Exam 6: Client Acceptance and Planning the Audit

The audit plan includes the nature, timing and extent of audit procedures for the purposes of risk assessment, including those that are linked to the individual audit assertions, as well as any other audit procedures that are considered necessary. At what point in the audit process is the audit plan finalized?

In addition to direct impacts on the financial statements, the auditor also needs to consider indirect effects. An assessment of client objectives and strategies can reveal issues that could lower income or cause contingent liabilities. Which of the following could cause lost sales, increases in warranty expenses, and product liability claims?

When reading the corporate minutes, the auditor extracted the approved annual salary for the President, the Chief Executive Officer, and other senior executives. What audit step would the auditor likely conduct with this information?

A client's performance measurement system includes key performance indicators that management uses to

An important reason for auditors to obtain good knowledge of a client's industry is that

Michum Inc. has related parties with a company owned by the CEO's brother that comprise about $500 000. There are also related party transactions with the owner (about $250) and with two of the officers ($750 and $1000) respectively. Which related parties should be identified and included in audit documentation?

It is important that the policies, procedures, and key decisions of senior management, the board of directors, and the audit committee be considered when developing a client risk profile because

Your client, Macilbink Ltd., manufactures calendars, books, and magazines. The printing presses that they use are only three years old, yet new technology has been developed that would result in cuts in ink and electricity costs by over 20%, while simplifying the setup process, making smaller production runs more feasible. Macilbink Ltd. is facing lowered demand for its products and will need to change direction or innovate to stay in business. The effect of the new printing technology has resulted in which of the following risk assessment changes by Macilbink Ltd.'s auditors?

Which of the following is a factor that relates to "incentives or pressures" to commit fraudulent financial reporting?

The existence of advanced automated systems affects the audit process. Which of the following characteristics is an indicator of the presence of an advanced automated information system?

Which of the following is a factor that relates to "attitudes or rationalization" to commit fraudulent financial reporting?

When reading the corporate minutes, the auditor obtained information regarding loans that were authorized for borrowing. What audit step would the auditor likely conduct with this information?

Anna performed a trend analysis of accounts receivable (AR) balances and computed the days to collect AR ratio. When she compared the results of her analysis with industry averages, she found the results were unusually low compared to the industry norm. Anna can conclude that

Three conditions for fraud are referred to as the "fraud triangle." One of the sides of this triangle is incentives or pressures. The other two sides are

A code of ethics is an important document for organizational conduct. In response to the Sarbanes-Oxley Act in the United States, the SEC requires which of the following actions for organizations that have not adopted a code of ethics?

One of the purposes of developing a client risk profile is to assist the auditor in

White Top Telephones is the largest telephone distributor in the province, distributing wired and cordless phones as well as cell phones. Management always seems to be in a rush and is difficult to approach. Unfortunately, this attitude has permeated down to all of the staff. Everyone seems to be hurrying about, doing what needs to be done. Sometimes it seems as if they don't even have time for their customers. Yet, everything seems to get done. The company's website has a lengthy privacy policy statement indicating that customers are number one and that all data is kept secure. Required: Explain the importance of the control environment and corporate governance structure. During what phases of the risk assessment and planning process would the control environment and corporate governance structure be documented and assessed?

Juniper Berry is a private company in the Niagara region that operates in the fruit and vegetable industry. In its main St. Catharines plant, it receives picked berries and sorts and packages them. It also makes some related products such as jams, cookies, and pies. Your firm has recently been hired as the auditor of Juniper Berry. The partner in charge of the audit has asked you to write a memo explaining why it is important to gain understanding of the business operations and processes of Juniper Berry and also to list some suggested procedures to be performed in the process of understanding the business operations and processes. To assist you with your memo, the partner provided you with some notes she took at a recent meeting with the management of Juniper Berry: - Juniper Berry (JB) sells and manufactures a wide range of products, including fresh and frozen berries, jam, cookies, and pies. Fresh and frozen berries make up most of JB's revenues. - JB sells mostly to grocery stores directly. However, its frozen berries are packaged with the Mondo Grocers logo as they have an exclusive contract to sell all of their frozen berry production to Mondo. - In 2011, JB installed a new scale system to weigh berries when they are delivered from various farms. The amount to be paid to the farmer is then calculated and recorded immediately. The system automatically records the inventory and issues an electronic payment for the amount calculated by the scale. JB is proud to be technologically advanced, as it has allowed the company to cut some jobs and be more cost efficient. - Given that most of the packaging and processing of berries into derived products is automated, capital assets represent a significant portion of the balance sheet and also required JB to obtain a large bank loan in 2011 when the plant upgrade took place.

Knowledge of the client's industry and external environment can be obtained in different ways. Discuss some of the ways that this knowledge can be obtained.

An effective board of directors helps ensure that the company takes only appropriate risks. The audit committee can