...AUDITING THEORY TESTBANKS / REVIEWERS 1. When an auditor believes that an understanding with the client has not been established, he or she should ordinarily a. Perform the audit with increase professional skepticism. b. Decline to accept or perform the audit. c. Assess control risk at the maximum level and perform a primarily substantive audit. d. Modify the scope of the audit to reflect an increased risk of material misstatement due to fraud. 2. An auditor should design the written audit program so that a. All material transactions will be selected for substantive testing. b. Substantive tests prior to the balance sheet date will be minimized. c. The audit procedures selected will achieve specific audit objectives. d. Each account balance will be tested under either tests of controls or tests of transactions. 3. Which of the following fraudulent activities most likely could be perpetrated due to the lack of effective internal controls in the revenue cycle? a. Fictitious transactions may be recorded that cause an understatement of revenues and overstatement of receivables. b. Claim received from customers for goods returned may be intentionally recorded in other customer’s accounts. c. Authorization of credit memos by personnel who receive cash may permit the misappropriation of cash. d. The failure to prepare shipping documents may cause an overstatement of inventory balances. 4. Accepting an engagement to examine...
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...Auditing Theory -Auditing and Assurance Services- An integrated approach Chapter 1 The assurance service market Objective 1-1 describe auditing: Auditing: accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria. Auditing should be done by a competent, independent person. Evidence: any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria. To satisfy the purpose of the audit, auditors must obtain a sufficient quality and volume of evidence. Forms of evidence: - Transaction data - Client testimony - Written and electronic communications with outsiders - observations To do an audit there must be information in a verifiable form and some standards (criteria) by which the auditor can evaluate information. The auditor must be qualified to understand the criteria used and must be competent to know the type and amount of evidence to accumulate in order to reach the proper conclusion after examining the evidence. The auditor must also have an independent mental attitude. The final stage in the auditing process is preparing the audit report which communicates the auditor’s findings to the users. It must inform the readers of the degree of correspondence between information audited and the established criteria. Objective 1-2 distinguish between auditing and accounting Accounting: recording...
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...ANSKEY KEY AUDITING THEORY (2011 EDITION) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 C A C C B C B C D C B D C D C B A A D D Chapter 1 21 C 41 22 A 42 23 B 43 24 C 44 25 B 45 26 B 46 27 B 47 28 D 29 C 30 C 31 C 32 B 33 B 34 D 35 B 36 D 37 D 38 C 39 B 40 B 61 62 63 64 65 66 67 68 69 70 71 D C D D A B C 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 C C A C B B C B C C D D A A B C A A C A A C D A A D C A A B C B B A C C D A A B Chapter 2 21 A 41 22 C 42 23 C 43 24 C 44 25 B 45 26 B 27 B 28 C 29 B 30 D 31 B 32 C 33 D 34 C 35 D 36 C 37 D 38 D 39 D 40 D Chapter 9 21 A 41 22 B 42 23 D 43 24 A 44 25 B 45 26 B 46 27 D 47 28 C 48 29 C 49 30 A 50 31 A 32 C 33 D 34 B 35 B 36 D 37 B 38 B 39 C 40 C D B D A A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 D C C C C B D C C D C D C A C A A B B B A A B A C D A C D D A D A D C C C C D A Chapter 3 A 41 A 22 B 42 A 23 D 43 B 24 B 44 D 25 B 45 C 26 A 46 A 27 B 47 A 28 D 48 B 29 A 49 B 30 C 50 D 31 C 51 D 32 A 52 C 33 C 53 C 34 B 54 C 35 D 55 D 36 C 56 D 37 B 57 C 38 A 58 A 39 A 59 B 40 D 60 C 21 61 62 63 64 65 66 67 68 B C D D B B A C 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 B A D D B A C A B B D D B D D D A A C D A B A B C D D B B A B D D B A C D B D D Chapter 4 21 D 41 22 A 42 23 C 43 24 A 44 25 C 45 26 B 46 27 D 28 D 29 B 30 C 31 C 32 C 33 D 34 C 35 B 36 B 37 D 38 A 39 D 40 A C C C C D D 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 A C C A C D A D B D B C...
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...Case 1-2 Giles and Regas 4/21/2015 1.Facts Ed Giles, 35 year old CPA and a partner at Saduga & Micha accounting firm Susan Regas, 25 year old senior accountant in the same firm Giles and Regas been dating for four months They well know firm policy does not permit different ranks to date Most of the staff seem to know about their relationship Regas was assigned to audit CAA industry under Giles supervision Giles and Regas spending personal time during workday Ruth Revilo warns Regas not to jeopardize Regas future by dating Giles Gile and Regas goes to farewell dinner to put relationship aside until CAA audit ends Mark Sax, CAA controller saw Giles and Regas at dinner Mark brings up his concern to Herb Morris, the managing partner Mar questions the audit efficiency and billing Morris promises to get back to Mark after investigation 2. Ethical Issue Giles and Regas relationship lead to conflict of interest and damaging the reputation of the firm. 3.Stakeholders and Obligation CAA Management and Mark Sax. They are the stakeholders expect auditors to carryout their service with due professional care within a constrained time period. Giles and Regas here spends their personal time during workday. They also have the potential to cover up for each other if one or both of them screw up on audit because they were not focusing on their performance. Saduga & Micha and Herb Horris and all firm employee. Giles and...
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... & Moreno, K. K. (2013). The Role of Auditors' Emotions and Moods on Audit Judgment: A Research Summary with Suggested Practice Implications. Current Issues In Auditing, 7(2), 1-8. Gendron, Y., Suddaby, R., & Lam, H. (2006). An Examination of the Ethical Commitment of Professional Accountants to Auditor Independence. Journal of Business Ethics, (2). 169-193. Hurtt, R., Brown-Liburd, H., Earley, C. E., & Krishnamoorthy, G. (2013). Research on Auditor Professional Skepticism: Literature Synthesis and Opportunities for Future Research. Auditing: A Journal Of Practice & Theory, 3245-97. Kinney, W. R. (2005). Twenty-Five Years of Audit Deregulation and Re-Regulation: What Does it Mean for 2005 and Beyond?. Auditing: A Journal Of Practice & Theory, 24,89-109. KPMG LLP. (2013). The KPMG Professional Framework-Understanding and Developing Professional Judgment in Auditing and Accounting Moore, D. A., Tetlock, P. E., & Tanlu, L. (2006). Conflicts of Interest and the Case of Auditor Independence: Moral Seduction and Strategic Issue Cycling. Academy Of Management Review, 31(1), 10-29. Nelson, M. W. (2006). AMELIORATING CONFLICTS OF INTEREST IN AUDITING: EFFECTS OF RECENT REFORMS ON AUDITORS AND THEIR CLIENTS. Academy Of Management Review, 31(1), 30-42. Pentland, B. T. (1993). Getting Comfortable with the numbers: auditing and the micro-production of macro-order. Accounting, Organizations & Society, 18 (7/8), 605-620 Picard, C., Durocher, S., & Gendron, Y. (2014). From meticulous...
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...QUESTION 1) WHO IS THE AUTHOR OF THIS PAPER AND WHAT IS HIS POSITION (GIVE DESCRIPTION OF RESPONSIBILITIES) WITH THE PCAOB AT THE TIME OF THIS ARTICLE. The author of this paper is Douglas R. Carmichael. On April of 2003, Mr. Carmichael was appointed the first Chief Auditor and Director of Professional Standards for the Public Company Accounting Oversight Board. As such he was the primary advisor to the PCAOB on policy and technical issues relating to the auditing of public companies, including but not limited to auditing standards, registration, inspection, and thus enforcement of any mandates that are part of the Sarbanes-Oxley Act. QUESTION 2) WHAT DOES CARMICHAEL SEE AS THE UNDERLYING MISSION OF THE PCAOB? Carmichael views the underlying mission of the PCAOB to be the restoration of the public’s confidence in the auditor’s reports and findings. Accounting scandals, involving companies like Enron and WorldCom, prompted Congress to adopt the Sarbanes-Oxley Act as a means to establish control over accounting and auditing functions. A main focus of Sarbanes-Oxley was the establishment of the PCAOB. The PCAOB is a nongovernmental body, fully funded by fees collected by public and investment companies that benefit from independent audits. They are charged with overseeing the audit of public companies that are subject to SEC laws and related matters of the kind. Carmichael states that the confidence is not only to be earned by the accountants and auditors producing and reviewing...
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...INTRODUCTION 1.1 Research Background The auditor’s roles are to provide an opinion on financial statement and to ensure that the statements are based on true and fair image of company performance to the stakeholders. They are authorized in checking the accuracy of business records. Opinions given by the auditor gives an added credibility to the financial statements (Maqableh, 2014). Commonly, investors often rely on financial statements provided by auditor in making investment judgement and increase the productivity of financial markets. Financial statements provided by the auditors are often reviewed as credible, unbiased opinion that truly reflects the company financial positions. There’s no doubt that auditor independence is the core of auditing profession when establishing its objectivity and integrity. Auditor independence, in particular, indicates the ability of an auditor to disregard any influence or control when conducting an opinion (AAA, 1973). Therefore, auditor must be, and must be seen to be independent of company management. Lack of independence causes audits to be considered to have little value (Johnstone, Sutton, & Warfield, 2001). This is further supported by Elliott and Jacobson (1998) that a particular interest may trigger a risk that could weaken the outcome of the audit which in turn impairs the auditor independence. Hence, independence is fundamental to the purpose served by auditors (Moore et al., 2002). This study is limited to only four variables as...
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...Course objectives understanding of the history, legal and professional framework within which an audit of financial information and systems takes place appreciation of the necessary audit techniques, judgement and practical skills as applied to both manual and computer-based systems awareness of current developments in the auditing profession, both in the UK and internationally What is an audit? Definition “A systematic process of objectively gathering and evaluating evidence in order to ascertain whether assertions about economic actions and events made by individuals or organisations correspond with established criteria and communicating the results of the examination to users of the reports in which the assertions are made.” (American Accounting Association, Statement of Basic Auditing Concepts) Auditing gathers and evaluates evidence with respect to the information created by directors and accountants. It is an evaluation process Auditor reports on the fairness of the report on use of resources and discharge of duty by the directors after critically examining the assertions it contains against; available evidence and establishing criteria for presenting the report Types of audit External audits: primarily for the benefit of shareholders and market efficiency Financial statement audits: examination of financial statements prepared by an entity’s directors for the benefit of shareholders and others Compliance audits: to determine whether an individual or entity...
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...Chapter 2 THE AUDIT MARKET Revision: 11 September 2012 2.1 Learning Objectives After studying this chapter, you should be able to: 1. Distinguish between different theories of audit services including agency theory. 2. Understand drivers for audit regulation. 3. Understand the role of public oversight. 4. Distinguish between different audit firms. 5. Identify some current developments in the audit market. 6. Portray the series of industry codes of conduct and guidance 2.2 Introduction The emergence of today’s auditors happened during the Industrial Revolution that started in Great Britain around 1780. This revolution led to the emergence of large industrial companies with complex bureaucratic structures and, gradually, the need to look for external funds in order to finance further expansion: the separation between capital provision and management. Both developments resulted in demand for the services of specialists in bookkeeping and in auditing internal and external financial representations. The institutionalization of the audit profession was then merely a matter of time. Management Controls Operations and Communications Management has control over the accounting systems and internal controls of the enterprises that auditors audit. Management is not only responsible for the financial and internal control reports to investors, but also has the authority to determine the precise nature of the representations that go into those reports. However, management...
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...Introduction Technology plays a vital role in continuous auditing activities. As an automatic method, continuous auditing’s responsibility is to perform auditing activities more frequently which including control and risk assessments. With the aim of helping to automate the identification of anomalies or exceptions, analyze models, test controls and review trends, “Continuous” in this aspect of continuous reporting and auditing serves as the financial information’s real-time ability to be shared and checked. Continuous auditing presents that the financial information’s integrity can be evaluated at any given-point-time; as a result, financial information’s inefficient, frauds and errors could able to be verified constantly. In the other hand, we could consider continuous auditing as a very detailed audit. 1 Historical development of continuous auditing As a kind of audit method, it theoretical sources is from the traditional auditing method. The traditional auditing theory is the basis of analyzing the continuous auditing. Most of the auditing is a format of statutory audit, but not all the auditing is required by the statutory from the beginning. Under the freedom of market environment, we should strengthen research on audit risk, explore ways of audit risk management and control, continue to improve audit quality, and reduce audit risk. “In fact, the concept of “continuous auditing” has been around since the late 1980s. But the urgency that Sarbanes-Oxley has brought...
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...Accounting, Faculty of Business Administration, University of Macau, Taipa, Macau Abstract Purpose – Perceived independence is one of the corner-stones in auditing theory. Despite prior research on auditor independence, the results are inconclusive. The lack of research in the Hong Kong ´ˆ auditing environment motivates this study, particularly following the Enron debacle. The purpose of this paper is to examine the non-audit services (NASs), competition, rank and types of auditors, in respect of the independence problem as it relates to the practices of Hong Kong auditors in the post-Enron environment. Design/methodology/approach – Four independent variables identified from literature gaps are examined, namely NASs, levels of competition, auditors of different ranks and types of auditors. Mixed ANOVA are employed to analyze survey responses from 207 “Big 4” and 185 “non-Big 4” auditors. Findings – Results of the study show that the provisions of NASs and high competition could have a negative influence on auditors’ perceptions of independence. Second, auditors’ perceptions that the influence of NASs on independence depends on an individual auditor’s rank are supported. Senior managers have the highest mean rating on perceptions, while partners have the lowest mean rating. Results support the agency theory that the agent (senior manager) may not always act in the best interests for the principal. Finally, there is no difference between Big 4 and non-Big 4 auditors’ ...
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...AuditQuality Agency theory and the role of audit The Audit Quality Forum comprises representatives of the audit profession, investors, business and regulators who have an interest in high quality and confidence in the independent audit. a Q AuditQuality a Q The Audit Quality Forum brings together representatives of auditors, investors, business and regulatory bodies. Its purpose is to encourage stakeholders to work together by promoting open and constructive dialogue in order to contribute to the work of government and regulators and by generating practical ideas for further enhancing confidence in the independent audit. The initial focus of the Forum was to improve audit transparency and support shareholder involvement in the audit process. At its meeting in May 2005 the Forum agreed to explore a broader agenda which will examine the relationships between shareholders, boards, auditors, regulators and other stakeholders in the audit. Anyone interested in providing feedback on this paper should send their comments to louise.maslen@icaew.co.uk. Further information on the Audit Quality Forum, the current work programme and how to get involved is available at www.icaew.co.uk/auditquality or contact 020 7920 8493. © December 2005 Institute of Chartered Accountants in England & Wales Dissemination of the contents of this paper is encouraged. Please give full acknowledgement of source when reproducing extracts in other published works. No responsibility for any person...
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...still to be called accounting? This chapter seeks to explore the major issues facing contemporary ®nancial reporting ± this will include its interrelationship with external auditing and the provision of assurance to those outside the reporting entity. After all, `[e]ffective reporting and accounting, and external scrutiny from auditors, are essential for effective corporate governance' (Company Law Review Steering Committee, 2001: para. 8.1). To understand the ®nancial statements, one needs to appreciate the auditors' work and opinion, and, conversely, to understand the auditors' work and opinion, it is necessary to appreciate the scope and limitations of the ®nancial statements. All too often, ®nancial reporting and external auditing are treated and discussed in isolation despite being inextricably linked. However, the ®nal ®gures in the ®nancial statements may come about as a result of negotiations between management and their auditors ± with the auditors examining the reasonableness of management's justi®cations for their representations. Indeed, the modern audit with its emphasis on high-level business risks could almost be viewed as the `audit of motivations' ± to understand the ®gures in the ®nancial statements, it is important to understand management's motivations. Financial reporting and auditing are not just technical subjects, but they...
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...Haron School of Management, Universiti Sains Malaysia ABSTRACT The Malaysian Approved Standards on Auditing, AI 240 on “Fraud and Error” (MIA, 1997) requires the auditor to assess the risk of fraud and error during the audit of financial statements. Based on the risk assessment, the auditor should design audit procedures to obtain reasonable assurance that misstatements arising from fraud and error that are material to the financial statements taken as a whole are detected. Inability of the external auditor to detect material misstatements, particularly intentional misstatements, may expose the external auditor to litigation. The present study aims to examine the effect of the external auditor’s ability to assess fraud risk on his/her ability to detect the likelihood of fraud. An experimental approach is adopted by sending case materials to audit partners and audit managers attached to auditing firms operating in Malaysia. The result shows that in a high fraud risk scenario, the external auditor’s ability to assess fraud risk has a positive effect on his/her ability to detect the likelihood of fraud, whereas in a low fraud risk scenario not. The findings may provide insights into the external auditors’ judgment in fraud risk assessment and detection of fraud which could be beneficial to auditing firms seeking to improve processes to maintain their viability in the auditing industry. Keywords: Fraud, External...
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...Section A: Audit Practice Part b (i): Why is the audit of cash important part of the audit? From an auditing standpoint, cash is an important account because cash transactions affect all other business and financial processes. Businesses acquire cash by selling goods or services, disposing of fixed assets, or acquiring debt or equity. The same businesses put their cash to use through purchasing, paying employees, and buying inventory. Audits are an important part of business. Cash audits check that money has been handled properly, and performance audits ascertain whether employees are doing their jobs properly. Corporations are likely to undergo tax audits to ensure proper tax reporting and withholding. Audits may be performed in-house by management or human resources, by a third-party consulting firm hired specifically to perform the audits or by IRS agents who are auditing company tax records. The audit of cash is considered an important part of an audit mainly due to almost all business transactions will be ultimately settled through the cash accounts, the audit of cash accounts also assists in the verification of other asset and liability accounts as well as revenue and expenses. Some of the investor relies on the accuracy of the cash account to evaluate the financial health of the company. They use current asset which include the cash account to compute several financial measures. Other than that, cash is the highly liquid asset in a company and it is an area of high...
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