Exam 5: Audit Responsibilities and Objectives

Professional skepticism during the financial statement audit requires an appropriate state of mind, being impartial and objective and continuing to be throughout the whole audit engagement. Which of the following illustrates an appropriate state of mind?

The Big Insurance Company implemented a new computer system to track and record insurance premiums receivable. The program automatically prints invoices and sends them to customers when premiums are due. Due to a program error, a whole series of invoices were included in sales but not in accounts receivable. The general balance-related audit objective affected by this activity is

Where the auditor has decided to rely upon internal controls, he or she will then

To help improve the cash balance on the financial statements, the controller recorded several deposits from early January in the month of December. The general balance-related audit objective affected by this activity is

The controller who had been with Bianca Limited for six years was fired last month, allegedly for pocketing cash. Unfortunately, there was a fire in the accounting department the week before he was fired, which destroyed the accounting records, including the computer equipment and current backup disks. The only records available for the current year is a copy of the computer system that is a month old. There are also disks for the year-ends going back three years. These were at the president's home, the place where the company kept archival records. Required: Explain how this situation might affect the audit process.

The responsibility for the preparation of the financial statements and the accompanying footnotes belongs to

Marianne is currently performing tests of controls on the presence of an employee code of conduct, the presence of a whistle blower line, and on how management responded to complaints and implemented systematic penalties for instances where violations of the code of conduct existed. Marianne is currently evaluating the

Heavy Manufacturing Company is in the business of making steel plates, forming heavy metal slabs, and drilling and scoring metals. The company recently upgraded many of its forming machines. Fortunately, it was able to sell its old equipment at a reasonable price. The effect was that sales for the quarter are substantially improved over the same period in the prior year. The general transaction-related audit objective affected by this activity is

If the auditor were responsible for making certain that all the assertions of management in the statements were correct,

If the purchase of a long-term note receivable is included as cost of goods sold, there is a violation of the

Big Bank had a program failure occur on Sunday night due to a maintenance program error. Transaction posting was interrupted, with several errors occurring in posting to the master files. Although sales had been posted to the general ledger, individual accounts were not recorded until subsequent days. The general transaction-related audit objective affected by this activity is

Jane's employer purchased a new calculator this month. When Jane added up the sales for the day, she was a bit confused with the new calculator and made numerous adding errors. The daily sales total for the next week were incorrectly posted to the general ledger. The general balance-related audit objective affected by this activity is

Frankinfurter Limited decided that it wanted to improve earnings. To do this, it understated its expenses by omitting unpaid expenses from the accrued liabilities account at year end. Which management assertion has been violated?

What is the auditor's role in the detection of computer fraud?

The audit process has three categories of audit phases: risk assessment, risk response, and reporting. Which of the following are part of the risk assessment process?

Georgina was working as the part-time accountant for three small businesses. Whenever she could, she pocketed cash and neglected to record the sale in the sales system. The general transaction-related audit objective affected by her actions is

You have been assigned as the in-charge-auditor for a new client, Beltair House. Beltair House is a non-profit charitable organization that operates women's shelter. In the past, the organization had been almost fully funded by the provincial government. However, due to recent government budget cuts, Beltair now has to raise operating funds from public donations. Because of financial constraints, there is now only one full-time manager, Joan Ng. Joan has the help of several volunteers. The shelter residents also help out with the chores and with maintenance and cleaning. Ng has been able to arrange for a local food bank to provide a large portion of the food required for meals. Door-to-door canvassers have been able to raise money to keep the House going, but Ng is concerned that this will change. Required: Identify issues that affect the risk of this audit engagement that you will need to consider.

There is agreement within the auditing profession and the courts that the auditor is

Heavy Manufacturing Company is in the business of making steel plates, forming heavy metal slabs, and drilling and scoring metals. The company recently upgraded many of its forming machines. Five machines were purchased on four different invoices. Unfortunately, one of the invoices was recorded twice, resulting in five invoices being recorded. The general balance-related audit objective affected by this activity is

Bratlett Company has purchased all of the shares of another company but does not want to consolidate its financial statements. Management has drafted a rather long and confusing note to the financial statements that describes the transaction and states that debt has been acquired in a foreign currency. In your view, the transaction and its effect on the company and the accounts have not been properly disclosed. Required: List the audit objectives about presentation and disclosure that have been affected and explain how they are affected.