Module 3 Preparation

A division of your company purchased a large quantity of new desktop computers during the current fiscal year. An internal audit manager has asked you to audit the process used to acquire the computers. He also wants you to determine whether the computers have been used properly and accounted for correctly. The manager specified a set of audit objectives to guide your tests. For example, he wants you to determine whether: (1) The purchases of the computers were properly authorized. (2) Responsibilities regarding the computers were properly segregated. (3) The computers, as well as the software and information they contain, are properly safeguarded. Consider both physical and logical access。 (4) Laws and regulations regarding software usage have been complied with. (5) The computers recorded as being purchased actually exist. (6) All of the computers that were purchased have been recorded. (7) The amounts at which the computers are recorded are correct. (8) The estimated useful lives…

Kelly Griffin, an audit manager, had begun preliminary analytical procedures of selected statistics related to the Majestic Hotel. Her objective was to obtain an understanding of the hotel’s business in order to draft a preliminary audit plan. She wanted to see whether she could detect any troublesome areas or questionable accounts that couldrequire special audit attention. Unfortunately, Griffin caught the flu and was hospitalized. From her sickbed, she sent you the schedule she had prepared (Exhibit 4.55.1) and has asked you to write a memorandum identifying areas of potential misstatements or other matters that the preliminary audit plan should cover. Check the below image for Exhibit 4.55.1 Required:Write a memorandum describing Majestic’s operating characteristics compared to the industry average insofar as you can tell from the statistics. Do these analytical procedures identify any areas that could represent potential misstatements in the audit?

Best Wood Furniture, Inc., a non-issuer that produces wood furniture, is undergoing a year 2 audit. The situations below describe changes made during year 2 that may or may not contribute to audit risk. For each situation, select the impact, if any, that the situation has on a specific component of audit risk for the year 2 audit. Selections are for once, more than once, or not at all. Consider each situation independently.   Situation Impact on audit risk   In year 2, the auditor noted that the company's newly hired purchasing agent was not obtaining competitive bids for all major purchase requisitions as required.       Early in year 2, the company expanded its warranty program to cover additional major products in an effort to increase sales.       The audit partner decided that the audit team needed to perform additional tests of detail over payroll in addition to the substantive analytical procedures done last year over payroll.…

The internal auditors of Brown Electrical Company report to the controller. Because of changes made in the past year to several of the transaction processing programs, the internal auditors created a new test data set. The external auditors requested that the old data set also be run. The internal auditors, embarrassed, explained that they overwrote the original test data set. Required: Outline any potential risks, and determine the courses of action the external auditor should take.

Match the following terms and descriptions. 1. Audit planning 2. Preventive Controls 3. System Evaluation and Selection 4. Recovery Operations Centre (ROC) 5. The Sarbanes/Oxley Act Section 404 Identify optimal solution from alternatives. Involves feasibility study and cost-benefit analysis steps. In the event of a major disaster, a subscriber can occupy the premises and, within a few hours, resume processing critical applications. The auditor's objective is to obtain sufficient information about the firm to plan the other phases of the audit. Requires the management of public companies to assess the effectiveness of their organization's internal controls Passive techniques designed to reduce the frequency of occurrence of undesirable events.

Abbott & Partners audit firm has audited Pretty Valley Shire council for two years,performing both a statutory audit of the financial reports and a compliance audit forthe government department in charge of local councils’ landfill waste disposal sites. Inall previous control testing, no exceptions were detected. The junior auditor on theengagement has suggested that no work on internal controls is required because lastyear’s evidence will be sufficient. Required: Explain why the junior auditor’s suggestion is not appropriate.

The internal auditors of Tantacle Electrical Company report to the controller. Because of changes made in the past year to several of the transaction processing programs, the internal auditors created a new test data set. The external auditors requested that the old date set also be run. The internal auditors, embarrassed, explained that they overwrote the original test data set.Outline any potential risks and determine the courses of action the external auditor should take.

You are an auditor working with JUMAN audit firm. JUMAN audit firm accepted two engagements to audit the financial statements of MUNER company and MUHEET company. Explain how risk of material misstatement should he assessed and what effect that assessment will have on detection risk for the following audit clients:  MUHEET Corporationis one of several companies engaged in the manufacture of high- speed, high- capacity data storage devices. The industry is very competitive and subject to quick changes in technology. MUHEET’s operating results would place the company in the second quartile in terms of profitability and financial position. The company has never been the leader in the industry, with its products typically slightly behind the industry leaders in terms of performance.

Which of the following controls will most likely justify a reduced assessed level ofcontrol risk for the existence assertion for equipment?(1) Internal auditors periodically select equipment items in the fixed assets masterfile and locate the related equipment on company premises.(2) Department heads are asked to provide information to the accounting department each quarter about any equipment no longer in use or somewhat damaged.(3) All contracts of equipment purchases are reviewed by both the controller andattorney to verify that legal title transfers to the client and that none representoperating leases.(4) As part of quarterly and annual inventory physical counts, factory equipment islisted and subsequently reconciled to the fixed asset master file.

You are an auditor working with JUMAN audit firm. JUMAN audit firm accepted two engagements to audit the financial statements of MUNER company and MUHEET company. Explain how risk of material misstatement should he assessed and what effect that assessment will have on detection risk for the following two audit clients:   MUNER firm, is a fast-growing trucking company operating in the southeastern part of the West Bank. The company is publicly held, but Hafeth Khalil and his sons control 58 percent of the stock. Hafeth Khalil is chairman of the board and CEO. He personally makes all major decisions with little consultation with the board of directors. Most of the directors, however, are either members of the Khalil family or long-standing friends. The board basically rubber-stamps Hafeth Khalil's decisions.

You are an auditor, and you were appointed to check the threats and the controls of the expenditure cycle for the Illinois school district. Upon visiting the company, you observed the following: The centralized purchasing department in the Illinois school district received a purchase requisition from the marketing department for $8,000. The purchase requisition does not contain a vendor's name because the items in the requisition form were not purchased from a supplier that the school district dealt with before. Upon receiving the form, the responsible person in the centralized purchasing department forwarded the purchase requisition to a supplier. After 2 months, the school received the items, and they were entered into the school's store by the same person who issued the purchase order and who documented the received goods on a while piece of paper. Required: detect the weaknesses in the process, suggest compensating controls, and list them in a table like the one below.

7.9  Lancaster Company makes electrical parts for contractors and home improvement retail stores. After their annual audit, Lancaster’s auditors commented on the following items regarding internal controls over equipment: The operations department that needs the equipment normally initiates a pur- chase requisition for equipment. The operations department supervisor discusses the proposed purchase with the plant manager. If there are sufficient funds in the requesting department’s equipment budget, a purchase requisition is submitted to the purchasing department once the plant manager is satisfied that the request is reasonable. When the purchasing department receives either an inventory or an equipment pur- chase requisition, the purchasing agent selects an appropriate supplier and sends them a purchase order. When equipment arrives, the user department installs it. The property, plant, and equipment control accounts are supported by schedules organized by year of ac- quisition.…

The internal auditors of Tantacle Electrical Company report to the controller. Because ofchanges made in the past year to several of the transaction processing programs, the internalauditors created a new test data set. The external auditors requested that the old date set alsobe run. The internal auditors, embarrassed, explained that they overwrote the original testdata set.Required:Outline any potential risks and determine the courses of action the external auditor shouldtake.

As you are planning the annual audit of Norton Corporation, you note that the company has a number of user operated computers in use in various locations. One of the machines has been installed in the stores department, which has the responsibility for disbursing stock items and for maintaining stores records. In your audit, you find that one employee receives the requisitions for stores, disburses the stock, maintains the records, operates the computer, and authorizes adjustments to the total amounts of stock recorded by the computer. When you discuss the applicable controls with the department manager, you are told that the user operated computer is assigned exclusively to that department. Therefore, the manager contends that it does not require the same types of controls applicable to large IT systems. a. Comment on the manager’s contention.

Based on the information in scenario C, classify the information (1-8) according to the elements of an audit finding (criteria, condition,cause, effect and recommendations)

The internal auditors of Tantacle Electrical Company report to the controller. Because of changes made in the past year to several of the transaction processing programs, the internal auditors created a new test data set. The external auditors requested that the old date set also be run. The internal auditors, embarrassed, explained that they overwrote the original test data set.   a) Determine the courses of action the external auditor should take.

You are the auditor in charge of the audit of Evermore Foods, a small, owner-managed distribution company that distributes baking supplies to small, owner-managed retail stores across Canada. There are two people in the accounting office, and the rest of the employees are operational, sales, or procurement. Required: For each of the following situations, determine how the situation will impact the overall audit risk, inherent risk, control risk, and audit approach. State any assumptions that are necessary for you to reach your conclusion. A. Evermore Foods has implemented a year-end bonus plan for all sales employees. They will receive a lump sum bonus if they exceed the prior year's sales by 10%. All sales are recorded when the orders are placed by the sales representative, as most items are shipped on the date the invoice is received. The owner has indicated that he believes the entire sales team should achieve their bonus targets as they always seem to have a big week just before…

Regarding Murphy Ltd: Three (3) account areas that are at risk of material misstatement. For each account area identified above, one (1) key assertion that could be at risk. The audit procedures you would perform to gather sufficient appropriate evidence for each assertion Murphy Ltd Finally, Wayne tells you about Murphy Ltd, a large client with a diverse set of operations.  During Wayne’s audit of Murphy he found the following: Murphy manufactures wheat, yeast and various other goods needed to bake bread which it exports to bakers in Saudi Arabia. Recently the Saudi Arabian currency (Saudi riyal) has fallen in value and a number of Murphy’s customers are unable to settle their accounts. By the end of the year, Murphy is expecting to have outstanding receivables in excess of $1 million. Murphy also manufactures soft drink. Part of Murphy’s agreement with its distributors is that Murphy will supply fridges and advertising signs for the distributors to use. These fridges are rented to…

Star audit firm have started the annual audit of Carrefour Muscat. The auditors have a long meeting with their management. Their target is to conduct the audit during one week. The auditors have started their work. Identify which of the following is related to their audit process. Identifying the risk Conduct interviews Create audit procedure and plan Discussing corrective action plan

Moranda and Sills, LLP, has served for over 10 years as the auditor of the financialstatements of Highland Credit Union. The firm is conducting its audit planning for the currentfiscal year and is in the process of performing risk assessment procedures. Based on inquiries andother information obtained, the auditors learned that the credit union is finalizing an acquisitionof a smaller credit union located in another region of the province. Management anticipatesthat the transaction will close in the third quarter, and, while there will be some challenges inintegrating the IT systems of the acquired credit union with Highland systems, the bank shouldrealize a number of operational cost savings over the long term.During the past year, the credit union has expanded its online service options for customers, who can now remotely deposit funds into and withdraw funds from chequing and savingsaccounts. The system has been well received by customers and the credit union hopes to continue…

Conclude and explain, with reference to the IPPF (code of ethics orstandards) whether it is permissible or not permissible. Provide reason for your conclusion; 1.Mpho Xhosa, an internal auditor of Packing Supplies (Pty) Ltd has recently completed an internal audit engagement to evaluate the marketing department. Based on the experience gained on the marketing engagement, Mpho spends several hours one Sunday working asvolunteer consultant to a local hospital that intends conducting an evaluation of its marketing function to attract sponsorship.

The Sarbanes-Oxley Act (SOX) requires that an auditor must issue an internal control report following the evaluation of internal controls. provide continuous consulting services to help prevent fraud. issue a sustainability report along with the internal control report. rotate who can lead an audit every three years.

Star audit firm have started the annual audit of Carrefour Muscat. The auditors have a long meeting with their management. Their target is to conduct the audit during one week. The auditors have started their work. identify which of the following is related to their audit process. O a. Discussing corrective action plan O b. Identifying the risk Oc Conduct interviews O d. Create audit procedure and plan

Daisy CPAS are auditing the accounts of Focus Inc., a regional power cooperative. The audit team assigned to the audit of accounts receivable has noted from prior audit experience that the majority of clients pay their bills on time and in the correct amount. One of the audit team has also noted that the cooperative has hundreds of thousands of customers. Based on this information, what might be a prudent approach to substantive testing by Daisy CROS?

A fertilizer manufacturing company wants to relocate to Yellowstone County. A report from a fired researcher at the company indicates the company’s product is releasing toxic by-products. The company suppressed that report. A later report commissioned by the company shows there is no problem with the fertilizer.Should the company’s chief executive officer reveal the content of the unfavorable report in discussions with Yellowstone County representatives? Discuss.