Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN: 9781305080577
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: South-Western College Pub
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Question
Chapter 7, Problem 52RSCQ
a)
To determine
Introduction:Audit risk is the risk thatthe auditor mightdeclare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.
To state:that the audit risk should be considered at zero level for almost all the audit assignments.
To determine
Introduction:Inherent risk is the risk generated by an error or omission in a financial statement because of a factor other than failure of internal control. In a financial audit, inherent risk is most likely to occur when transactions are complex,or when the situations need a high level of judgment for the financial estimates.
To state:That the Inherent risk factor as low as zero level impacts the auditor for not going into detailed examination of the books of account.
To determine
Introduction:Control risk is the probability that financial statements are significantly wrong,because of failures in the
To state:That the auditor has to collect evidences on design as well as operations of controls, to assess the control risk at low level.
To determine
Introduction:Detection risk is the risk that auditor will not be able detect a misstatement that is found in the decision that could be significant, either individually or collectively.
To state:that detection risk at 50% means that the auditor can rely to the extent 50% about the existence of any material misstatement.
To determine
Introduction:Audit risk is the risk that the auditor might declare an unqualified report due to his failure in detecting a material misstatement either due to error or fraud.
To state:That audit risk vary in relation to inherent risk and control risk and has inverse relationship.
To determine
Introduction:Audit risk model is a technique which is used by auditors to assess the relationship between various risks generating from an audit assignment, which enables the auditor to manage the overall audit risk.
To state:that judgment of the auditor is a key factor while deciding about the audit risk model.
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Which of the following statements would most likely appear in an auditor's engagement letter?
a.
Fees for our services are based on our regular per diem rates, plus travel and other out-of-pocket expenses.
b.
The auditor's preliminary assessment of the risk factors relating to misstatements arising from fraudulent financial reporting.
c.
A reminder that management is responsible for illegal acts committed by employees.
d.
After performing our preliminary analytical procedures, we will discuss with you the other procedures we consider necessary to complete the engagement.
e.
Required evidence is needed to issue a qualified opinion.
Describe a situation that would require an auditor to give an unmodified opinion without a standard report. Describe a situation that would cause an auditor to modify their opinion.
Analyze possible actions an auditor might take if a client’s financial statements depart from GAAP. Do you think the demand for assurance services will increase or decrease in the future? Explain.
You 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…
Chapter 7 Solutions
Auditing: A Risk Based-Approach to Conducting a Quality Audit
Ch. 7 - Prob. 1TFQCh. 7 - Prob. 2TFQCh. 7 - Prob. 3TFQCh. 7 - Prob. 4TFQCh. 7 - Prob. 5TFQCh. 7 - Prob. 6TFQCh. 7 - Prob. 7TFQCh. 7 - Prob. 8TFQCh. 7 - Prob. 9TFQCh. 7 - Prob. 10TFQ
Ch. 7 - Prob. 11TFQCh. 7 - Prob. 12TFQCh. 7 - Prob. 13TFQCh. 7 - In terms of the timing of the risk response, the...Ch. 7 - Prob. 15MCQCh. 7 - Prob. 16MCQCh. 7 - Prob. 17MCQCh. 7 - Prob. 18MCQCh. 7 - Prob. 19MCQCh. 7 - Prob. 20MCQCh. 7 - Prob. 21MCQCh. 7 - Prob. 22MCQCh. 7 - Prob. 23MCQCh. 7 - Prob. 24MCQCh. 7 - Prob. 25MCQCh. 7 - Prob. 26MCQCh. 7 - Prob. 27MCQCh. 7 - Prob. 28MCQCh. 7 - Prob. 29RSCQCh. 7 - Prob. 30RSCQCh. 7 - Define the following terms: (a) performance...Ch. 7 - Prob. 32RSCQCh. 7 - Prob. 34RSCQCh. 7 - Prob. 35RSCQCh. 7 - Prob. 36RSCQCh. 7 - How does inherent risk relate to internal...Ch. 7 - Prob. 38RSCQCh. 7 - Prob. 39RSCQCh. 7 - Prob. 40RSCQCh. 7 - Prob. 43RSCQCh. 7 - Prob. 45RSCQCh. 7 - Prob. 46RSCQCh. 7 - Prob. 47RSCQCh. 7 - Prob. 48RSCQCh. 7 - Prob. 49RSCQCh. 7 - Prob. 52RSCQCh. 7 - Prob. 53RSCQCh. 7 - Prob. 54RSCQCh. 7 - Prob. 55RSCQCh. 7 - Prob. 56RSCQCh. 7 - Prob. 57RSCQCh. 7 - Prob. 58FF
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- Which of the following is correct regarding the use of confirmation letters in an audit of financial statements: a. Blank confirmation letters are usually preferred when the auditor expects an overstatement error in the account balance. b. A reply from a receivable confirmation letter received from the customer through the client is considered an invalid reply, thus another set of confirmation letter should be sent. c. A positive confirmation letter is preferred over a negative confirmation letter when the auditor, based on his past experience with the client, expects minimal to zero errors. d. When an auditor does not receive a reply from a customer for a negative confirmation letter in a considerable period of time, the auditor should send out another set of confirmation letter.arrow_forwardAssessing the risk of fraud in a financial statementaudit is a difficult audit judgment. Auditing standards require the auditor to performseveral audit procedures to accumulate information to assess the risk of fraud. You arethe in-charge auditor responsible for planning the financial statement audit of Spencer,Inc. Two new staff auditors are assisting you with the initial audit planning and haveasked you the following questions.Briefly summarize your response to these staff auditor questions:a. What is the purpose of the audit team’s brainstorming session?b. Who should attend the brainstorming session and when should the session be held?c. What is the role of the two staff auditors in the brainstorming session?d. What is the auditor’s responsibility under auditing standards for detecting fraud?arrow_forwardAn IT auditor is conducting data analysis procedures on an employee expense report file and notices several expenses for $24.99 from the same individual. The company’s policy requires that any expenses that are under $25.00 do not require a receipt. The IT auditor should: [SELECT ALL THAT APPLY a) Maintain professional skepticism and investigate these transactions further b) Pass on investigating these items further, focusing on higher dollar amounts c) Evaluate the business process approval controls, and related procedures d) Discuss fraud awareness and detection programs with management to gain an understanding of management’s commitment to fraud prevention and related entity-level anti-fraud controls.arrow_forward
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