Discussion Questions Week 3

Question 1 The evidence that is gathered by an auditor plays a crucial role in the results of the audit and the recommendations that are provided to management. When gathering evidence with regard to financial misstatements, the auditor is presented with 3 types of misstatements that could occur at financial statement and assertion level. You are required to discuss these misstatements.

Question 30 If the auditor plans to assess control risk at less than the maximum and rely on internal controls , and the nature, timing, and extent of further audit procedures are based on the lower assessment the auditor must:     Obtain evidence that the controls selected for testing are designed effectively and operating effectively during the period under audit.     Assess control risk less than the maximum for all relevant assertions.     Perform only substantive procedures     Provide additional  examples of responses to assessed fraud risks relating to fraudulent financial reporting.

Question 5- In the Crazy Eddie case, there were many problemsrelating to the auditing firm and their auditing procedures. The auditors of Crazy Eddie were subject to certain broad criticismsregarding the audit- engagem ent, some of which may have impaired their independence. Identify and briefly explain these criticisms. (2)>For the Crazy Eddie case, identify specific deficiencies in the auditors' proceduresthat ledto their failureto discover financial statement fraud. For each weakness in auditing procedures identified, recommendan alternative approach/procedure that should have-led: to the detection of the frauds in question.

Question 9 In making a decision of whether to take on a new audit client, the auditor should perform all of the following except: 1. Reviewing the credit rating of the proposed client. 2. Performing preliminary tests of internal controls. 3. Evaluating the firm's ability to service the client properly. 4. Inquiring of third parties as to the reputation of the proposed client. 3 O 1 O 2 O 4

Problem 6:  Planning the audit is essential for a. obtaining sufficient, appropriate evidence b. keeping costs reasonable to the client c. avoiding a misunderstanding with a client. Elaborate on each step below for the auditor’s objective in achieving the above essential elements. Discuss in detail what each step consists of and give an example for each. Accept the client and perform initial audit planning Understand the client's business and industry Assess client business risk Perform preliminary analytical procedures Set materiality levels and assess acceptable audit risk and inherent risk Understand internal control and assess control risk Gather information to assess fraud risks Develop overall audit plan and program

Question 18 According to the PCAOB, during the audit of internal controls for an issuer (public company), the ultimate objective of testing the design effectiveness of internal controls is to:     Determine whether the company's controls are processing data effectively.     Determine whether the company's controls will satisfy control objectives and prevent or detect errors or fraud that could result in material misstatements to the financial statements.     Determine that the company's employees are processing the controls according to policy and procedures manuals at the company.     None of the answers provided are correct..

Question 19 If an auditor believes that a misstatement might be intentional and the effect on the financial statements could be material the auditor should do which of the following?      Resign from the engagement     Discuss with the audit committee what should be done to prevent possible future future misstatements.     Perform additional procedures to obtain additional evidence to determine whether fraud has occurred or is likely to have occurred and whether there is a material impact on the financial statements.     Contact local authorities.

Statement 1: As part of obtaining an understanding of internal control, an auditor is required to obtain knowledge about the operating effectiveness of internal control.   Statement 2:  The auditor obtains an understanding of internal controls to identify the types of potential misstatements that may occur.   Group of answer choices A. False, true B. True, false C. False, false D. True, true

Question 25 When performing an audit of a public company, PCAOB standards do not require the auditor to perform test on internal controls if going straight to substantive audit procedures are more cost effective and provide will sufficient evidence to express an opinion on the financial statements taken as a whole.  True  False

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STATEMENT 1: Significant unexpected fluctuations identified by analytical review procedures will usually necessitate a review of internal control. STATEMENT 2: Working papers should generally contain the nature and extent of audit procedures done, the results of any testing, and the CPA's conclusion about how the findings will affect his report. A. Only Statement 1 is incorrect B. Only Statement 1 is correct C. Both statements are incorrect D. Both statements are correct

Financial audit Q&A What risks that may occur during assertion testing, but cannot be prevented due to the lack of time? What reports that need to be prepared to find out if there are significant changes in the client? What is the parties reported by the auditor that are related to the results of the audit reports made? What terms that must be included in the document prepared by the client? What is the inspection activities to ensure the shipping or Destination Point in the recording of the financial statements is correct in accordance with the fragments? The auditor needs to know that the ending balance recorded in the financial statements is appropriate based on evidence of transactions in the company. What is the audit assertion underlying the vouching procedure? What is the audit assertion underlying the tracing procedure? What is the risk that caused by the sample taken by the Auditor does not describe the characteristics of the data from the entire data population?…

Prepare a broad audit plan:1. What material types of transactions and transaction cycles are involved?2. What are the high-risk areas?3. What are the low-risk areas?4. If management faced tremendous pressure regarding the entity’s financial performance, what opportunities might exist for them to engage in fraudulent financial reporting?5. To what extent do you believe it will be appropriate to reduce assessed control risk?6. How will audit effort be allocated among geographical areas?7. What form of auditors’ report do you expect will be issued; what does it mean?8. Indicate as an appendix to the report how the project team was organized and how it functioned on the project and submit appendix with Team Project.

1. Which of the following statements is correct concerning an auditor's required communication with those charged with governance? Question 24 options: Individual misstatements discovered, regardless of materiality If matters are communicated in writing, the report is appropriate for general use This communication should include disagreements with management about significant audit adjustments, whether or not satisfactorily resolved If matters are communicated in writing, the report is required to be distributed to both those charged with governance and management

Audit situations 1 through 10 present various independent factual situations an auditor might encounter in conducting an audit. List A represents the types of opinions the auditor ordinarily would issue, and List B represents the report modifications (if any) that would be necessary. For each situation, select one response from List A and one from List B. Select, as the best answer for each item, the action the auditor normally would take. Items from either list may be selected once, more than once, or not at all.   Assume the following: The auditor is independent The auditor previously expressed an unqualified opinion on the prior-year financial statements unless otherwise noted Only single-year (not comparative) statements are presented for the current year (unless otherwise stated) The conditions for an unqualified opinion exist unless contradicted in the factual scenario The conditions stated in the factual scenario are material No report modifications are to be made except in…

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