12. (3 marks).

A) Briefly describe the four business functions that result in sales transactions in a typical sales and collection cycle, and state the key documents and records involved in each function.

B) State the five classes of transactions that comprise the sales and collection cycle.

 

 

13. (3 marks).

 

A) Briefly describe each of the four business functions that comprise the acquisition and payment cycle.

 

B) Briefly describe the key documents used in processing purchase orders for the acquisitions and payment cycle.

 

C) Name and distinguish the key documents and records used in recognizing the liability function in the acquisitions and payment cycle.

 

14.   Discuss the key internal controls related to the disposal of manufacturing equipment (2 marks).

 

15.Identify the two objectives that are most important in auditing accumulated amortization. Briefly explain why these objectives are important (2 marks).

 

16.Distinguish between internal documentation and external documentation as types of audit evidence. Give two examples of each. Which type is considered more reliable(2 marks)?

 

17. Why does an auditor perform audit risk assessment procedures? What activities are included in risk assessment procedures(2 marks)?

 

18.   Identify three analytical procedures commonly performed for notes payable (2 marks).

 

19. Why are The Rules of Professional Conduct requiring a successor auditor to communicate with the previous auditor? What is the primary concern in this communication(2 marks)?

 

20.What is the difference between overall materiality and performance materiality? How does the use of performance materiality affect the audit process(2 marks)?

 

21. The auditor's decisions regarding evidence accumulation can be broken into various decisions. One decision relates to determining the nature of the audit procedure to be used to collect the evidence, i.e., "which audit procedures to use." Identify and discuss three other audit evidence decisions that the auditor makes(3 marks).

 

22. What are the important controls relating to cash disbursements(2 marks)?

 

23. List and explain briefly the three times during an audit engagement the auditor performs analytical procedures(2 marks).

 

24.   Discuss what is meant by proof of cash receipts and explain its purpose(2 marks).

 

25. What are the two components of risk of material misstatement at the assertion level? Clearly differentiate the two(2 marks).

 

26. List the audit procedures outlined in CAS 240 that the auditor should perform to address the risk of management override of controls(2 marks).

 

27. Briefly discuss three factors that affect client business risk and therefore acceptable audit risk(2 marks).

 

28.    Describe the fraud triangle and identify conditions for fraud(2 marks).

 

29.Briefly describe the audit procedures typically used to search for unrecorded accounts payable)(2 marks).

 

30.The auditor is concerned with the possibility of three types of misstatements when testing the existence objective for sales. Sales being included in the journal for which no shipment was made is one type. Discuss the other two types of misstatements(2 marks).

Essay and Short Case problems (20 total marks):

A.You are the senior in charge of the accounts receivable section of the audit of a large clothing manufacturerin the downtown clothing district. The client sells to local clothing stores as well as to other retailers in the province.

 

Account’sreceivables seem to be deteriorating, with many more accounts in the over 90 days column than in the past. You sent out twenty accounts receivable confirmations, but only six were returned. Of these six, only three confirmed the balance as in agreement with the client, while the others indicated that they kept their records on an open item basis (rather than a balance forward basis) and were unable to respond to the confirmation request. When you looked at the prior year's file, it seemed that the same thing had happened last year.

 

When you phoned the supervisor in charge of the audit engagement, she told you to not bother with follow up, as the engagement was already over budget and costs need to be kept down. You were concerned that you would be unable to state a conclusion with respect to the fairness of the accounts receivable balance and she was indifferent with you, saying that she would have to sign off for you then.

 

Required (4 marks):

Discuss the ethical and quality issues raised by this audit engagement.

 

B.Charmaine is a senior manager at a public accounting firm. Charmaine was assigned to the audit of Resilience Corp. Upon arriving at the client, Charmaine met with the controller, Percival, who was a classmate in college, 20 years ago. She had not been in contact with Percival since college, but they realized that they still had many friends in common. Percival invited Charmaine to go to the company box to watch a hockey game and catch up.

 

Discuss the issue of independence between Charmaine and ResilienceCorp. (3 marks)

 

C.Xavier, PA, is the auditor of Universal Credit Union, a medium-sized credit union. Xavier has prepared a management letter with several serious control weaknesses. Management agrees with the factsbut does not want to present the letter with the weaknesses to the audit committee or the board of directors. Management has implied that they will request a change of auditors if your firm presents the management letter to the board.

Required:Discuss the actions that Xavier should take. Justify your response(3 marks).

 

D.Matilda is a new partner at a PA firm. Matilda recently signed a new contract with Crystal Fabrics to become its auditor. In the process of accepting the client and planning the first year's audit, Matilda did the following:

- Matilda contacted the previous auditor to enquire if there were any reasons not to accept the audit of this client. Unfortunately, the previous auditor was on vacation and did not respond to Matilda before she accepted the client.

- Upon his return, the previous auditor did communicate with Matilda and indicated that the client had aggressive expense deferral policies that they disagreed on. Matilda asked to review the working papers of the previous auditor with regards to these expenses and found them to be right below the materiality threshold.

- Crystal Fabrics imports most of its fabrics and has two production facilities in Australia. The company therefore has a complex tax structure and many import duties. Since this is not the area of expertise of Matilda, she asked another auditing firm to provide the required audit procedures for the international income, consumption, and commodity taxes. When selecting the other audit firm, Matilda researched the firm online. She also ensured that they had their professional designation and enquired with the CPA and provincial association if the firm had any complaints or litigation outstanding for malpractice.

- Since the bidding process took time, Matilda had to start the audit almost right after learning she had the winning bid. She did not prepare an engagement letter before starting the work. She does not see this as being a problem since waiting until the audit has begun will provide her with a better idea of what work must be done and what the engagement letter should include.

Required (4 marks):

Identify the appropriate and questionable steps that Matilda has undertaken in reducing her exposure to legal liability.

 

E.Required (3 marks):

Discuss the importance of the control environment and corporate governance structure. During what phases of the risk assessment and planning process would the control environment and corporate governance structure be documented and assessed?

 

 

F.You are completing your audit of TCP Ltd, an importer of cell phones from Taiwan. Total sales this year were $67,800,000. The results of your audit work on inventory are summarized in the following table:

Description   # of SKU’s    $ Value

Population         150             $6,100,000

Sample              38             $2,500,000

Errors found         6             200,000

 

Required:

Using the monetary unit method, calculate the projected inventory error, and assess it against materiality.(3 marks).