...Assertions may be classified into the following types: Assertions relating to classes of transactions | Assertions | Explanation | Examples: Salaries & Wages Cost | Occurrence | Transactions recognized in the financial statements have occurred and relate to the entity. | Salaries & wages expense has been incurred during the period in respect of the personnel employed by the entity. Salaries and wages expense does not include the payroll cost of any unauthorized personnel. | Completeness | All transactions that were supposed to be recorded have been recognized in the financial statements. | Salaries and wages cost in respect of all personnel have been fully accounted for. | Accuracy | Transactions have been recorded accurately at their appropriate amounts. | Salaries and wages cost has been calculated accurately. Any adjustments such as tax deduction at source have been correctly reconciled and accounted for. | Cut-off | Transactions have been recognized in the correct accounting periods. | Salaries and wages cost recognized during the period relates to the current accounting period. Any accrued and prepaid expenses have been accounted for correctly in the financial statements. | Classification | Transactions have been classified and presented fairly in the financial statements. | Salaries and wages cost has been fairly allocated between: -Operating expenses incurred in production activities; -General and administrative expenses; and -Cost of personnel...
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...5-29 In planning the audit of a client’s inventory, an auditor identified the following issues that need audit attention. Listed is the issue and the assertion. Identify the assertion for items 1 through 11 above. 1. Inventories are properly stated at the lower of cost or market. Audit objective: Valuation and allocation. 2. Inventories included in the balance sheet are present in the warehouse on the balance sheet date. Audit objective: Rights and obligations 3. Inventory quantities include all products, materials, and supplies on hand. Audit objective: Classification and understandability and accuracy and valuation 4. Liens on the inventories are properly disclosed in notes to the financial statements. Audit objective: Classification and Understandability and rights and obligations 5. The client has legal title to the inventories. Audit objective: Rights and obligations 6. The financial statements disclose the amounts of raw materials, work in progress, and finished goods. Audit objective: Completeness. 7. Inventories include all items purchased by the company that are in transit at the balance sheet date and that have been shipped to customers on consignment. Audit objective: Rights and obligations 8. Inventories received on consignment from suppliers have been excluded from inventory. Audit objective: Rights and obligations 9. Quantities times prices have been properly extended on the inventory listing, the listing is properly totaled...
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...Statement Argument Exercise DIRECTIONS for question 1-20: Each question given below consists of a statement, followed by two arguments numbered I and II. You have to decide which of the arguments is a 'strong’ argument and which is a ‘weak' argument. Give answer (1) if only argument I is strong; (2) if only argument II is strong; (3) if either I or II is strong; (4) if neither I nor II is strong and (5) if both I and II are strong. 1. Statement: Should all refugees, who make unauthorized entry into a country, be forced to go back to their homeland ? Arguments : I. Yes. They make their colonies and occupy a lot of land. II. No. They leave their homes because of hunger or some terror and on human grounds, should not be forced to go back. 2. Statement: Should new big industries be started in Mumbai? Arguments : I. Yes. It will create job opportunities. II. No. It will further add to the pollution of the city. 3. Statement: Should government stop spending huge amounts of money on international sports ? Arguments : I. Yes. This money can be utilized for upliftment of the poor. II. No. Sports persons will be frustrated and will not get international exposure. 4. Statement: Should the oil companies be allowed to fix the price of petroleum products depending on market conditions ? ...
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...exploit the marketing potential of the Internet to be successful. 2- World hunger has many causes and effects. -This statement isn’t even a full sentence and it is very boring and unspecific. They aren’t really taking a stand on anything and make it seem like they are just going to begin to list causes and effects. I would suggest (depending on their stance): The effects of world hunger are seen in the many faces that suffer, but it is time to look into what is causing it. 3- People use many lawn chemicals. -This is just a boring statement not telling me what they are going to talk about. It isn’t specific and doesn’t make a stand on anything. They are just pointing out a product people use. They are making an observation not an assertion. This statement doesn’t open anything up for a discussion. I would suggest: that they make a point to specify what they are writing about lawn chemicals for (are they dangerous, helpful, etc..). They must make some sort of stance in this statement so that they reader can follow the order of their logic. 4- The thesis of this paper is the difficulty of solving our environmental problems. -This thesis is making more of an announcement than a stand for solving environmental problems. They should be more specific as to the difficulties that come with solving these problems. Is this paper about the...
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...Point 5-1 a. What is the overall objective of the financial statement audit? The overall objective of a financial statement audit is the expression of an opinion on whether the client's financial statements are presented fairly, in all material respects, in conformity with GAAP. b. Identify the six phases of a financial statement audit. The six phases of a financial statement audit are: • Phase I: Perform Risk Assessment Procedures. • Phase II: Assess the Risk of Material Misstatement. • Phase III: Respond to Assessed Risks. • Phase IV: Perform Further Audit Procedures. • Phase V: Evaluate Audit Evidence. • Phase VI: Communicate Audit Findings. 5-2 a. State the five categories of management’s financial statement assertions and briefly explain each. The five categories of management's financial statement assertions are (1) existence or occurrence, (2) completeness, (3) rights and obligations, (4) valuation or allocation, and (5) presentation and disclosure. • Assertions about existence or occurrence deal with whether assets or liabilities exist at a given date and whether recorded transactions have occurred during a given period. • Assertions about completeness deal with whether all transactions and accounts that should be presented in the financial statements are so included. • Assertions about rights and obligations deal with whether assets are the rights of...
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...a written communication that expresses a conclusion about the reliability of a written assertion of another party. Audit of historical financial statements: A form of attestation services, the auditor issues a written report expressing an opinion about whether the F/S is in material conformity (一致) with accounting standards. e.g.: listed company must provide shareholders with annual financial statements that are audited by an independent accounting firm. Review of historical cost financial statements: A form of attestation services, a public accounting firm issues a written report that provides less assurance than an audit as to whether the financial statements are in material conformity with accounting standards. Auditing standards: Establish mandatory (强制) requirements and provide explanatory (解释) guidance to auditors in fulfilling their professional responsibilities in the audit of financial reports. Auditing: Is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria. Auditing should be performed by a competent, independent person. Compliance audit: 合规性审计 One of three primary types of audits, a review of an organization’s financial records performed to determine whether the organization is following specific procedure, rules or regulations set by some higher authority. An audit performed to determine whether an entity that receives financial assistance from the Federal...
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...entity being audited. C. they are paid by parties outside of the audited entity. D. they report to users outside of the audited entity 5:B 12.Independent auditors perform audits on the financial reports of public companies. This type of auditing can best be described as: A.a discipline that assures financial information presented by management. B.an activity whose purpose is to search for irregularities. C.a regulatory function that prevents the issuance of improper financial information. D.a professional activity that measures and communicates financial and business data. 12: A 17. Which of the following statements is not true concerning assurance services? A. Assurance services focus on improving the quality of information, or its context, for decision makers. B. The growth in assurance services has been driven in part by users' demands for more relevant and reliable information. C. Auditing services can be viewed as a subset of assurance services. D. Unlike audit engagements, an engagement to perform assurance services does not require the auditor to consider information reliability. 17: D 23.The primary responsibility for the adequacy of disclosures in the financial report of a publicly held company rests with the: A.management of the company. B.partner assigned to the audit engagement. C.Securities and Exchange Commission. D.auditor in charge of the fieldwork. 23: A 29. Which of the following best describes why an independent auditor is asked to...
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...CHAPTER 4 AUDIT EVIDENCE AND AUDIT DOCUMENTATION Answers to Review Questions 4-1 Auditors typically divide the financial statements into components or segments in order to make the audit more manageable. A component can be a financial statement account or a business (transaction) process. This approach allows the auditor to gather evidence by examining the processing of related transactions through the accounting system from their origin to their ultimate disposition in the accounting journals and ledgers. Thus, the auditor can examine an accounting transaction from the time it is initiated by the entity until its final recording in the financial statement accounts. 4-2 The financial statements contain management's assertions about the various financial statement components. The auditor tests management’s assertions by conducting audit procedures that provide evidence on whether each relevant assertion is supported. The results from applying audit procedures provide the evidence that supports the fair presentation of management’s assertions and the auditor's report (see Figure 4-1). 4-3 Assertions about classes of transactions and events for the period under audit: Assertion Definition Occurrence Transactions and events that have been recorded have occurred and pertain to the entity (sometime referred to as validity). Completeness All transactions and events that should have been recorded have been recorded. Authorization All transactions and events have...
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...AUDIT RISK MODEL Audit Risk (AR): risk that auditor will opine (render an opinion) with an unqualified opinion when unknown to auditor, FS are materially misstated (ultimate risk) Inherent Risk (IR): risk that errors (or misstatements or deviations) will occur," clientcontrolled Control Risk (CR): risk that client's internal control system will fail to prevent/ detect/correct errors ... clientcontrolled Detection Risk (DRI_ risk that auditor's procedures will fail to detect errors ... auditorcontrolled AR IR * CR * OR Audit risk = inherent risk * control risk * detection risk Audit risk: always set priority at a low level (.0 1, 05, 10) Inherent risk: controlled by client ... function of type of business, degree of liquidity, complexity Control risk: controlled by client ... relates to effectiveness of client's control system in preventing, detecting, and correcting errors. Detection risk: controlled by auditor ... function of nature, timing, and extent of audit procedures applied ... allowable or acceptable Solution Set: (1) Detection risk = audit risk / (inherent risk * control risk) (2) Detection risk low ... the more evidence you have to collect (3) Detection risk high ... the less evidence you have to collect Audit Risk: risk that auditor issues unqualified opinion when statements are materially misstated, audit risk and detection risk exactly related. IR/CR and detection risk...
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...Case #3.4 – Sunbeam – Incentives and Pressure to Commit Fraud I. Technical Audit Guidance To maximize the knowledge acquired by students, this book has been designed to be read in conjunction with the post-Sarbanes-Oxley technical audit guidance. All of the post-Sarbanes-Oxley technical guidance is available for free at http://www.pcaobus.org/Standards/index.aspx. In addition, a summary of the Sarbanes-Oxley Act of 2002 is also available for free at http://thecaq.aicpa.org/Resources/Sarbanes+Oxley/Sarbanes-Oxley+–+The+Basics.htm. II. Recommended Technical Knowledge PCAOB Auditing Standard No. 5 Paragraph #9 Paragraph #11 Paragraphs #29-30 Paragraph #32 Paragraph #A8 (in Appendix A) III. Classroom Hints This case provides students with an opportunity to apply their technical knowledge about inherent risk and fraud risk to Sunbeam's business model during the 1990's. By providing details about Sunbeam business during this time, students are able to see the relationship between an audit client's business strategy and inherent risk assessment at the financial statement assertion level. In addition, this case provides students with an opportunity to think about fraud risk assessment during times of significant change at an audit client. To meet these objectives, this case illuminates a number of relevant issues about the development of Sunbeam. In particular, the case focuses on the changes that occurred at Sunbeam after hiring Albert J. Dunlap as...
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...Assignment #2 Cash The information that follows is grouped into two categories: 1) Internal Control and 2) Substantive Audit Procedures. This information is to be used to complete the exercises for this assignment. Relevant Information Internal Control Peach Blossom Cologne Company’s general disbursement checking account (account number 101) is with the Big City National Bank, Main at Michigan Avenue, Chicago, Illinois. It is used for all cash receipts and disbursements transactions. The following internal control questionnaire pertaining to cash receipts, cash disbursements, and cash balances was completed by Jasper Parsons on December 15, 2009. Review this questionnaire carefully along with the Permanent File material describing the control environment, as well as the accounting and control procedures related to the various cash subsystems. Your firm has found that personnel involved in this area are generally competent. As you read this material and analyze the internal control questionnaire, keep in mind the six control procedure categories: (1) segregation of duties, (2) access, (3) authorization, (4) input controls, (5) processing controls, and (6) output controls. Then consider possible errors or irregularities that could occur in the accounting system related to cash transactions and balances. Typical errors or irregularities involving cash receipts, disbursements, and balances include: Cash Receipts 1. Cash receipts may have been deposited...
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...Planning the Audit Process I wanted to let you know that Apollo Shoes is satisfied with our services and wants to continue with a full audit. Therefore I wanted to explain to you how I plan to conduct the audit. I will begin with an explanation of the objectives, responsibilities and strategies for completing the audit. This will be followed by explanations on how analytical procedures will be used to plan, conduct and complete the audit, how materiality and risk will be consider in designing the audit and how technology will be incorporated into the audit. The objective in conducting an audit are to obtain reasonable assurance about whether Apollo Shoe’s financial statements as a whole are free from material misstatement, whether due to fraud or error; allowing us to express an opinion that the financial statements are presented fairly, and in accordance with an applicable financial reporting framework. (Arens, J., & & Beasley, 2014) We have a responsibility to conduct this audit in accordance with established standards. These standards indicate that we should have a high, but not absolute, level of assurance that Apollo Shoe’s financial statements are free of material misstatements. However, it is possible that even when we conduct their audit in accordance with standards, we may fail to detect a material misstatement. Therefore, we have a responsibility to work to overcome judgment biases and to continually remind ourselves of the importance of maintaining appropriate...
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...Question 1 The first general standard of the PCAOB requires that an audit be performed by which type of person? Answer An auditor with seasoned judgment in varying degrees of supervision and review. An auditor with appropriate technical training and proficiency. An auditor with adequate knowledge of the standards of field work and reporting. An auditor satisfying the independence standards Question 2 Which assertion addresses whether all transactions and accounts that should be included in the financial statements are included? Answer Existence. Valuation. Completeness. Rights and Obligations Question 3 Which one of the following attributes is not required of an auditor? Answer Independence. Bias. Integrity. Technical competence rest of the questions are attached. To purchase this visit here: http://mindsblow.us/question_des/finalexamacc599/2777 Contact us at: help@mindblows.us Question 1 The first general standard of the PCAOB requires that an audit be performed by which type of person? Answer An auditor with seasoned judgment in varying degrees of supervision and review. An auditor with appropriate technical training and proficiency. An auditor with adequate knowledge of the standards of field work and reporting. An auditor satisfying the independence standards Question 2 Which assertion addresses whether all transactions and accounts that should be included...
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...BUS 424 Auditing Summary of Key Audit Planning Concepts Dr. Miller I. GAAP versus GAAS/SAS Generally Accepted Accounting Principles (GAAP) – Consists of Statements of Financial Accounting Standards (SFAS) created by FASB to guide the preparation of financial statements. Generally Accepted Auditing Standards (GAAS) – 10 general standards representing a framework from which AICPA can provide interpretations. They are organized into 3 groups – General Qualifications, Field Work Performance, and Reporting Results. They are broad guidelines. General Qualifications: 1. Adequate training & proficiency – technically qualified and experienced with the industry 2. Independence in mental attitude – both in fact and in appearance 3. Due professional care – auditors are professionals responsible for fulfilling their duties diligently and carefully. Field Work Performance: 1. Adequate planning & supervision – to ensure adequate audit and proper supervision of assistants. 2. Understanding the client’s internal control system – to determine the adequacy of client’s system to provide reliable data and safeguarding assets and records. 3. Sufficient competent evidence – how much and what types of evidence to accumulate for given set of circumstances. Requires professional judgment. Reporting Results: 1. Determine whether statements are prepared in accordance with GAAP. ...
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...Audit 8 Subsequent Discovery of Facts existing at the date of auditors report Auditor’s Report This report addresses the auditor's responsibilities relating to subsequent events and subsequently discovered facts in an audit of financial statements. It also addresses a predecessor auditor's responsibilities for subsequent events and subsequently discovered facts when reissuing the auditor's report on previously issued financial statements that are to be presented on a comparative basis with audited financial statements of a subsequent period. In addition this report also incorporates management representation and consideration of an entity’s ability to continue as a going concern. There may be times when new information may come to an auditor's attention subsequent to the date of their report of an audited financial statements, this might affect the previously issued report. With information form the PCAOB this report describes how a subsequent audits should be followed by any auditor who becomes aware that facts may have existed at that time of the original audit of the financial statement. When performing an integrated audit of financial statements and internal control over financial reporting, refer to paragraph 98 of PCAOB Auditing Standard No. 5, which relays that an audit of internal control over financial reporting should be integrated with an audit of financial statements, this will provide directions, with respect to the subsequent discovery of information existing...
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