Chat with AIExam 4: The Integrated Audit Process
Comment on these two opposing views. 1) Audits are systematic and should all be the same. 2) Every client is unique. Therefore every audit is completely different.
(49) 
VerifiedAn audit is a complex but systematic process. Although the overall audit process can follow a general methodology, every client is unique and the process must be tailored to fit the circumstances of each individual client. Given the potential variation in the audit process from client to client, auditors and other stakeholders want to be confident that the quality of an audit does not also vary.
Identify at least five questions the auditor must investigate in order to being to obtain an understanding of the client.
(48) VerifiedAnswers may vary. These are good example responses:
i) What are the company’s products? Who are the company’s customers? What are its markets?
ii) What is the company’s strategy for developing and maintaining a sustainable competitive advantage over its competition?
iii) What is the nature of the company’s operating cycle, i.e., how do they produce, market and deliver the product?
iv) What are the key processes and activities of the operating cycle?
v) What is the nature and composition of the company’s asset base and sources of financing?
vi) What is the nature of the company’s strategic relationships with outside organizations or companies?
vii) How sophisticated is the company’s information system(s) that is used to record the activities of each of the elements of the operating cycle?
viii) What is the company’s attitude and strategy for generating reliable accounting information?
ix) What financial reporting information needs to be generated and reported by the information system(s)?
x) What are the critical risks that the auditor should be aware of that reported information will not fairly present results?
Identify the two ethical standards that have the most direct affect on the conduct of the audit.
(31) VerifiedThe two important ethical areas that have a direct affect on the conduct of an audit are: (i) objectivity and independence and (ii) general standards of competence and due professional care.
The audit enhances the reliability of financial statements to the extent that the following joint probability is nonzero:
P(reporting a MM| Detection of a MM)*P(detecting a MM| MM exists).
Where MM = material misstatement
Competence and due professional care enable the auditor to approach the truth which increases the probability of the second term. Objectivity, integrity and independence enable the auditor to report the truth thus increasing the first term.
You are the auditor of a large retailer. Describe how the use of the internal audit department might affect your engagement planning.
(38) Specialists may be required to perform audit tasks that require knowledge or skills outside the auditor's abilities. For each of the following specialists, discuss how his or her services may be useful to an audit of a pharmaceutical company.
a. Chemist
b. Trial Attorney
c. Patent Attorney
d. Research Physician.
(41) Why are ethic standards particularly important to the audit profession?
(33) Describe three specific examples of ways a firm might address quality control.
(41) Assume you are a partner of Hornswaggle & Twitterpate, CPAs, and you are in charge of the audit of a new client, Big Computer Manufacturing Company, a leader in the personal computer industry. What information would you obtain in order to develop an understanding of the client?
(27) Identify some fraud risk factors for management fraud and financial reporting fraud that the auditor must consider in any audit.
(27) Pat Prytain, CPA is the auditor of Gross Computers. Pat has undertaken the following and needs you to comment whether Pat's independence has been undermined.
a. Pat audits Gross Computers even though his grandfather owns 30 percent of the company's stock.
b. Pat's mother-in-law is the chief operating officer of Gross Computers.
c. Pat recommends Gross Computers' service and repair department to his other clients based on his understanding of the quality of these services.
d. Pat helps Gross Computers' by making adjusting entries to correct financial statements for any amount below a pre-established threshold.
e. Pat audits the income tax expense for Gross Computers, which is based on the taxable income computed for Gross Computers by the taxation division of Pat's firm.
(39) Assume you are a partner of Hornswaggle & Twitterpate, CPAs, and you are in charge of the audit of a new client, Big Company, which uses a calendar fiscal year. Draft an engagement letter.
(37) An important purpose of preliminary planning is to highlight potential problem areas or risk factors in the audit because some of these risk factors will have a broad impact on the reliability of the financial statements whereas others have an impact on individual transactions or accounts. What procedures are helpful to the auditor in identifying potential problems at the preliminary planning stage?
(32) Describe the process involved in the auditor's client acceptance decision.
(45) Describe the factors affecting the acceptability and retention of clients.
(35) Describe the preliminary planning that an auditor must do for an audit.
(39) 
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