Auditing Exam 1 - HW Questions
Explain the relationships among audit services, attestation services, and assurance services:
An assurance service is an independent professional service to improve the quality of information for decision makers. An attestation service is a form of assurance service in which the CPA firm issues a report about the reliability of an assertion that is the responsibility of another party. Audit services are a form of attestation service in which the auditor expresses a written conclusion about the degree of correspondence between information and established criteria.
Which quality control procedure is this? Appropriate accounting and auditing research requires adequate technical reference materials. Each firm professional has online password access through the firm's website to electronic reference materials on accounting, auditing, tax, SEC, and other technical information, including industry data
engagement performance
Which quality control procedure is this? At all stages of any engagement, an effort is made to involve professional staff at appropriate levels in the accounting and auditing decisions. Various approvals of the manager or senior accountant are obtained throughout the audit.
engagement performance
Which quality control procedure is this? Audit engagement team members enter their electronic signatures in the firm's engagement management software to indicate the completion of specific audit program steps. At the end of the audit engagement, the engagement management software will not allow archiving of the engagement file until all audit program steps have been electronically signed.
engagement performance
Which quality control procedure is this? Each audit engagement must include a concurring partner review of critical audit decisions.
engagement performance
Which quality control procedure is this? Individual partners submit the nominations of those persons whom they wish to be considered for partner. To become a partner, an individual must have exhibited a high degree of technical competence; must possess integrity, motivation, and judgement; and must have a desire to help the firm progress through the efficient dispatch of the job responsibilities to which he or she is assigned.
human resources
Which quality control procedure is this? Through our continuing employee evaluation and counseling program and through the quality control review procedures as established by the firm, educational needs are reviewed and formal staff training programs modified to accommodate changing needs. At the conclusion of practice office reviews, apparent accounting and auditing deficiencies are summarized and reported to the firm's director of personnel.
human resources
Which quality control procedure is this? the partners accept responsibility for leading and promoting a quality assurance culture within the firm and for providing and maintaining a quality assurance manual and all other necessary practical aids and guidance to support engagement quality.
leadership responsiblities
Which quality control procedure is this? Each office of the firm shall be visited at least annually by review persons selected by the director of accounting and auditing. Procedures to be undertaken by the reviewers are illustrated by the office review program.
monitoring
During audit planning, an auditor obtained the following information: New accounting pronouncements have resulted in explanatory paragraphs for consistency for the company and other firms in the industry. a. Indicate whether the info indicates an increased risk for fraud
no
During audit planning, an auditor obtained the following information: The company has experienced low turnover in management and its internal audit function. a. Indicate whether the info indicates an increased risk for fraud
no
During audit planning, an auditor obtained the following information: The company's board of directors includes a majority of directors who are independent of management. a. Indicate whether the info indicates an increased risk for fraud
no
Which quality control procedure is this? No employee will have any direct or indirect financial interest, association, or relationship (for example, a close relative serving a client in decision-making capacity) not otherwise disclosed that might be adverse to the firm's best interest
relevant ethical requirements
During audit planning, an auditor obtained the following information: There are recurring attempts by management to justify marginal or inappropriate accounting on the basis of materiality. a. indicate whether the information indicates and increased risk for fraud
yes, attitudes/realization
During audit planning, an auditor obtained the following information: The company is marginally able to meet exchange listing and debt covenant requirements a. Indicate whether the info indicates an increased risk for fraud
yes, incentives/pressures
During audit planning, an auditor obtained the following information: The company's financial performance is threatened by a high degree of competition and market saturation. a. Indicate whether the info indicates an increased risk for fraud
yes, incentives/pressures
During audit planning, an auditor obtained the following information: Assets and revenues are based on significant estimates that involve subjective judgments and uncertainties that are hard to corroborate. a. Indicate whether the info indicates an increased risk for fraud
yes, opportunities
During audit planning, an auditor obtained the following information: Significant operations are located and conducted across international borders in jurisdictions where differing business environments and cultures exist a. indicate whether the information indicates and increased risk for fraud
yes, opportunities
During audit planning, an auditor obtained the following information: The company's controller works very hard, including evenings and weekends, and has not taken a vacation in two years. a. Indicate whether the info indicates an increased risk for fraud
yes, opportunities
James Burrow is the loan officer for the National Bank of Dallas. National has a loan of $325,000 outstanding to Regional Delivery Service, a company specializing in delivering products of all types on behalf of smaller companies. National's collateral on the loan consists of 25 small delivery trucks with an average original cost of $24,000. Burrow is concerned about the collectibility of the outstanding loan and whether the trucks still exist. He therefore engages Samantha Altman, CPA, to count the trucks, using registration information held by Burrow. She was engaged because she spends most of her time auditing used automobile and truck dealerships and has extensive specialized knowledge about used trucks. Burrow requests that Altman issue a report stating the following: 1. Which of the 25 trucks is parked in Regional's parking lot on the night of June 30, 2013. 2. Whether all of the trucks are owned by Regional Delivery Service. 3. The condition of each truck, using the guidelines of poor, good, and excellent. 4. The fair market value of each truck, using the current "blue book" for trucks, which states the approximate wholesale prices of all used truck models, and also using the poor, good, and excellent condition guidelines. a. For each of the following parts of the definition of auditing, state which part of the preceding narrative fits the definition: (1) Information (2) Established criteria (3) Accumulating and evaluating evidence (4) Competent, independent person (5) Reporting results b. Identify the greatest difficulties Altman is likely to have doing this audit.
a) Information: -Altman is being asked to issue a report about qualitative and quantitative information for trucks. -The trucks are therefore the information with which the auditor is concerned. Established criteria: -There are four established criteria which must be evaluated and reported by Altman: -Existence of the trucks on the night of June 30, 2013. -Ownership of each truck by Regional Delivery Service. -Physical condition of each truck -Fair market value of each truck. Accumulating & Evaluating Evidence: -Samantha Altman will accumulate and evaluate four types of evidence: -Count the trucks to determine their existence. -Use registration documents held by Burrow for comparison to the serial number on each truck to determine ownership. -Examine the trucks to determine each truck's physical condition. -Examine the blue book to determine the fair market value of each truck. Competent, independent person: -Samantha Altman, CPA, appears qualified, as a competent, independent person. She is a CPA, and she spends most of her time auditing used automobile and truck dealerships and has extensive specialized knowledge about used trucks that is consistent with the nature of the engagement. Reporting Results: -The report results are to include: -Which of the 25 trucks are parked in Regional's parking lot the night of June 30. -Whether all of the trucks are owned by Regional Delivery Service. -The condition of each truck, using established guidelines. -Fair market value of each truck using the current blue book for trucks. b)The only parts of the audit that will be difficult for Altman are: -Evaluating the condition, using the guidelines of poor, good, and excellent. It is highly subjective to do so. If she uses a different criterion than the "blue book," the fair market value will not be meaningful. -Determining the fair market value, unless it is clearly defined in the blue book for each condition.
CPA has completed her audit of the financial statements of a bus company for the year ended December 31, 2016. Prior to 2016, the company depreciated its buses over a 10-year period. During 2016, the company determined that a more realistic estimated life for its buses was 12 years and computed the 2016 depreciation on the basis of the revised estimate. The CPA has satisfied herself that the 12-year life is reasonable. -The company has adequately disclosed the change in estimated useful lives of its buses and the effect of the change on 2013 income in a note to the financial statements. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. state the appropriate audit report for each alternative materiality level
c. unmodified opinion
Marseilles Fragrance, Inc., is based in New York but has operations throughout Europe. Because users of the audited financial statement are international, your audit firm was engaged to conduct the audit in accordance with U.S. auditing standards and International Standards on Auditing (ISAs). a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. state the appropriate audit report for each alternative materiality level
c. unmodified opinion - nonstandard report wording
Busch Corporation has an existing loan in the amount of $6 million with an annual interest rate of 6.0%. The company provides an internal company-prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace Busch Corporation's existing loan agreement with a new one. United National Bank has offered to loan Busch $6 million at a rate of 5.0% but requires Busch to provide financial statements that have been reviewed by a CPA firm. First City Bank has offered to loan Busch $6 million at a rate of 4.0% but requires Busch to provide financial statements that have been audited by a CPA firm.Busch Corporation's controller approached a CPA firm and was given an estimated cost of $35,000 to perform a review and $60,000 to perform an audit. b. Calculate Busch corporations annual costs under each loan agreement, including interest and costs for the CPA firm's services. Indicate whether Busch should keep its existing loan, accept the offer from United National Bank, or accept the offer from First City Bank
Existing Loan: Annual Interest = 360,000 Cost of CPA firm = $0 Annual cost = $360,000 United National Bank: Annual Interest = 300,000 Cost of CPA Firm = 35,000 Annual cost = 335,000 First City Bank: Annual Interest = $240,000 Cost of CPA firm = $60,000 Annual cost = $300,000 Picks First City Bank because it has the lowest annual cost
Busch Corporation has an existing loan in the amount of $6 million with an annual interest rate of 6.0%. The company provides an internal company-prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace Busch Corporation's existing loan agreement with a new one. United National Bank has offered to loan Busch $6 million at a rate of 5.0% but requires Busch to provide financial statements that have been reviewed by a CPA firm. First City Bank has offered to loan Busch $6 million at a rate of 4.0% but requires Busch to provide financial statements that have been audited by a CPA firm.Busch Corporation's controller approached a CPA firm and was given an estimated cost of $35,000 to perform a review and $60,000 to perform an audit. c. Assume the United National Bank has offered the loan at a rate of 4.5% with review, and the cost of the audit has increased to $80,000 due to new auditing standards requirements. Indicate whether Busch should keep its existing loan, accept the offer from United National Bank, or accept the offer from First City Bank.
Existing: Annual cost = $360,000 United National Bank: Annual Interest = 270,000 Cost of CPA firm = 35,000 Annual cost = $305,000 First City Bank: Annual Interest = $240,000 Cost of CPA Firm = 80,000 Annual cost = $320,000 Now choosing united national bank because it has the lowest costs First City Bank:
Busch Corporation has an existing loan in the amount of $6 million with an annual interest rate of 6.0%. The company provides an internal company-prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace Busch Corporation's existing loan agreement with a new one. United National Bank has offered to loan Busch $6 million at a rate of 5.0% but requires Busch to provide financial statements that have been reviewed by a CPA firm. First City Bank has offered to loan Busch $6 million at a rate of 4.0% but requires Busch to provide financial statements that have been audited by a CPA firm.Busch Corporation's controller approached a CPA firm and was given an estimated cost of $35,000 to perform a review and $60,000 to perform an audit. d. Discuss why Busch may desire to have an audit, ignoring the potential reduction in interest costs.
He may want an audit anyways to make sure the financial statements are accurate and to make sure that the business can repay the loan. Busch would not want the business to not be able to pay the loan due to poor management decisions or unexpected competition in the market. Also provide assurance of financial information used for decision making. The audit may detect errors or fraud, and provide management information about effectiveness of controls. In addition, the audit may result in recommendations to management that will improve efficiency or effectiveness.
Busch Corporation has an existing loan in the amount of $6 million with an annual interest rate of 6.0%. The company provides an internal company-prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace Busch Corporation's existing loan agreement with a new one. United National Bank has offered to loan Busch $6 million at a rate of 5.0% but requires Busch to provide financial statements that have been reviewed by a CPA firm. First City Bank has offered to loan Busch $6 million at a rate of 4.0% but requires Busch to provide financial statements that have been audited by a CPA firm.Busch Corporation's controller approached a CPA firm and was given an estimated cost of $35,000 to perform a review and $60,000 to perform an audit. a. Explain why the interest rate for the loan that requires a review report is lower than that for a loan that does not require a review. Explain why the interest rate for the loan that requires an audit report is lower than the interest rate for the other two loans.
The interest rate for the loan that requires a review report is lower because a review lowers information risk. Lowering information risk benefits the lenders because it reduces the possibility that the information used to approve the loan was inaccurate. The interest rate for the loan that requires an audit report furthers lowers information risk which is why the rate is lower than the other two
Busch Corporation has an existing loan in the amount of $6 million with an annual interest rate of 6.0%. The company provides an internal company-prepared financial statement to the bank under the loan agreement. Two competing banks have offered to replace Busch Corporation's existing loan agreement with a new one. United National Bank has offered to loan Busch $6 million at a rate of 5.0% but requires Busch to provide financial statements that have been reviewed by a CPA firm. First City Bank has offered to loan Busch $6 million at a rate of 4.0% but requires Busch to provide financial statements that have been audited by a CPA firm.Busch Corporation's controller approached a CPA firm and was given an estimated cost of $35,000 to perform a review and $60,000 to perform an audit. e. Explain how a strategic understanding of the client's business may increase the value of the audit service.
This through analysis helps the auditor identify risks associated with the client's strategies that may affect whether the financial statements are fairly stated. This strategic knowledge of the client's business often helps the auditor identify ways to help the client improve business operations, thereby providing added value to the audit function
Assessing the risk of fraud in a financial statement audit is a difficult audit judgment. Auditing standards require the auditor to perform several audit procedures to accumulate information to assess the risk of fraud. You are the in-charge auditor responsible for planning the financial statement audit of Spencer, Inc. Two new staff auditors are assisting you with the initial audit planning and have asked you the following questions. a. What is the purpose of the audit tream's brainstorming session? b. who should attend the brainstorming session and when should the session be held? c. what is the role of the two staff auditors in the brainstorming session? d. what is the auditor's responsibility under auditing standards for detecting fraud? e. what must the auditor's document in the working papers related to this brainstorming session?
a. The purpose of the audit team's brainstorming session is for the audit team to exchange ideas about how and where they believe the entity's financial statements might be susceptible to material misstatement due to fraud, how management could perpetrate and conceal fraudulent financial reporting, and how assets of the entity could be misappropriated. b. The brainstorming meeting should ordinarily involve the key members of the audit team, ranging from audit staff members to partners on the engagement. This meeting would include audit team members located in other offices who work on the engagement as well as audit specialists, such as tax or IT specialists who work on the audit engagement. The meeting should be held during planning so that the audit plan can be adjusted to address the identified risks, and emphasize professional skepticism throughout the engagement. c. The two staff members on the engagement are just as responsible for engaging in the exchange of ideas as other members of the engagement team. While the two new staff accountants may not be familiar with engagement specifics, they do provide a fresh perspective of possible ways management might engage in fraud. More importantly, they will benefit from hearing the exchange of ideas from other members of the audit team. That should help heighten their professional skepticism as they perform the audit. d. The auditor has a responsibility to plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud. Thus, the auditor's detection responsibility for fraud is no different from the auditor's detection responsibility for errors. e. Auditing standards require that the audit documentation include significant decisions made during the discussion among engagement team personnel in planning the audit about the susceptibility of the entity's financial statements to material fraud, including how and when the discussion occurred and who participated.
Your client, Harrison Automotive, has changed from straight-line to sum-of-theyears' digits depreciation. The effect on this year's income is immaterial, but the effect in future years may be highly material. The change is not disclosed in the footnotes. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. state the appropriate audit report for each alternative materiality level
a. change in accounting principle b. immaterial c. unmodified opinion
Four weeks after the year-end date, a major customer of Prince Construction Co. declared bankruptcy. Because the customer had confirmed the balance due to Prince at the balance sheet date, management refuses to charge off the account or otherwise disclose the information. The receivable represents approximately 10% of accounts receivable and 20% of net earnings before taxes. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. given your answers in parts a & b, state the type of audit report that should be issued. If you have not decided on one level of materiality in part b, state the appropriate report for each alternative materiality level.
a. failure to follow GAAP b. highly material or material needs auditor's judgement c. adverse & qualified
On January 2, 2017, the Retail Auto Parts Company received a notice from its primary supplier that effective immediately, all wholesale prices will be increased 10%. On the basis of the notice, Retail Auto Parts revalued its December 31, 2016, inventory to reflect the higher costs. The inventory constituted a material proportion of total assets; however, the effect of the revaluation was material to current assets but not to total assets or net income. The increase in valuation is adequately disclosed in the footnotes. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. state the appropriate audit report for each alternative materiality level
a. failure to follow GAAP b. material c. qualified opinion - GAAP departure
Subsequent to the date of the financial statements as part of his post-balance sheet date audit procedures, a CPA learned that a recent fire caused heavy damage to one of a client's two plants; the loss will not be reimbursed by insurance. The newspapers described the event in detail. The financial statements and footnotes as prepared by the client did not disclose the loss caused by the fire. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. state the appropriate audit report for each alternative materiality level
a. failure to follow GAAP b. material or highly material c. qualified opinion - GAAP departure; adverse
Intelligis Electronics is a manufacturer of advanced electrical components. During the year, changes in the market resulted in a significant decrease in the demand for their products, which are now being sold significantly below cost. Management refuses to write-off the products or to increase the reserve for obsolescence. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. state the appropriate audit report for each alternative materiality level
a. failure to follow GAAP b. material or highly material c. qualified opinion - GAAP departure; adverse opinion
You complete the audit of Munich Department Store, and in your opinion, the financial statements are fairly presented. On the last day of the audit, you discover that one of your supervisors assigned to the audit has a material investment in Munich. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. given your answers in parts a & b, state the type of audit report that should be issued. If you have not decided on one level of materiality in part b, state the appropriate report for each alternative materiality level.
a. lack of independece b. ? c. disclaimer
Approximately 20% of the audit of Lumberton Farms, Inc., was performed by a different CPA firm, selected by you. You have reviewed their audit files and believe they did an excellent job on their portion of the audit. Nevertheless, you are unwilling to take complete responsibility for their work. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. state the appropriate audit report for each alternative materiality level
a. lack of independence b. material c. unmodified opinion - nonstandard
One of your audit clients has a material investment in a privately held biosciences company. Your audit firm engaged a business valuation specialist to assist in evaluating the client's estimation of the investment's fair value. You conclude that the valuation specialist's work provides sufficient appropriate audit evidence. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. given your answers in parts a & b, state the type of audit report that should be issued. If you have not decided on one level of materiality in part b, state the appropriate report for each alternative materiality level.
a. no conditions b. material c. unmodified-standard wording
Auto Delivery Company has a fleet of several delivery trucks. In the past, Auto Delivery had followed the policy of purchasing all equipment. In the current year, they decided to lease the trucks. The method of accounting for the trucks is therefore changed to lease capitalization. This change in policy is fully disclosed in footnotes. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. given your answers in parts a & b, state the type of audit report that should be issued. If you have not decided on one level of materiality in part b, state the appropriate report for each alternative materiality level.
a. no conditions b. none c. unmodified-standard wording
In the last 3 months of the current year, Oil Refining Company decided to change direction and go significantly into the oil drilling business. Management recognizes that this business is exceptionally risky and could jeopardize the success of its existing refining business, but there are significant potential rewards. During the short period of operation in drilling, the company has had three dry wells and no successes. The facts are adequately disclosed in footnotes. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. state the appropriate audit report for each alternative materiality level
a. none b. not applicable c. unmodified opinion
The following information was obtained from several accounting and auditing enforcement releases issued by the Securities and Exchange Commission (SEC) after its investigation of fraudulent financial reporting involving Just for Feet, Inc.: a. what does it mean to approach an audit with an attitude of professional skepticism? b. what circumstances related to the accounting treatment of the vendor allowances should increase an auditor's professional skepticism? c. what factors might have caused the auditor to inappropriately accept the assertions by management that the vendor allowances should be reflected in the F/S? d. develop three probing questions related to the vendor allowances that the auditor should have asked in the audit of Just for Feet's F/S?
a. professional skepticism consists of two components: a questioning mindset (means the auditor approaches the audit with a "trust by verify" mental outlook) and critical assessment of the audit evidence (means asking probing questions and paying attention to inconsistencies) b. The vendor allowance agreements were unwritten and the increases in the size of the allowances and the close relationship between Just for Feet and the vendors. c. auditors may be inclined to accept client representations because of a natural bias to want to trust the client, if these allowances had been used in the past, the auditor may have also been more inclined to accept them as a regular business practice d. Why are the allowances greater this year compared to the prior year? Can specific payments or credits be matched to specific vendor allowances? Are there written agreements or other corroborating evidence that would support the amount of these allowances?
A CPA is engaged in the audit of the financial statements of a large manufacturing company with branch offices in many widely separated cities. The CPA was not able to count the substantial undeposited cash receipts at the close of business on the last day of the fiscal year at all branch offices. - As an alternative to this auditing procedure used to verify the accurate cutoff of cash receipts, the CPA observed that deposits in transit as shown on the year-end bank reconciliation appeared as credits on the bank statement on the first business day of the new year. He was satisfied as to the cutoff of cash receipts by the use of the alternative procedure. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. state the appropriate audit report for each alternative materiality level
a. scope limitation b. c. unmodified opinion
During the course of his audit of the financial statements of a corporation for the purpose of expressing an opinion on the statements, a CPA is refused permission to inspect the minutes of board of director meetings that document significant decisions of the board. The corporation secretary instead offers to give the CPA a certified copy of all resolutions and actions involving accounting matters. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. state the appropriate audit report for each alternative materiality level
a. scope limitation b. highly material c. disclaimer
During your audit of Raceway.com, Inc., you conclude that there is a possibility that inventory is materially overstated. The client refuses to allow you to expand the scope of your audit sufficiently to verify whether the balance is actually misstated. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. given your answers in parts a & b, state the type of audit report that should be issued. If you have not decided on one level of materiality in part b, state the appropriate report for each alternative materiality level.
a. scope limitation b. highly material c. disclaimer
E-Lotions.com, Inc., is an online retailer of body lotions and other bath and body supplies. The company records revenues at the time customer orders are placed on the Web site, rather than when the goods are shipped, which is usually 2 days after the order is placed. The auditor determined that the amount of orders placed but not shipped as of the balance sheet date is not material. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. state the appropriate audit report for each alternative materiality level
a. scope limitation b. immaterial c. unmodified opinion
For the past 5 years a CPA has audited the financial statements of a manufacturing company. During this period, the audit scope was limited by the client as to the observation of the annual physical inventory. Because the CPA considered the inventories to be material and he was not able to satisfy himself by other auditing procedures, he was unable to express an unmodified opinion on the financial statements in each of the 5 years. -The CPA was allowed to observe physical inventories for the current year ended December 31, 2016, because the client's banker would no longer accept the audit reports. However, to minimize audit fees, the client requested that the CPA not extend his audit procedures to the inventory as of the beginning of the year, January 1, 2016 a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. state the appropriate audit report for each alternative materiality level
a. scope limitation b. material or highly material c. qualified opinion - scope limitation
Circumstances prevent you from being able to observe the counting of inventory at Brentwood Industries. The inventory amount is material in relation to Brentwood Industries' financial statements. But, you were able to perform alternative procedures to support the existence and valuation of the inventory at year-end. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. state the appropriate audit report for each alternative materiality level
a. scope limitation b. material or highly material c. unmodified opinion
You are auditing Deep Clean Services for the first time. Deep Clean has been in business for several years but over the last two years has struggled to stay afloat given the economic conditions. Based on your audit work, you have substantial doubt that Deep Clean will be in business by the end of its next fiscal year. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. given your answers in parts a & b, state the type of audit report that should be issued. If you have not decided on one level of materiality in part b, state the appropriate report for each alternative materiality level.
a. substantial doubt about going concern b. material c. unmodified-explanatory paragraph
A number of frozen yogurt stores have opened in the last few years and your client, YogurtLand, has experienced a noticeable decline in customer traffic over the past several months that has caused you to have substantial doubt about YogurtLand's ability to continue as a going concern. a. identify which of the conditions requiring deviation from a standard unmodified opinion audit report is applicable, if any b. state the level of materiality as immaterial, material, or highly material. If you cannot decide the level of materiality, state the additional information needed to make a decision. c. state the appropriate audit report for each alternative materiality level
a. substantial doubt about going concern b. material c. unmodified-opinion explanatory
Which quality control procedure is this? All potential new clients are reviewed before acceptance. The review includes consultation with predecessor auditors, and background checks. All new clients are approved by the firm management committee, including assessing whether the firm has technical competence to complete the engagement
acceptance and continuation of clients and engagements
