Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
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Chapter 6, Problem 39OQ
To determine
Identify whether the given factors will increase or decrease the risk of material misstatement and whether it will create the risk of fraud.
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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…
As part of the audit of different audit areas, auditors should bealert for the possibility of unrecorded liabilities. For each of the following audit areas oraccounts, describe a liability that can be uncovered and the audit procedures that canuncover it:a. Minutes of the board of directors meetings e. Cash surrender value of life insuranceb. Land and buildings f. Cash in the bankc. Rent expense g. Officers’ travel and entertainmentd. Interest expense expenses
The auditors have determined that each of the following objectives will be a part of the audit of SSC Corporation. While several procedures will ordinarily address an audit objective, select the procedure most directly related to the audit objective. Each procedure may be used once, more than once, or not at all.
1.
All receivables that should be recorded are recorded as of year-end.
2.
Recorded receivables are at appropriate net realizable values.
3.
Recorded receivables exist.
4.
The client has rights to recorded year-end receivables.
5.
The presentation and disclosure of receivables are adequate.
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Chapter 6 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 6 - Prob. 1RQCh. 6 - Prob. 2RQCh. 6 - Prob. 3RQCh. 6 - Discuss what is meant by the phrase shopping for...Ch. 6 - Prob. 5RQCh. 6 - Prob. 6RQCh. 6 - Prob. 7RQCh. 6 - Prob. 8RQCh. 6 - Prob. 9RQCh. 6 - Prob. 10RQ
Ch. 6 - Prob. 11RQCh. 6 - Prob. 12RQCh. 6 - Prob. 13RQCh. 6 - Prob. 14RQCh. 6 - Prob. 15RQCh. 6 - What is meant by making a proper year-end cutoff?...Ch. 6 - Prob. 17RQCh. 6 - Prob. 18RQCh. 6 - Prob. 19RQCh. 6 - Prob. 20RQCh. 6 - Auditing standards require the auditors to have a...Ch. 6 - Prob. 22RQCh. 6 - Prob. 23RQCh. 6 - Prob. 24QRACh. 6 - Prob. 25QRACh. 6 - Prob. 26QRACh. 6 - Prob. 27QRACh. 6 - Prob. 28QRACh. 6 - Prob. 29QRACh. 6 - Prob. 30QRACh. 6 - Prob. 31QRACh. 6 - Prob. 32QRACh. 6 - Prob. 33QRACh. 6 - Prob. 34QRACh. 6 - Prob. 35QRACh. 6 - Prob. 36QRACh. 6 - Prob. 37QRACh. 6 - Prob. 38AOQCh. 6 - Prob. 38BOQCh. 6 - Prob. 38COQCh. 6 - Prob. 38DOQCh. 6 - Prob. 38EOQCh. 6 - Prob. 38FOQCh. 6 - Prob. 38GOQCh. 6 - Prob. 38HOQCh. 6 - Prob. 38IOQCh. 6 - Prob. 38JOQCh. 6 - Prob. 38KOQCh. 6 - Prob. 38LOQCh. 6 - Prob. 39OQCh. 6 - Prob. 40OQCh. 6 - Prob. 41OQCh. 6 - Prob. 42AOQCh. 6 - Prob. 42BOQCh. 6 - Prob. 42COQCh. 6 - Tracing from source documents to journals most...Ch. 6 - Vouching from journals (or ledgers) to source...Ch. 6 - For each definition (or portion of a definition)...Ch. 6 - Prob. 44PCh. 6 - Prob. 45PCh. 6 - Tammy Potter, a new partner with the regional CPA...
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- Professional guidance indicates that the auditor should consider revenue recognition to be high risk in planning an audit of a company’s financial statements. a. Identify the activities that affect the revenue cycle. b. Identify the financial statement accounts typically associated with the revenue cycle.arrow_forwardRisk Assessment. This question consists of a number of items pertaining to an auditor’s risk analysis for a company. Your task is to tell how each item affects overall audit risk—that is, the probability of issuing an unmodified audit report on materially misleading financial statements. Bond, CPA, is considering audit risk at the financial statement level in planning the audit of Toxic Waste Disposal (TWD) Company’s financial statements for the year ended December 31, 2017. TWD is a privately owned company that contracts with municipal governments to remove environmental wastes. Audit risk at the overall financial statement level isinfluenced by the risk of material misstatements, which may be indicated by a combination of factors related to management, the industry, and the company.Required:Based only on the following information, indicate whether each of the following factors (items 1 through 15) would most likely increase overall audit risk, decrease overall audit risk, or have no…arrow_forwardDuring the auditor's risk assessment procedures, a meeting was held together with the company's management. During the meeting, management has discussed that the company recently acquired bond securities from various government agencies and publicly listed shares. In light of this, the audit senior asked the management about the company's investment policy, risk appetite and investment objectives. The audit senior's inquiry would most likely address which assertion? a. Rights and obligations b. Occurence c. Completeness d. Valuationarrow_forward
- its components. The firm of Pack & Peck evaluates the risk of material isstate- -1,4-2, 4-3 4-27 When planning a financial statement audit, a CPA must understand au sk its components. The firm of Pack & Peck evaluates the risk of materiai ment (RMM) by disaggregating RMM into its two components: inherentisk and control risk. Required: For each illustration, select the component of audit risk that is most directly illus- trated. The components of audit risk may be used once, more than once, or not at all Components of Audit Risk: a. Control risk b. Detection risk c. Inherent risk Component of Audit Risk Illustration 1. A client fails to discover employee fraud on a timely basis because bank accounts are not reconciled monthly. 2. Cash is more susceptible to theft than an inventory of coal. 3. Confirmation of receivables by an auditor fails to detect a material misstatement. 4. Disbursements have occurred without proper approval. 5. There is inadequate segregation of duties. 6. A…arrow_forwardRisk assessment procedures are performed by auditors to: a. detect material misstatements in the financial statements. b. distribute the information needed to perform control activities. c. express an opinion on the financial statements. d. identify and assess the risks in achieving the entity’s objectives.arrow_forwardPlease 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 fastarrow_forward
- The purpose of an audit is to A. provide financial statement users with an opinion by an independent auditor on whether the financial statements are presented fairly in accordance with an applicable financial reporting framework B. provide internal auditors with an opinion by the external auditor on whether the financial statements are presented fairly in accordance with an applicable financial reporting framework C. provide absolute assurance that the financial statements conform to Generally Accepted Accounting Principles (GAAP) D. help management ensure yearly bonuses will be receivedarrow_forwardAuditors are tasked with gathering a wide variety of information and then determining if it could impact the fair presentation of the financial statements in accordance with generally accepted accounting principles. To do this auditors use a framework of risk called the audit risk model. On the following tab you will be presented with a set of facts about Apollo, you must decide if it is related to the audit, if so which part of the audit risk model they fall under (inherent risk or control risk), how they affect the risk of material misstatement and what impact they have on detection risk. Apollo operates in the competitive athletic and outdoor footwear industry. Relevant to Apollo's Financial Statement Audit? Yes, No, or NAIR Factor/ Yes, No, or NACR Factor/ Yes, No, or NA Why? CommentsImpact on RMM/ Yes (increase), No - (decrease), NA No effect, Not enough infoImpact on DR/ Yes (increase), No - (decrease), NA No effect, Not enough infoarrow_forwardThe main purpose of the auditor's consideration of internal control for a non-SEC client is to A. Develop suggestions for improvements in internal control. C. timing Determine the nature, timing, and extent of substantive tests. C. Express an opinion on the financial statements. D. Determine whether fraud has occurred during the year under audit.arrow_forward
- asap F Identify the primary audit objectives that auditors hope to accomplish by confirming a client's year-end accounts receivable. Explain the difference between "positive" and "negative" confirmation requests and discuss the quality of audit evidence yielded by each.arrow_forwardAnalytical procedures used when planning an audit should concentrate ona. Weaknesses in the company’s internal control activities.b. Predictability of account balances based on individual significant transactions.c. Management assertions in financial statements.d. Accounts and relationships that can represent specific potential problems and risks in the financial statements.arrow_forwardAfter a preliminary review of the clients, revenue and receipt transaction cycle, the auditor assessed the preliminary audit risk at a high level, which of the following additional procedures would the auditor most likely perform next: * a. Obtain evidence about the consistency of the application of the client's internal control procedures. b. Increase the overall audit materiality level. c. Perform extensive analytical procedures as substantive test at year-end. d. Increase the volume of evidence that will satisfy the auditor's sufficiency criteria. e. None of the abovearrow_forward
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