Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 12, Problem 19.3MCQ
To determine
Identify the suitable description that is associated with the communication requirements.
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For each of the situations described below, identify the category of threat to the fundamental
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Field, CPA, is auditing the financial statements of MillerMailorder, Inc. (MMI). Field has compiled a list of possible inherentand fraud risks in the revenue cycle that may result in the misstatementof MMI’s financial statements and a corresponding list ofinternal controls, which, if properly designed and implemented,could assist MMI in preventing or detecting material misstatements.For each risk numbered 1 through 15 in column 1, select one internalcontrol from column 2 (labeled a. through t.), which, if properlydesigned and implemented, most likely could assist MMI in preventingor detecting material misstatements. Internal controls can beselected for more than one risk.
Each of the following statements is a communication from management. Indicate whether the inclusion of each statement in written representations is appropriate. Provide your rationale for any statements whose inclusion in written representations is not appropriate.a. “Certain representations in this letter are described as being limited to matters that are material.”b. “No frauds involving management, employees who have significant roles in internal control, or other frauds that could have a material effect on the financial statements have occurred during the year under audit.”c. “Based on our assessment, we conclude that the Company has maintained an effective internal control over financial reporting as of December 31, 2017.”
d. “We have prepared a description and evaluation of certain contingencies for which our attorneys have devoted substantive attention on our behalf in the form of legal representation.”e. “There are no significant deficiencies, including material weaknesses, in…
Chapter 12 Solutions
Auditing And Assurance Services
Ch. 12 - Prob. 1RQCh. 12 - Prob. 2RQCh. 12 - Prob. 3RQCh. 12 - Describe how the nature of evidence used to...Ch. 12 - Prob. 5RQCh. 12 - Prob. 6RQCh. 12 - Prob. 7RQCh. 12 - Prob. 8RQCh. 12 - Prob. 9RQCh. 12 - Prob. 10RQ
Ch. 12 - Prob. 11RQCh. 12 - Prob. 12RQCh. 12 - Prob. 13RQCh. 12 - Prob. 14RQCh. 12 - Prob. 15RQCh. 12 - Prob. 16.1MCQCh. 12 - Prob. 16.2MCQCh. 12 - Prob. 16.3MCQCh. 12 - Prob. 17.1MCQCh. 12 - Prob. 17.2MCQCh. 12 - Prob. 17.3MCQCh. 12 - Prob. 18.1MCQCh. 12 - Prob. 18.2MCQCh. 12 - Prob. 18.3MCQCh. 12 - Prob. 19.1MCQCh. 12 - Prob. 19.2MCQCh. 12 - Prob. 19.3MCQCh. 12 - Prob. 20DQPCh. 12 - Prob. 21DQPCh. 12 - Prob. 22DQPCh. 12 - Prob. 23DQPCh. 12 - Prob. 24DQPCh. 12 - Prob. 25DQPCh. 12 - Prob. 26DQPCh. 12 - Prob. 27DQPCh. 12 - A CPAs client, Boos Baumkirchner, Inc., is a...Ch. 12 - Prob. 29DQPCh. 12 - Prob. 30DQPCh. 12 - Based on a cost-benefit analysis, management at...Ch. 12 - Prob. 32DQPCh. 12 - Prob. 33DQPCh. 12 - Prob. 34DQP
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- Respond to each of the following comments that you heard related to the audit of Swan Company, a public entity.a. “We don’t need to consider the risk of material misstatement in our work because we really can’t do anything to reduce that risk.”b. “Because the client has not implemented effective internal controls, we need to gather more reliable evidence. This means we need to test a greater number of transactions and obtain more reliable forms of evidence.”c. “We will really need to spend a lot of time and effort on this audit. Because this client has just filed for a bond offering, we can’t allow for any misstatements in the financial statements. We need to guarantee the accuracy of the client’s financial statements.”d. “Because this company has $140 million in revenues, we really shouldn’t be concerned about smaller accounts because they are not likely to have a major impact on the financial statements.”e. “I know it will be more time consuming and expensive, but we are required to…arrow_forwardBelow are ten independent risk factors:1. The client lacks sufficient working capital to continue operations.2. The client fails to detect employee theft of inventory from the warehouse becausethere are no restrictions on warehouse access and the client does not reconcileinventory on hand to recorded amounts on a timely basis.3. The company is publicly traded.4. The auditor has identified numerous material misstatements during prior yearaudit engagements.5. The assigned staff on the audit engagement lack the necessary skills to identifyactual errors in an account balance when examining audit evidence accumulated.6. The client is one of the industry’s largest based on its size and market share.7. The client engages in several material transactions with entities owned by familymembers of several of the client’s senior executives.8. The allowance for doubtful accounts is based on significant assumptions made bymanagement.9. The audit program omits several necessary audit procedures.10.…arrow_forwardReed, CPA, accepted an engagement to audit the financial statements of Smith Company. Reed’s discussions with Smith’s new management and the predecessor auditor indicated the possibility that Smith’s financial statements may be misstated due to the possible occurrence of errors, fraud, and illegal acts. a. Identify and describe Reed’s responsibilities to detect Smith’s errors and fraud. Do not identify specific audit procedures b. Describe Reed’s responsibilities to detect Smith’s material noncompliance with laws. Do not identify specific audit procedures. c, Identify and describe Reed’s responsibilities to report Smith’s noncompliance with laws. Auditors must consider the possibility of fraud by employees or management on every audit engagement. They must also consider the possibility that the client has not complied with laws. (a) Distinguish between employee and management fraud. (b) Describe the auditors' responsibility for the detection of fraud in an audit. (c) Describe the…arrow_forward
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