Exam 10: Audit Strategy and Audit Program

Risks of fraud are assessed at which level(s) of the audit?

Symco Inc. has a policy that all cash disbursements of $2000 or more must be approved by the treasurer. While performing a test of controls on a sample of disbursements, Craig discovered that the assistant controller had authorized a cash disbursement of $3500 while the treasurer was on vacation. This control deviation is significant only if

You are a senior at a PA firm and this is your junior's first day. He would like you to explain to him the different types of audit tests that should be performed over the course of an audit to obtain sufficient and appropriate audit evidence. Be sure to indicate which component of audit risk each type of test is linked to.

Greenvale Construction Limited was started by four brothers who lived in the Toronto area. Over time, the brothers moved to different parts of the country. They decided it was a good idea to keep the company and organize their work as separate divisions under the same company. There are now three divisions, one for each of the brothers who are actively involved in construction. The fourth brother, Ted, is responsible for accounting and record keeping. Ted went back to school and completed an accounting designation, and now has three employees in the accounting area. Each of the brothers has moved on to specialize in a different kind of construction work. In Toronto, it is mainly new home construction. In Edmonton, the work is primarily renovations of large homes and small commercial enterprises. In Halifax, the work is mid-sized to large commercial projects. All of the brothers prefer to subcontract their work rather than hiring full time construction employees, although some of the subcontract relationships have lasted over fifteen years now. Required: Explain what you would do to document your understanding of internal control for Greenvale. Identify potential risk areas where you would need to focus additional attention.

Samru has been assigned the sales cycle as part of an audit team. He will be evaluating several key controls in the sales cycle and conducting tests of detail for accounts receivable. Samru has been told to look at 15 customers with respect to the credit limit approval process (a test of control). Then, he has been told to use dual purpose tests for the rest of his testing. Required: Explain the relationship between tests of controls, dual purpose tests, and tests of details.

The auditor has conducted tests of controls of the write-off of accounts receivable and found two exceptions. These exceptions are

Analytical procedures are mandatory during which phases of the audit?

Julianne is performing an analysis of the bad debt expense as a percentage of total sales. When performing the analytical procedure, it is important that Julianne

A) Describe the five types of audit tests used to determine whether financial statements are fairly stated. Identify which types are substantive tests and which are used to reduce assessed control risk. B) There are several types of audit procedures that relate to the auditor's understanding of internal control. One type of procedure is to update and evaluate the auditor's previous experience with the entity. Identify the four additional types of procedures related to understanding internal control.

Restaurant Products Company (RPC) has been an audit client of your firm for many years. RPC has a March 31 fiscal year end. The company is a successful distributor of restaurant and food industry products such as trays, weigh scales, dishes, and cooking implements. The company sells to businesses only (not to end-consumers), with clients ranging from small restaurants to large food-service chains and hotels. The company has a perpetual inventory system but the current inventory system relies upon accurate data entry of receipts, shipments, and inventory adjustments from paper documents. RPC is looking to improve inventory management and maintain costs in the face of rising competition and growth. Accordingly, it is implementing RFID (radio frequency identification) technology for its inventory. RFID chips will be placed on warehouse shelf locations, boxes of products, and on high-cost individual products. At the same time, the company will implement a wireless mesh system throughout the warehouse, with wireless tracking of product movement. Effective January 31 of next year, a new inventory management system will be implemented to facilitate better decision making and access to online realtime inventory data. The new inventory management system will include a new database that will include internal records of inventory on hand, receipts and shipments of inventory, purchase order details, and payment details. Required: A) For each phase of the financial statement audit process, describe the phase, and explain how the audit process will be affected by the implementation of the new inventory management system. B) What is the impact of the implementation of RFID on the financial statement audit process? Note that these points must be different from those raised in Part A above.

Which of the following ultimately determines the specific audit procedures necessary to provide an auditor with a reasonable basis for the expression of an opinion?

The auditor verifies the summarizing, accuracy, and posting of entries by performing

In the context of an audit of financial statements, substantive tests are audit procedures that

The purpose of tests of controls is to provide reasonable assurance that the

Performance of tests of controls provide evidence in support of the specific controls that contribute to the auditor's assessed control risk (where it is reduced below 100%). Also, when dual-purpose tests are used, evidence is also obtained in support of

When does the auditor normally conduct tests of controls?

An example of an audit procedure that relates to the auditor's understanding of internal control is to

Eleonora is inspecting a sample of "Code of Conduct Acknowledgement" forms that must be signed by all employees to indicate that they have read and understood the company's code of conduct. Eleonora is ensuring that they have been signed by the employees. Eleonora is performing

When considering the relationships between types of audit tests and evidence, which of the following procedures is used only for tests of details of balances?

When the auditor has determined that there is a significant risk of misstatement for a particular assertion (for example, completeness of revenue), what type of audit testing does CAS 330 require?