Question #1 (AICPA.900546AUD-AU) | | |
The first general standard requires that an audit of financial statements is to be performed by a person or persons having | A. Seasoned judgment in varying degrees of supervision and review. | | B. Adequate technical training and proficiency. | | The first general standard requires that the audit be performed by individuals with adequate technical training and proficiency as an auditor. The auditor must have obtained a proper education in accounting and auditing and then increase his/her knowledge and proficiency through experience. | | C. Knowledge of the standards of field work and reporting. | | The first general standard requires that the audit be performed by individuals
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| | The ultimate purpose of assessing control risk is to contribute to the auditor 's evaluation of the risk that material misstatements may exist in the financial statements. The assessment of control risk combined with the assessment of inherent risk aids the auditor in identifying where material misstatements might exist in the financial statements. The auditor must then select and perform the auditing procedures necessary to detect material misstatements if they exist. | | C. Specified controls requiring segregation of duties may be circumvented by collusion. | | D. Entity policies may be overridden by senior management. | Question #5 (AICPA.901141AUD-AU) | | |
The objective of tests of details of transactions performed as tests of controls is to | A. Detect material misstatements in the account balances of the financial statements. | | The objective of tests of controls is to ascertain whether internal controls are designed properly or operating effectively. The purpose of substantive tests is to detect material misstatements in the account balances of the financial statements. | | B. Evaluate whether an internal control structure policy or procedure operated effectively. | | The objective of tests of controls is to ascertain whether internal controls are designed properly or operating effectively. Tests directed toward design effectiveness are concerned with whether the control is suitably
2. Test of internal controls: In order to test internal controls the audit team should review Smackey’s documents, records,and reports on file. The audit team should also speak with the staff at Smackey’s to determine if they are following policies and procedures as outlined in company policies.
Also he may conduct bank reconciliations on pertinent accounts to make sure no discrepancies or misstatements are found. The auditor should also perform vertical and horizontal analysis for the income statements and balance sheets by the use of ratios.
Auditors also evaluate the client’s recording of transactions by verifying the monetary amounts of transactions, a process called substantive tests of transactions. For example, the auditor might compare the unit selling price on a duplicate sales invoice with the approved price list as a test of the accuracy objective for sales transactions. Like the test of control in the preceding paragraph, this test satisfies the accuracy transaction-related audit objective for sales. For the sake of efficiency, auditors often perform tests of controls and substantive tests of transactions at the same time.
Stage 2: Test of internal controls - By testing the effectiveness of the internal controls the auditor can determine the control risk that lies within the company. The audit team can perform tests of controls by making inquiries of appropriate client personnel, examining documents, records, and reports maintained by Smackey, observing control-related activities such as the one done for the inventory procedures for returned Best Boy Gourmet dog food, and re-perform the client procedures.
The auditor needs to state explicitly whether the financial statements are fairly presented in accordance with the applicable financial reporting framework, and this may be GAAP or IFRS.
A. Establish the same scope as GAAS, but use wording appropriate to governmental entities instead of business organizations.
According to our general auditing standards, the auditor must have adequate technical training and proficiency to perform the audit.
Section 404 of the act requires that the auditor attest to and issue a report on management’s assessment of internal control over financial reporting. To express an opinion on internal controls, the auditor obtains an understanding of and performs tests of controls related to all significant account balances, classes of transactions, and disclosures and related assertions in the financial statements (Arens, 2010).
Auditors have the responsibilities as well as management to report internal controls. The auditors must examine closely management’s claim of effectiveness and also physically test the controls. After the examination, the auditors should express their opinion and any recommendations to fix any internal control weaknesses.
Due to the fact that auditors perform the interim procedures over the operating effectiveness testing in all of the three risks, auditors are required by PCAOB to perform the roll-forward of controls. Depending on some factors, auditors should consider the nature, length and extent of the roll-forward procedures. A specific
Performing internal tests of controls is intended to assess the operating effectiveness of those internal controls. Here the staff would select an area of control to test, perhaps inventory management and return policy. They would then look at the procedures that help prevent fraud or error, talk to management, and observe activities. They would notice there is very little control in place for this area. There is no management oversight or dock security measures, no direct recording of sales receipts, shipping labels, or matching to accounts receivable. This would be noted as an area of additional concern. The next stage is to perform substantive testing procedures, where the purpose is to collect audit evidence that the management assertions made in the financial statements are reliable and in accordance with GAAP. Since my staff is good, they would have noticed the company’s sales projections are weak in control and are overstated by around 11%. They would perform a substantive test of detail in this area by selecting a sample of items from the account balances and finding bank statements, invoices, and test of details of balances. They would likely see specifically where the over-projections are being made. Lastly, in finalization, they would compile a report to management detailing any important matters, evaluating the audit evidence, and considering the type of audit opinion that should be reported. Specifically here, they would
When testing of internal controls indicates that there may be significant deficiencies, then the auditor
Auditors having the appropriate competence and capabilities to perform the audit, and follow ethical requirements, and maintain professional skepticism throughout the audit.
The framework describes internal control as a process designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
Controls are measuring sticks to see if the desired goals are being met. Successful managers create parameters for their employees and implement controls within a criteria to confirm if the job is being done to standard. Case in point, I give quarterly performance counseling’s to each subordinate in my department on performance, being efficient at the job and using problem solving techniques. Controls to an extent border along the lines of micromanaging, but it can also be used to emphasize how well the subordinate is doing too. All quarterly counseling’s are not corrective in nature, but it is a great assessment tool for exceptional job performance as well. The usage of controls is part of my responsibility as a supervisor to ensure the goals are being achieved to standard.