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Audit Midterm

In: Business and Management

Submitted By amardr
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Seminar in Auditing
Spring 2015
Name ________________________________________________________________

Answer the following questions (1-9) with a short answer – no more than a paragraph.

1. What was the significant of the McKesson & Robbins case?

It redefined some auditing standards. Prior to this case, auditors had no responsibility to verify inventory. As a result of the McKesson & Robbins case, it was determined that auditors should extend verification beyond “the books” to establish the actual existence of the assets and liabilities shown on the balance sheet. Confirmation of receivables and observation of physical inventory became mandatory audit procedures.

2. Briefly describe an American audit at the turn of the 19th to the 20th century.

Bookkeeping was only briefly reviewed while the balance sheet and verification of current assets/liabilities was the main focus. The audits at the turn of the 19th – 20th century were basically a certification of balance sheets to be used by bankers to determine the credit worthiness of applicants.

3. Discuss how and why a CPA firm might screen potential audit clients.

Before accepting new clients, the CPA firm should investigate the potential clients to determine acceptability (integrity, knowledge of client industry, other business risks). This can be done by: * Communication w/ predecessor auditor * Gathering info from local attorneys, banks, other businesses * Talk to clients, customers, vendors * Interview management/employees * Hire professional investigator

4. List and discuss management assertions related to an account balance.

* Existence – deals with whether assets, liabilities, and equity interest included in the balance sheet actually existed on the balance sheet date. * Completeness – addresses whether all accounts and amounts…...

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