Auditing An International Approach 7 Edition By Bewley Test Bank

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Auditing An International Approach 7 Edition By Bewley Test Bank

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WITH ANSWERS
Auditing An International Approach 7 Edition By Bewley Test Bank

c2

Student: ___________________________________________________________________________

1. According to generally accepted auditing standards (GAAS), the overall objective of a financial statement audit is ________.

A. to enable the auditor to express an opinion as to whether the financial statements are prepared in accordance with generally accepted accounting principles

 

B. to reduce audit risk to an acceptably low level

 

C. to determine whether the financial principles adopted by management in preparing the financial statements are acceptable

 

D. to obtain reasonable assurance that the financial statements taken as a whole are free from misstatement, whether due to fraud or error

 

2. Which of the following is the first task that the auditor must accomplish to demonstrate proficiency in auditing?

A. Identify the evidence relevant for the audit of assertions that are made by management in its unaudited financial statements and notes.

 

B. Design an audit program to obtain sufficient appropriate evidence about assertions management makes in financial statements and notes.

 

C. Recognize the underlying assertions made by management in the financial statements and notes.

 

D. Evaluate the evidence gathered in the performance of the audit program and decide whether managements assertions conform to generally accepted accounting principles and reality.

 

3. Auditors try to achieve independence in appearance in order to ________.

A. maintain public confidence in the profession

 

B. become independent in appearance and in fact

 

C. comply with the generally accepted auditing standards

 

D. maintain an unbiased mental attitude

 

4. Control risk is ________.

A. the probability that a material misstatement could occur and not be prevented or detected by the companys internal control policies and procedures

 

B. the probability that a material misstatement could occur and not be detected by the auditors audit procedures

 

C. the risk that the auditor will not be able to complete the audit on a timely basis

 

D. the risk that the auditor will not properly control the staff on the audit engagement

 

5. The primary purpose of obtaining an understanding of the companys internal controls in the financial statement audit is ________.

A. to help the auditors develop the audit program

 

B. to make suggestions to management to improve internal controls

 

C. to obtain direct sufficient appropriate audit evidence to afford a reasonable basis for an opinion on the financial statements

 

D. to determine whether the company has changed any accounting principles

 

6. An external auditor is conducting an audit of the financial statements of Camden Corporation. The external auditor is expected to ________.

A. certify the correctness of Camdens financial statements

 

B. make a 100% examination of Camdens records

 

C. give an opinion on whether Camdens financial statements are fairly presented in all material respects

 

D. give an opinion on the attractiveness of Camden for investment purposes and critique the wisdom and legality of its business decisions

 

7. Which of the following statements best explains an unmodified report opinion?

A. The financial statements contain a departure from GAAP.

 

B. The auditor was unable to complete the work necessary to form a complete opinion.

 

C. The auditor was not aware of any reasons not to believe the statements are correct.

 

D. Based on the evidence obtained, the auditor believes the statements are free of material error.

 

8. A standard unmodified audit report should be dated ________.

A. no later than the date when the auditor obtained sufficient appropriate audit evidence supporting the auditors opinion

 

B. no earlier than the date when the auditor obtained sufficient appropriate audit evidence supporting the auditors opinion

 

C. as at the end of the year being reported on

 

D. as at the end of the year the audit work was done

 

9. Several sources of GAAP consulted by an auditor are in conflict as to the application of an accounting principle. Which of the following should the auditor consider to be the most authoritative?

A. CPA Canada Handbook.

 

B. CPA Canada Exposure Drafts.

 

C. Industry practice.

 

D. Federal legislation.

 

10. The reporting standards require that the auditor explicitly report on whether the financial statements ________.

A. contain adequate disclosure of all material matters

 

B. are in accordance with GAAP

 

C. used principles that are appropriate for the circumstances

 

D. were prepared on a consistent basis with the comparative year

 

11. Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of ________.

A. objective judgment

 

B. independent integrity

 

C. professional skepticism

 

D. impartial conservatism

 

12. Three-Party Accountability includes all of the following parties except ________.

A. users

 

B. practitioners

 

C. Audit Committee

 

D. management

 

13. Key features of SOX include all of the following except ________.

A. increased penalties for corporate wrongdoers

 

B. more timely and extensive financial disclosures

 

C. fewer options of recourse for aggrieved shareholders

 

D. increased oversight of auditors

 

14. Which of the following has been established to oversee the auditors of public companies?

A. Canadian Coalition for Good Governance.

 

B. Canadian Public Accountability Board.

 

C. The SOX Board.

 

D. The Canadian Securities Commission.

 

15. An assurance engagement is one in which a CPA is engaged to ________.

A. issue a written communication expressing a conclusion concerning a subject matter for which an accountable party is responsible

 

B. provide tax advice or prepare a tax return based on financial information the CPA has not audited or reviewed

 

C. testify as an expert witness in accounting, auditing, or tax matters, given certain stipulated facts

 

D. assemble prospective financial statements based on the assumptions of the entitys management without expressing any assurance

 

16. All of the following are examples of assurance engagements except ________.

A. tax planning

 

B. financial statements audit

 

C. internal controls statement

 

D. financial statements review

 

17. The GAAS general standard relating to the audit of financial statements focuses on all of the following except ________.

A. competence

 

B. independence

 

C. due professional care

 

D. planning

 

18. According to IFAC, which of the following is not one of the elements of quality control?

A. Independence.

 

B. Supervision.

 

C. Acceptance and continuance of clients.

 

D. Due professional care.

 

19. In establishing a quality control system, which area should be of a secondary nature?

A. Creating an independence and objectivity checklist.

 

B. Creating a program for continuing professional education.

 

C. Creating an internal review process.

 

D. Controlling access to client files.

 

20. Williams & Co., a large international CPA firm, will be subject to an external peer review. The peer review will most likely be performed by ________.

A. employees and partners of Williams & Co. who are not associated with the particular audits being reviewed

 

B. employees and partners of another CPA firm

 

C. peer review staff of the Ontario Securities Commission

 

D. peer review staff of CPA Canada

 

21. A report giving conclusions about a firms compliance with quality control standards is typical of which of the following?

A. Practice inspection.

 

B. Quality inspection.

 

C. Peer review.

 

D. Quality review.

 

22. Practice standards are a general set of standards intended to guide the audits of financial statements.

True    False

 

23. The CPA Canada Handbook recommendations are a step-by-step list of procedures auditors have to complete for each engagement.

True    False

 

24. The general standard of GAAS relates primarily to the personal integrity and professional qualifications of auditors.

True    False

 

25. Control risk is the risk that an accounting firms quality control standards will not be adequate.

True    False

 

26. The fourth reporting standard requires the audit report to comment on the consistency of the accounting principles used in preparing the financial statements.

True    False

 

27. Audit risk is the risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated.

True    False

 

28. Reliance on self-regulation of the accounting profession has changed as a result of its perceived failure to detect the problems leading to the corporate scandals of 2002/2003.

True    False

 

29. Appropriate audit evidence, to be reliable and relevant, must be quantitative, objective, and absolutely compelling.

True    False

 

30. A prospectus is the information, usually including financial information, about a firm that accompanies any new issuance of shares in a regulated securities market.

True    False

 

31. The assessment of materiality has a pervasive impact on the audit.

True    False

 

32. Audit committees monitor managements financial reporting responsibilities.

True    False

 

33. Practice inspection is something a new auditor does as part of his or her training program.

True    False

 

34. Alan Fallon was recently promoted to senior accountant. He was put in charge of the Mellow Markets audit because of his experience with other grocery clients. Mellow Markets has a small, but growing chain of natural food stores. This is the first year Mellow Markets has been audited. Because of its growth, Mellow needs additional capital. Mellow intends to take its audited financial statements to a bank to secure a loan.

Alan has been assigned two inexperienced staff assistants for the audit. Because this is his first audit as a senior, he intends to bring the job in on budget. To save time, he gave the assistants the audit program for Happy Time Food Stores. He told his staff that this would make things go more quickly. He also told them that he could not spend much time with them at the clients place of business because my time is billed out at such a high rate, well go right over budget. He did call them once a day from another audit on which he was working. The assistants told Alan that the audit program did not always match up with what they found at Mellow Markets. Alan responded, Just cross out whatever is not relevant in the audit program and dont add anything-it will only make us go over the budget.

When Alan came out near the end of fieldwork, one assistant communicated her concern that they had not attended the inventory counts at any of the out-of-town locations of Mellow Markets. The audit program had stipulated that inventory should be observed for in-town stores only. Happy Time had only one store not in town while Mellow Markets had three of their five stores in other cities. Alan told the assistant to get inventory sheets from the client for the other stores. He added, Make sure that the inventory balance in the general ledger agrees with the total for all the inventory sheets. The next day, Alan reviewed all work papers and submitted the job for review by the manager.

Required:

A. Describe three GAAS examination standards.
B. Do you believe that the Mellow Markets audit is in compliance with these standards? Explain.

 

 

 

 

35. What is the difference between audit procedures and audit standards?

 

 

 

 

36. What is a quality inspection?

 

 

 

 

 

 

c2 Key

1. According to generally accepted auditing standards (GAAS), the overall objective of a financial statement audit is ________.

A. to enable the auditor to express an opinion as to whether the financial statements are prepared in accordance with generally accepted accounting principles

 

B. to reduce audit risk to an acceptably low level

 

C. to determine whether the financial principles adopted by management in preparing the financial statements are acceptable

 

D. to obtain reasonable assurance that the financial statements taken as a whole are free from misstatement, whether due to fraud or error

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #1
Topic: 02-05 Generally Accepted Auditing Standards
 

 

2. Which of the following is the first task that the auditor must accomplish to demonstrate proficiency in auditing?

A. Identify the evidence relevant for the audit of assertions that are made by management in its unaudited financial statements and notes.

 

B. Design an audit program to obtain sufficient appropriate evidence about assertions management makes in financial statements and notes.

 

C. Recognize the underlying assertions made by management in the financial statements and notes.

 

D. Evaluate the evidence gathered in the performance of the audit program and decide whether managements assertions conform to generally accepted accounting principles and reality.

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #2
Topic: 02-07 Generally Accepted Auditing Standards: Ethical Requirements Relating to an Audit of Financial Statements
Topic: 02-08 Competence
 

 

3. Auditors try to achieve independence in appearance in order to ________.

A. maintain public confidence in the profession

 

B. become independent in appearance and in fact

 

C. comply with the generally accepted auditing standards

 

D. maintain an unbiased mental attitude

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #3
Topic: 02-09 Objectivity and Independence
 

 

4. Control risk is ________.

A. the probability that a material misstatement could occur and not be prevented or detected by the companys internal control policies and procedures

 

B. the probability that a material misstatement could occur and not be detected by the auditors audit procedures

 

C. the risk that the auditor will not be able to complete the audit on a timely basis

 

D. the risk that the auditor will not properly control the staff on the audit engagement

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #4
Topic: 02-17 Internal Control Assessment
 

 

5. The primary purpose of obtaining an understanding of the companys internal controls in the financial statement audit is ________.

A. to help the auditors develop the audit program

 

B. to make suggestions to management to improve internal controls

 

C. to obtain direct sufficient appropriate audit evidence to afford a reasonable basis for an opinion on the financial statements

 

D. to determine whether the company has changed any accounting principles

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #5
Topic: 02-17 Internal Control Assessment
 

 

6. An external auditor is conducting an audit of the financial statements of Camden Corporation. The external auditor is expected to ________.

A. certify the correctness of Camdens financial statements

 

B. make a 100% examination of Camdens records

 

C. give an opinion on whether Camdens financial statements are fairly presented in all material respects

 

D. give an opinion on the attractiveness of Camden for investment purposes and critique the wisdom and legality of its business decisions

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #6
Topic: 02-19 Generally Accepted Auditing Standards: Reporting Standards
Topic: 02-20 Generally Accepted Accounting Principles (GAAP)
 

 

7. Which of the following statements best explains an unmodified report opinion?

A. The financial statements contain a departure from GAAP.

 

B. The auditor was unable to complete the work necessary to form a complete opinion.

 

C. The auditor was not aware of any reasons not to believe the statements are correct.

 

D. Based on the evidence obtained, the auditor believes the statements are free of material error.

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #7
Topic: 02-19 Generally Accepted Auditing Standards: Reporting Standards
 

 

8. A standard unmodified audit report should be dated ________.

A. no later than the date when the auditor obtained sufficient appropriate audit evidence supporting the auditors opinion

 

B. no earlier than the date when the auditor obtained sufficient appropriate audit evidence supporting the auditors opinion

 

C. as at the end of the year being reported on

 

D. as at the end of the year the audit work was done

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #8
Topic: 02-19 Generally Accepted Auditing Standards: Reporting Standards
 

 

9. Several sources of GAAP consulted by an auditor are in conflict as to the application of an accounting principle. Which of the following should the auditor consider to be the most authoritative?

A. CPA Canada Handbook.

 

B. CPA Canada Exposure Drafts.

 

C. Industry practice.

 

D. Federal legislation.

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #9
Topic: 02-20 Generally Accepted Accounting Principles (GAAP)
 

 

10. The reporting standards require that the auditor explicitly report on whether the financial statements ________.

A. contain adequate disclosure of all material matters

 

B. are in accordance with GAAP

 

C. used principles that are appropriate for the circumstances

 

D. were prepared on a consistent basis with the comparative year

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #10
Topic: 02-06 Generally Accepted Auditing Standards: Objectives of the Audit of Financial Statements
Topic: 02-07 Generally Accepted Auditing Standards: Ethical Requirements Relating to an Audit of Financial Statements
 

 

11. Because of the risk of material misstatement, an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of ________.

A. objective judgment

 

B. independent integrity

 

C. professional skepticism

 

D. impartial conservatism

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #11
Topic: 02-05 Generally Accepted Auditing Standards
 

 

12. Three-Party Accountability includes all of the following parties except ________.

A. users

 

B. practitioners

 

C. Audit Committee

 

D. management

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 02-04 Explain the importance of general assurance standards; using examples of assurance matters.
Smieliauskas Chapter 02 #12
Topic: 02-24 Assurance Standards
 

 

13. Key features of SOX include all of the following except ________.

A. increased penalties for corporate wrongdoers

 

B. more timely and extensive financial disclosures

 

C. fewer options of recourse for aggrieved shareholders

 

D. increased oversight of auditors

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 02-01 Describe the current audit environment; including developments in regulatory oversight and provincial regulation of public accountants in Canada.
Smieliauskas Chapter 02 #13
Topic: 02-02 The Sarbanes-Oxley Act
 

 

14. Which of the following has been established to oversee the auditors of public companies?

A. Canadian Coalition for Good Governance.

 

B. Canadian Public Accountability Board.

 

C. The SOX Board.

 

D. The Canadian Securities Commission.

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 02-01 Describe the current audit environment; including developments in regulatory oversight and provincial regulation of public accountants in Canada.
Smieliauskas Chapter 02 #14
Topic: 02-02 The Sarbanes-Oxley Act
Topic: 02-03 Regulation of Public Accounting
 

 

15. An assurance engagement is one in which a CPA is engaged to ________.

A. issue a written communication expressing a conclusion concerning a subject matter for which an accountable party is responsible

 

B. provide tax advice or prepare a tax return based on financial information the CPA has not audited or reviewed

 

C. testify as an expert witness in accounting, auditing, or tax matters, given certain stipulated facts

 

D. assemble prospective financial statements based on the assumptions of the entitys management without expressing any assurance

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 02-04 Explain the importance of general assurance standards; using examples of assurance matters.
Smieliauskas Chapter 02 #15
Topic: 02-24 Assurance Standards
 

 

16. All of the following are examples of assurance engagements except ________.

A. tax planning

 

B. financial statements audit

 

C. internal controls statement

 

D. financial statements review

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 02-04 Explain the importance of general assurance standards; using examples of assurance matters.
Smieliauskas Chapter 02 #16
Topic: 02-24 Assurance Standards
 

 

17. The GAAS general standard relating to the audit of financial statements focuses on all of the following except ________.

A. competence

 

B. independence

 

C. due professional care

 

D. planning

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #17
Topic: 02-07 Generally Accepted Auditing Standards: Ethical Requirements Relating to an Audit of Financial Statements
Topic: 02-08 Competence
Topic: 02-09 Objectivity and Independence
Topic: 02-10 Due Professional Care
 

 

18. According to IFAC, which of the following is not one of the elements of quality control?

A. Independence.

 

B. Supervision.

 

C. Acceptance and continuance of clients.

 

D. Due professional care.

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 02-05 Explain how requirements of quality control standards are monitored for public accounting firms.
Smieliauskas Chapter 02 #18
Topic: 02-26 Elements of Quality Control
 

 

19. In establishing a quality control system, which area should be of a secondary nature?

A. Creating an independence and objectivity checklist.

 

B. Creating a program for continuing professional education.

 

C. Creating an internal review process.

 

D. Controlling access to client files.

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Difficult
Learning Objective: 02-05 Explain how requirements of quality control standards are monitored for public accounting firms.
Smieliauskas Chapter 02 #19
Topic: 02-25 Quality Control Standards
Topic: 02-26 Elements of Quality Control
 

 

20. Williams & Co., a large international CPA firm, will be subject to an external peer review. The peer review will most likely be performed by ________.

A. employees and partners of Williams & Co. who are not associated with the particular audits being reviewed

 

B. employees and partners of another CPA firm

 

C. peer review staff of the Ontario Securities Commission

 

D. peer review staff of CPA Canada

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 02-05 Explain how requirements of quality control standards are monitored for public accounting firms.
Smieliauskas Chapter 02 #20
Topic: 02-25 Quality Control Standards
Topic: 02-26 Elements of Quality Control
 

 

21. A report giving conclusions about a firms compliance with quality control standards is typical of which of the following?

A. Practice inspection.

 

B. Quality inspection.

 

C. Peer review.

 

D. Quality review.

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 02-05 Explain how requirements of quality control standards are monitored for public accounting firms.
Smieliauskas Chapter 02 #21
Topic: 02-25 Quality Control Standards
Topic: 02-26 Elements of Quality Control
 

 

22. Practice standards are a general set of standards intended to guide the audits of financial statements.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 02-02 List the various practice standards for independent audits of financial statements.
Smieliauskas Chapter 02 #22
Topic: 02-04 Practice Standards
 

 

23. The CPA Canada Handbook recommendations are a step-by-step list of procedures auditors have to complete for each engagement.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #23
Topic: 02-05 Generally Accepted Auditing Standards
 

 

24. The general standard of GAAS relates primarily to the personal integrity and professional qualifications of auditors.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #24
Topic: 02-05 Generally Accepted Auditing Standards
Topic: 02-06 Generally Accepted Auditing Standards: Objectives of the Audit of Financial Statements
Topic: 02-07 Generally Accepted Auditing Standards: Ethical Requirements Relating to an Audit of Financial Statements
 

 

25. Control risk is the risk that an accounting firms quality control standards will not be adequate.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #25
Topic: 02-17 Internal Control Assessment
 

 

26. The fourth reporting standard requires the audit report to comment on the consistency of the accounting principles used in preparing the financial statements.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #26
Topic: 02-19 Generally Accepted Auditing Standards: Reporting Standards
 

 

27. Audit risk is the risk that an auditor expresses an inappropriate audit opinion when the financial statements are materially misstated.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #27
Topic: 02-14 Reasonable Assurance
Topic: 02-15 Audit Risk and Materiality
 

 

28. Reliance on self-regulation of the accounting profession has changed as a result of its perceived failure to detect the problems leading to the corporate scandals of 2002/2003.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 02-01 Describe the current audit environment; including developments in regulatory oversight and provincial regulation of public accountants in Canada.
Smieliauskas Chapter 02 #28
Topic: 02-01 The Current Environment of Auditing
 

 

29. Appropriate audit evidence, to be reliable and relevant, must be quantitative, objective, and absolutely compelling.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #29
Topic: 02-08 Competence
Topic: 02-10 Due Professional Care
 

 

30. A prospectus is the information, usually including financial information, about a firm that accompanies any new issuance of shares in a regulated securities market.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 02-01 Describe the current audit environment; including developments in regulatory oversight and provincial regulation of public accountants in Canada.
Smieliauskas Chapter 02 #30
Topic: 02-03 Regulation of Public Accounting
 

 

31. The assessment of materiality has a pervasive impact on the audit.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 02-03 Summarize the ethical; examination; and reporting standards that make up generally accepted auditing standards (GAAS) as set out in CPACs Canadian Auditing Standards (CASs).
Smieliauskas Chapter 02 #31
Topic: 02-14 Reasonable Assurance
Topic: 02-15 Audit Risk and Materiality
 

 

32. Audit committees monitor managements financial reporting responsibilities.

TRUE

 

Accessibility: Keyboard Navigation
Blooms: Knowledge
Difficulty: Moderate
Learning Objective: 02-01 Describe the current audit environment; including developments in regulatory oversight and provincial regulation of public accountants in Canada.
Smieliauskas Chapter 02 #32
Topic: 02-02 The Sarbanes-Oxley Act
 

 

33. Practice inspection is something a new auditor does as part of his or her training program.

FALSE

 

Accessibility: Keyboard Navigation
Blooms: Comprehension
Difficulty: Moderate
Learning Objective: 02-05 Explain how requirements of quality control standards are monitored for public accounting firms.
Smieliauskas Chapter 02 #33
Topic: 02-25 Quality Control Standards
Topic: 02-26 Elements of Quality Control
 

 

34. Alan Fallon was recently promoted to senior accountant. He was put in charge of the Mellow Markets audit because of his experience with other grocery clients. Mellow Markets has a small, but growing chain of natural food stores. This is the first year Mellow Markets has been audited. Because of its growth, Mellow needs additional capital. Mellow intends to take its audited financial statements to a bank to secure a loan.

Alan has been assigned two inexperienced staff assistants for the audit. Because this is his first audit as a senior, he intends to bring the job in on budget. To save time, he gave the assistants the audit program for Happy Time Food Stores. He told his staff that this would make things go more quickly. He also told them that he could not spend much time with them at the clients place of business because my time is billed out at such a high rate, well go right over budget. He did call them once a day from another audit on which he was working. The assistants told Alan that the audit program did not always match up with what they found at Mellow Markets. Alan responded, Just cross out whatever is not relevant in the audit program and dont add anything-it will only make us go over the budget.

When Alan came out near the end of fieldwork, one assistant communicated her concern that they had not attended the inventory counts at any of the out-of-town locations of Mellow Markets. The audit program had stipulated that inventory should be observed for in-town stores only. Happy Time had only one store not in town while Mellow Markets had three of their five stores in other cities. Alan told the assistant to get inventory sheets from the client for the other stores. He added, Make sure that the inventory balance in the general ledger agrees with the total for all the inventory sheets. The next day, Alan reviewed all work papers and submitted the job for review by the manager.

Required:

A. Describe three GAAS examination standards.
B. Do you believe that the Mellow Markets audit is in compliance with these standards? Explain.

A.

The examination standards are outlined below.

1. The work should be adequately planned and properly executed using sufficient knowledge of the entitys business as a basis. If assistants are employed, they should be properly supervised.
2. A sufficient understanding of internal contro

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