The objectives of an independent audit. Identify at least 5 ways in which an independent audit may be beneficial to George.
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George Freeman, from Hamilton is the sole owner of a professional video business. He was advised that the business should have financial statements reported on by an independent CA. An audit is not required by law for this organisation because it is not a listed company (not an issuer) and is very small. George has some Xero experience, and personally prepared the organizations F/S and does not understand why such statements should be examined by a CA. George discussed the matter with Vida Botes, a CA, and asked Vida to explain why an audit is considered important. What do you think Vida would have said about (The answer contains the following two points):
The objectives of an independent audit.
Identify at least 5 ways in which an independent audit may be beneficial to George.
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- Andrew Wilson, CPA, has assembled the financial statements of Texas Mirror Co. Texas Mirror is a small nonpublic company. Wilson has not performed an audit of the financial statements in accordance with generally accepted auditing standards. Wilson is confused about the standards applicable to this type of engagement. Please discuss the following: Identify and Explain where Wilson should look for guidance concerning this engagement. Discuss Wilson’s responsibilities with respect to a preparation of these financial statements.John works as a manager in the Aster office of an international public accounting firm. His father has just taken a position as a purchasing agent for one of the public accounting firm’s Aster clients. Has Mr. John’s independence been impaired with respect to this audit client? Has the public accounting firm’s independence been impaired if John does not work on the audit?Ja'Niya, a recent college graduate has started working for Cline CPA Firm. Ja'Niya is currently taking part in her first audit, and is discussing the management letter with her supervisor, Jamie. Jamie has just explained why the CPA firm sends management letters to its audit clients, however Ja'Niya is still confused as to the purpose of the letter and asks Jamie to provide some examples of items that might be in the letter. Which of the following would represent examples of items that an auditor might apprise management of in a management letter? • Generally accepted auditing standards require drafting and transmittal of the management letter by the external auditors for all public and private clients. Once the management letter has been received by management, the auditors' requests written assurances from management confirming the effectiveness of internal controls in the noted areas. • The external auditing firm might use a management letter to communicate important matters and…
- 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?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)Justine is an accountant in the accounting department of Modern Industries, Inc. Justine has just discovered evidence that some of the corporation's marketing managers have been wrongfully inflating their expense reports in order to obtain higher reimbursements from the firm. According to the understanding and acceptance of the basic principles and concepts of ethical conduct, what should Justine do upon discovering this evidence? a. Notify the marketing managers involved. b. Notify the controller. c. Ignore the evidence because she is not part of the Marketing Department. d. Notify the president of the corporation.
- 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.Ms. Mila Miranda is the Chairman of the Board of Luwalhati Cooperative. She was informed by the bookkeeper of the cooperative that the financial statements to be submitted to the Cooperative Development Authority and Bureau of Internal Revenue should be audited by an independent CPA.Ms. Miranda is aware of the poor financial position and condition of the cooperative and would rather save the resources of the cooperative to support its operations rather than use it to pay the professional fee of the external auditor. She is confident that the financial statements are free from material misstatements since the bookkeeper is competent and the cooperative’s audit committee actively conducted examination on the financial statements. QUESTION: Explain why the audit committee’s examination could not replace the work of the external auditorMay chin is an Audit intern at Paul Adam chartered accountants, she isconfused about the responsibilities of the profession. It is difficult for her tounderstand the need for an internal audit when there is an external audit.Explain to her the two types of auditing and what are the differences.
- Stewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will bewhether the financial report should be amended, or additional notes included for these subsequent events. Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows.(a) The board is planning to issue shares in a private placement on 15 August.(b) The share issue is to fund the purchase of a 60 per cent stake in another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August. The year-end for the company is 30 June and the audit report is due to be signed on 20…Mark Buffalo works for a mid-size accounting firm in Boston. One day he overhears a colleague talking to a friend on his cellphone. Mark gasps when he realizes the colleague is sharing one of their client's confidential information, likely as an insider trading tip. As a member of the AICPA, Mark is required to report this discreditable act to the Boston chapter of the AICPA. Select one: True FalseStewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will be whether the financial report should be amended, or additional notes included for these subsequent events.Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows.(a) The board is planning to issue shares in a private placement on 15 August. (b) The share issue is to fund the purchase of a 60 per cent stake in another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August. (c) A writ was lodged in the Supreme Court in the week after year-end claiming damages for…