Sandy is a new accounting student in College PTI. She questions the need for and the benefit of an audit, "I am curious to know why we should hire an auditor to audit a company. I thought a company has their own internal auditor. Why should we pay for an extemal auditor services to review our company's financial statements?" Required: a) Explain to Sandy the need for and benefits of an audit of financial statements. b) Discuss TWO (2) differences between external audit and internal audit services.
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- 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 audit process as he asked the following questions. What is the main objective of the audit of an entity’s financial statements? Given the CPA firm is auditing financial statements, why would they need to understand anything about the client’s business? What does the auditor do in an audit other than verify the mathematical accuracy of the numbers in the financial statements? The audit represents the CPA firm’s guarantee about the accuracy of the financial statements, right? Isn’t the auditor’s primary responsibility to detect all kinds of fraud at the client?Comment upon each of the following statements you heard in a conversation between two newly hired staff auditors.a. “Of course, I’m qualified to be assigned to this engagement. I have an accounting degree from a top university and was an honors graduate. I know some of the accounting rules have changed since I graduated, but I’ll be able to figure that out as we go through the audit.”b. “It doesn’t really matter what others think. . . . I’m completely independent of Acme Industries and should be a member of the audit team. While I own some stock, it’s a small amount and I’m holding it for the long term, anyway.”c. “You really have to question everything the client tells you. That’s what professional skepticism is all about. It’s a shame you can’t believe a word they say.”d. “The evidence is lower in quality, but we typically use internal evidence when we audit property, plant, and equipment. It just takes too much time and costs too much to get more reliable evidence.”e. “On that last…Saleha was recently hired by the accounting firm of Haron & Associates. After two weeks of joining the firm, Saleha was sent to the first-year staff training course.The instructor asked her to prepare answers for the following questions:a. How does evidence relate to assertions and to the audit report?b. What are the characteristics of evidence should an auditor be concerned with when searching for and evaluating evidence? c.List and explain the objective and benefits of financial statement audit.
- sSaleha was recently hired by the accounting firm of Haron & Associates. After two weeks of joining the firm, Saleha was sent to the first-year staff training course.The instructor asked her to prepare answers for the following questions:a. How does evidence relate to assertions and to the audit report?b. What are the characteristics of evidence should an auditor be concerned with when searching for and evaluating evidence? c.List and explain the objective and benefits of financial statement audit.Barbara Wells is a first-year auditor for a large public accounting firm. She was assigned to audit Larson Brothers; the CEO of Larson is her brother. She discussed some of her findings with family members. What is the relevant requirement (s) for the ethical behavior of an auditor? a. Qualified to carry out the scope of service b. Confidential c. All of those listed d. IndependenceMegan is performing an initial audit of a financial service institution. One of her first steps is to assess the reasonableness of opening balances. How should she proceed? a. Opening balances do not become easier to determine as experience is gained with a client, so Megan's procedures will be the same as for a continuing client. b. If the account balance turns over at least once an accounting period, Megan must perform extensive audit procedures. c. Megan can place reliance on the report submitted by the predecessor auditor, but that decision should be made by audit area. d. Because this is an initial audit, over auditing is not a concern; Megan must perform all possible procedures.
- Which of the following is true?a. Members of an audit engagement team cannot speak with audit client officers about matters outside the scope of the audit while the audit engagement is in progress.b. Audit team members who leave the public accounting firm for employment with auditclients can provide audit efficiencies (next year) because they are very familiar with thefirm’s audit plans.c. Audit team partners who leave the public accounting firm for employment with auditclients can retain variable annuity retirement accounts established in the person’s formerfirm retirement plan.d. The public accounting firm must discuss with the audit client’s board or its audit committee the independence implications of the client’s having hired the audit engagement teammanager as its financial vice president.Victoria Lilly is a practicing CPA. A long-time audit client has asked Lilly to design and implement a computer-based accounting information system. The fees associated with this opportunity are very attractive. However, Victoria is concerned that she will not be able to maintain objectivity in future financial statement audits if she was responsible for the design and implementation of the client's accounting system. Furthermore, Victoria knows that professional standards require her to remain independent in "fact" and "appearance" from her auditing clients.1. In regards to financial statement audits, what is the difference between independence in "fact" and independence in "appearance"?2. Why do professional standards require that an auditor remain independent of their audit clients?3. Do you believe that Victoria can accept the engagement to develop the client's accounting system and still remain independent? (Support your answer)Saleha was recently hired by the accounting firm of Haron & Associates. After two weeks of joining the firm, Saleha was sent to the first-year staff training course. The instructor asked her to prepare answers for the following questions:a. Briefly explain the definition of Audit Evidence.b. How does evidence relate to assertions and to the audit report?c. What are the characteristics of evidence should an auditor be concerned with when searching for and evaluating evidence? d.List and explain the objective and benefits of financial statement audit.
- Dave and Charlie are sitting at lunch one day on the premises of one of their large audit clients when the topic of going concern comes up. Dave mentions to Charlie that he vaguely recalls hearing this term in his accounting classes back in college, but doesn't remember what this means or why it is part of the audit. Which of the following responses by Charlie would help Dave to understand this? (Select all that apply.) Going concern deals with the entity's ability to continue operating as an enterprise, and is an important assumption that the auditor should evaluate. The going concern assumption is required to be evaluated by management each year for the forthcoming year. The going concern assumption is tested by evaluating management's breach of loan and debt covenants over the past three years. Going concern really speaks to the client firm's ability to pay its short-term liabilities when they come due, and whether the firm will need to refinance maturing loans to conserve cash.Erica Gray, CPA, is a sole practitioner. She has been practicing as an auditor for 10 years. Recently a long-standing audit client asked Gray to design and implement an integrated computer-based accounting information system. The fees associated with this additional engagement with the client are very attractive. However, Gray wonders if she can remain objective on subsequent audits in her evaluation of the client’s accounting system and its records if she was responsible for its design and implementation. Gray knows that professional auditing standards require her to remain independent in fact and appearance from her auditing clients. Required 1. What do you believe auditing standards are mainly concerned with when they require independence in fact? In appearance? 2. Why is it important that auditors remain independent of their clients? 3. Do you think Gray can accept this engagement and remain independent? Justify your response.Erica Gray, CPA, is a sole practitioner. She has been practicing as an auditor for 10 years. Recently a long-standing audit client asked Gray to design and implement an integrated computer-based accounting information system. The fees associated with this additional engagement with the client are very attractive. However, Gray wonders if she can remain objective on subsequent audits in her evaluation of the client’s accounting system and its records if she was responsible for its design and implementation. Gray knows that professional auditing standards require her to remain independent in fact and appearance from her auditing clients. Submit a substantive posting of at least 250 words that answers the questions Question 1: What do you believe auditing standards are mainly concerned with when they require independence in fact? In appearance? Question 2: Why is it important that auditors remain independent of their clients? Question 3: Do you think Gray can accept this engagement and…