Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 19, Problem 29DQP
a.
To determine
State the criticism and concerns about
b.
To determine
Identify the variance and explain them. Also state the alternative explanation.
c.
To determine
State the variances that are of special significance to the audit and also the way they should be responded to in terms of additional audit procedures.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Please decide control risk, inherent risk and planned audit evidence will be affected (increase or decrease) in the following cases, and then list your analysis:
i. You determine through analytical procedures that working capital, debt to equity ratio and other indicators of financial stability have worsened during the year.
ii. In auditing inventories, you obtain an understanding of the internal control structure and perform test of controls. You find it significantly improved compared with that of the preceding year. You also observe that due to technology changes in the industry, the client's inventories may be somewhat obsolete.
Please do fast ASAP fast
Audit risks for particular accounts and disclosures can be conceptualized in the model: Audit risk (AR) = Inherent risk (IR) × Control risk (CR) × Detection risk (DR). Use this model as a framework for considering the following situations and deciding whether the auditor’s conclusion is appropriate.a. Paul, CPA, has participated in the audit of Tordik Cheese Company for five years, first as an assistant accountant and the last two years as the senior accountant. Paul has never seen an accounting adjustment recommended and believes the inherent risk must be zero.b. Hill, CPA, has just (November 30) completed an exhaustive study and evaluation of the internal controls of Edward Foods Inc. (fiscal year ending December 31). Hill believes the control risk must be zero because no material errors could possibly slip through the many error-checking procedures and review layers that Edward used.c. Fields, CPA, is lazy and does not like audit jobs in Philadelphia. On the audit of Philly…
Assume that your audit partner has asked you to design detailed substantive testingprograms for the accounts receivable and sales; inventory; purchases and accountspayable; and payroll systems of Square Pharma. Your partner also asked you toincorporate all or some of the following types of tests: Specific analytical procedures,tests of detail (i.e. direct tests on balances and tests of transactions of a balance).While designing the testing programs, assume that the Tests of Control identifythe weaknesses as described in each of the following situations, but no other. Insummary:(a)Consider the control weaknesses for each subsystem as set out below;
(b)Design and develop a substantive audit tests program using information fromlast three year annual reports and explain and justify your audit program in termsof audit objectives (also called 'audit assertions' )Note: The risk situations below are created for purposes of teaching and bear norelationship to events in Briscoe Group Ltd or any…
Chapter 19 Solutions
Auditing And Assurance Services
Ch. 19 - Identify three asset accounts, three expense...Ch. 19 - Explain the relationship between substantive tests...Ch. 19 - Prob. 3RQCh. 19 - Prob. 4RQCh. 19 - Prob. 5RQCh. 19 - Prob. 6RQCh. 19 - Prob. 7RQCh. 19 - Prob. 8RQCh. 19 - Prob. 9RQCh. 19 - Prob. 10RQ
Ch. 19 - Which documents will be used to verify accrued...Ch. 19 - Prob. 12RQCh. 19 - Prob. 13RQCh. 19 - Prob. 14RQCh. 19 - Prob. 15.1MCQCh. 19 - Prob. 15.2MCQCh. 19 - Prob. 15.3MCQCh. 19 - Prob. 16.1MCQCh. 19 - Prob. 16.2MCQCh. 19 - Prob. 16.3MCQCh. 19 - Prob. 17.1MCQCh. 19 - Prob. 17.2MCQCh. 19 - Prob. 17.3MCQCh. 19 - Prob. 18.1MCQCh. 19 - Prob. 18.2MCQCh. 19 - Prob. 18.3MCQCh. 19 - Prob. 19DQPCh. 19 - Prob. 20DQPCh. 19 - Prob. 21DQPCh. 19 - Prob. 22DQPCh. 19 - Prob. 24DQPCh. 19 - Prob. 25DQPCh. 19 - You are auditing the financial statements of...Ch. 19 - Prob. 27DQPCh. 19 - Prob. 28DQPCh. 19 - Prob. 29DQP
Knowledge Booster
Similar questions
- An audit strategy sets the direction, timing, and scope of an audit. Based on your audit knowledge, which of the following would be included in the audit strategy document? Select one:a. A flowchart of the entity's internal control system.b. The decision as to the combination of substantive testing and tests of control that would be adopted.c. The number of sales transactions to be tested.d. The results of the interim testing of payroll.arrow_forwardYou are the audit partner of ‘Power Auditors’ and you are auditing your client ‘FreefallIncorporated’.After finishing all the tests on the client’s financial information you determine that there is amaterial misstatement in the accounts receivable account of your client. This misstatementhas also caused the sales revenue account to be materially misstated. You have notified theclient about the misstatement but as of reporting date, client has not made any corrections.You also found misstatements in the fixed assets and accounts payable accounts, but theyare not material as per your assessment. You found no other misstatements in the otheraccounts.In addition to this, you also notice that the client has a large amount of debt which will bedue next year. As the business has suffered a loss this year and does not have enough cashflow at the end of the year to pay the debt next year, the client will need to secure someform of refinancing next year. Without this refinancing, there is a…arrow_forwardField, 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.arrow_forward
- Patrick Houghton was meeting with his manager to plan audit strategy in order to determine the amount of time to spend testing the client's internal controls and conducting detailed testing of transactions and account balances. Determining the audit strategy occurs during which phase of the audit? a. client acceptance stage b. planning stage c. performing stage d. reporting stagearrow_forwardYou are the auditor in charge of the audit of Evermore Foods, a small, owner-managed distribution company that distributes baking supplies to small, owner-managed retail stores across Canada. There are two people in the accounting office, and the rest of the employees are operational, sales, or procurement. Required: For each of the following situations, determine how the situation will impact the overall audit risk, inherent risk, control risk, and audit approach. State any assumptions that are necessary for you to reach your conclusion. A. Evermore Foods has implemented a year-end bonus plan for all sales employees. They will receive a lump sum bonus if they exceed the prior year's sales by 10%. All sales are recorded when the orders are placed by the sales representative, as most items are shipped on the date the invoice is received. The owner has indicated that he believes the entire sales team should achieve their bonus targets as they always seem to have a big week just before…arrow_forwardThe following are parts of a typical audit for a company with a fiscal year end of July 31. Set acceptable audit risk and decide preliminary judgment about materiality and performance materiality. Understand internal control and assess control risk. Perform substantive analytical procedures for accounts payable. Confirm accounts payable. Perform tests of controls and substantive tests of transactions for the acquisition and payment and payroll and personnel cycles. Perform other tests of details of balances for accounts payable. Perform tests for review of subsequent events. Accept the client. Issue the audit report. Required Identify the phase of the audit in which each activity occurs. Put parts 1 through 9 of the audit in the sequential order in which you would expect them to be performed in a typical audit. Identify those parts that will frequently be done before July 31.arrow_forward
- An assistant on the Carter Company audit has been working in the revenue cycle and has compiled a list of possible errors and fraud that may result in the misstatement of Carter Company’s financial statements and a corresponding list of controls that, if properly designed and implemented, could assist in preventing or detecting the errors and fraud. For each possible error and fraud numbered a through o, select one internal control from the following answer list that, if properly designed and implemented, most likely could assist management in preventing or detecting the errors and fraud. Each response in the list of controls may be selected once, more than once, or not at all. A. Shipping clerks compare goods received from the warehouse with the details on the shipping documents. B. Approved sales orders are required for goods to be released from the warehouse. C. Monthly statements are mailed to all customers with outstanding balances. D. Shipping clerks compare…arrow_forwardThe auditor is evaluating the internal control of a new client. Management has prepared its assessment of internal control and has concluded that it has some deficiencies but no significant deficiencies and no material weaknesses. However, in reviewing the work performed by management, including the internal auditor, the auditor observes the following: -Sample sizes taken by the internal auditor were never more than ten transactions, and most of the tests of operating effectiveness were based on a sample of one performed as part of a walkthrough of a transaction.-Management has fired the former CFO and a new CFO has not been appointed, but management indicates it has depth in the accounting area and is searching for a new CFO.-The company has no formal whistleblowing function because management has an “open-door” policy so that anyone with a problem can take it up the line.-Management’s approach to monitoring internal control is to compare budget with actual expenses and investigate…arrow_forwardIn which of the following situations does the auditor potentially lack objectivity?Select one: a. An auditor reviews the procedures for a new electronic data interchange connection to a major customer before it is implemented b. A former purchasing assistant performs a review of internal controls over purchasing four months after being transferred to the internal auditing department c. An auditor recommends standards of control and performance measures for a contract with a service organization for the processing of payroll and employee benefits. d. A payroll accounting employee assists an auditor in verifying the physical inventory of some fixed assets with value that is not considered material.arrow_forward
- You are auditing Hawthorne Industries. The preliminary risk assessment resulted in a high potential for fraud given the number of offices it has across Canada and the high volume of travel-related expenses, as well as the weak controls around expense management. The travel expense account has been assigned to you for substantive testing and you would like to design an ADA to perform the testing. The data you have available include:• The general ledger• Corporate credit card data (in aggregate, as well as employee daily totals, location of charges, and vendor category, e.g., restaurant, fuel, hotel)• Payroll records that include start/end date, vacation and absenteeism data, and roleWhat are the main assertions related to the travel expense account? (Several choices may be correct.) Completeness Cut-off Classification Accuracy Occurrence Existencearrow_forwardFrancona Madden, an audit manager, considered the control risk assessments listed in theleft column of the following table in evaluating A. Cardinal’s internal control over salestransactions. The sample sizes for the substantive procedures of the customer accountsreceivable are shown to the right of each control risk. What risk of overreliance (ROO)could be assigned for tests of controls at each control risk level? Control Risk Accounts Receivable Sample ROO 0.20 400 ? 0.50 390 ? 0.80 350 ? 0.90 190 10% a. From top to bottom: 5 percent, 10 percent, 1 percent.b. From top to bottom: 10 percent, 1 percent, 5 percent.c. From top to bottom: 1 percent, 10 percent, 5 percent.d. From top to bottom: 1 percent, 5 percent, 10 percent.arrow_forwardThe auditors use an analytical procedures during the course of an audit. The most important phase of performing these procedures is the: Vouching of all data supporting various rates, Investigation of significant variations and unusual relationships, Comparison of client-computed statistics with industry data on a quarterly and full-year basisarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Auditing: A Risk Based-Approach to Conducting a Q...
Accounting
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:South-Western College Pub