Evaluate the following statement: “Every business, large or small, should have an annual audit by a CPA. To forgo an audit because of its cost is false economy.”
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- Evaluate the following statement: “Every business, large or small, should have an annual audit by a CPA. To forgo an audit because of its cost is false economy.”
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- Which of the following would limit the independence of the Internal Audit function? The Internal Audit function reports to the Audit Committee. The remuneration package of the Internal Audit function includes a bonus based on profit for the year. The Internal Audit function has too many staff for the work available. Several of the Internal Audit function staff are qualified accountants but several others are not.CredPoint SAOG Company is unhappy with the audit report and threatens to change auditors next year. CredPoint SAOG is the biggest client of the auditor. The auditor’s independence may be compromised, as CredPoint SAOG is their biggest client and they do not want to lose such a client. Therefore, the auditor may issue a audit report that is favourable to CredPoint SAOG. Which threat may occur when a professional accountant may be deterred from acting objectively by threats, actual or perceived? a-Intimidation threats b-Self-interest threats c-Self-review threats d-Advocacy threatsWhich of the following conditions most likely would pose the greatest risk in accepting a new audit engagement?a. Staff will need to be rescheduled to cover this new client.b. There will be a client-imposed scope limitation.c. The firm will have to hire a specialist in one audit area.d. The client’s financial reporting system has been in place for 10 years.
- Auditors must not only decide whether to accept new clients; they also should periodically review their list of current clients and remove those clients the firm no longer wants to be associated with. Reasons for discontinuing clients might include the following, except: Difficulty in working with client personnel. Inability to negotiate an acceptable increase in the audit fee. Evidence indicating a client’s management has integrity. Client need for specialized services the current firm is unable or unwilling to provide. None of the above.Controller as Auditor. The chairman of the board of Hughes Corporation proposed that the board hire as controller a CPA who had been the manager of the team that conducted Hughes Corporation’s audit engagement. The chairman thought that hiring this person would make the annual audit unnecessary and would consequently result in saving theprofessional fee paid to the auditors. The chairman proposed to give this new controller a full staff to conduct such investigations of accounting and operating data as necessary.Evaluate this proposal.Which of the following is true?a. Members of an audit engagement team cannot speak with audit client officers about matters outside the scope of the audit while the audit engagement is in progress.b. Audit team members who leave the public accounting firm for employment with auditclients can provide audit efficiencies (next year) because they are very familiar with thefirm’s audit plans.c. Audit team partners who leave the public accounting firm for employment with auditclients can retain variable annuity retirement accounts established in the person’s formerfirm retirement plan.d. The public accounting firm must discuss with the audit client’s board or its audit committee the independence implications of the client’s having hired the audit engagement teammanager as its financial vice president.
- The public accounting firm of Hanson and Brown was expanding very rapidly. Consequently, it hired several staff assistants, including James Small. Subsequently, the partners of the firm became dissatisfied with Small’s production and warned him that they would be forced to discharge him unless his output increased significantly. At that time, Small was engaged in audits of several clients. He decided that, to avoid being fired, he would reduce or omit entirely some of the required auditing procedures listed in the audit plan prepared by the partners. One of the public accounting firm’s non-SEC clients, Newell Corporation, was in serious financial difficulty and had adjusted several of its accounts being examined by Small to appear financially sound. Small prepared fictitious working papers in his home at night to support purported completion of auditing procedures assigned to him, although he in fact did not examine the Newell adjusting entries. The public accounting firm rendered an…Jamie is an auditor. While preparing to audit his client, Food Court, he finds a weakness in the company's internal control that might suggest that the company has a higher than normal risk, and revenue may have been recorded in the wrong period. Given this weakness, what information should be communicated to management?Tana Thorne works in a public accounting firm and hopes to eventually be a partner. The management of Allnet Company invites Thorne to prepare a bid to audit Allnet’s financial statements. In discussing the audit fee, Allnet’s management suggests a fee range in which the amount depends on the reported profit of Allnet. The higher its profit, the higher will be the audit fee paid to Thorne’s firm. Who are the parties potentially affected by this audit and the fee plan proposed? What are the ethical factors in this situation? Explain. Would you recommend that Thorne accept this audit fee arrangement? Why or why not? What are some ethical considerations guiding your recommendation?
- Which of the following statements would most likely appear in an auditor's engagement letter? a. Fees for our services are based on our regular per diem rates, plus travel and other out-of-pocket expenses. b. The auditor's preliminary assessment of the risk factors relating to misstatements arising from fraudulent financial reporting. c. A reminder that management is responsible for illegal acts committed by employees. d. After performing our preliminary analytical procedures, we will discuss with you the other procedures we consider necessary to complete the engagement. e. Required evidence is needed to issue a qualified opinion.During an audit class, a student suggests that it might be more cost effective if auditors always set Control Risk at Maximum and then perform the planned substantive tests to collect audit evidence. In which of the following clients audits would the student's suggestion be incorrect if the audit is performed according to the AICPA auditing standards? A) A not for profit charity organization B) A Wall Street Company C) A membership-only companyDuring an audit class, a student suggests that it might be more cost effective if auditors always set Control Risk at Maximum and then perform the planned substantive tests to collect audit evidence. In which of the following clients audits would the student's suggestion be incorrect (must choose one of the three possible choices), if the audit is performed according to the AICPA auditing standards? A) a not for profit charity organization B) a wall street company C) a membership-only company
