Which 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.
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Which 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.
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- The external auditor of a company has certain requirements due to Sarbanes-Oxley. Which of the following best describes these requirements? A. The auditor is required to only report weaknesses in the internal control design of the company he or she is auditing. B. The auditor must issue an internal control report on the evaluation of internal controls overseen by the Public Company Accounting Oversight Board C. The auditor in charge can serve for a period of only two years. D. The Public Company Accounting Oversight Board reviews reports submitted by the auditors when no evaluations have been performed.Which of the following circumstances would most likely pose the greatest risk inaccepting a new audit engagement?(1) Staff will need to be rescheduled to cover this new client.(2) There will be a client-imposed scope limitation.(3) The firm will have to hire a specialist in one audit area.(4) The client’s financial reporting system has been in place for 10 yearsThe 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…
- During a consulting engagement involving the development of a new accounts payable system, an internal auditor identified a control weakness. Although the weakness was reported to the manager of the systems development project, the manager decided to accept the risk because, in the manager's opinion, the risk was not significant. Six months after the implementation of the new system, the disbursements process was audited by another internal auditor who determined that the control weakness had impacted payment processing. The auditor reviewing the disbursements process should do which of the following? a. Request that the manager of the systems development project fix the system b. Report the control weakness to management and the audit committee c. Discuss the control weakness with the manager of the accounting system, but do not report the finding d. Disregard the control weakness because management previously decided to accept the risk e. None of the choicesYour long-time client, Central Office Supply, has been rapidly expanding, and the board of directors is considering taking the company public.CEO Terry Puckett has heard that costs of operating a public company have increased significantly as a result of the Sarbanes–Oxley Act. Puckett is particularly concerned with reports that audit fees have doubled because of internal control provisions of the act and PCAOB Auditing Standard No. 2201. Puckett has asked you to explain the possible effects on the audit of complying with the requirements of Sarbanes–Oxley.Required:Draft a letter to Puckett outlining the changes in the company’s responsibilities for internal control and changes in the audit due to Sarbanes–Oxley and PCAOB Auditing Standard No. 2201.Which of the following BEST (select one) describes why auditing can be viewed as a continuous cyclical process? a) The audit plan is used to develop the audit schedule. b) Many audit departments review the same areas each year as part of the audit plan. c) Historical and current information from audits should be incorporated into the risk assessment. d) Businesses go through economic cycles, so audit plans must go through cycles.
- 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.You are a newly hired auditor in a small auditing firm. A more senior auditor has been on sick leave in the past two weeks. You have been told by your manager that you must complete some complicated reconciliation work. The deadline suggested appears unrealistic, given the complexity of the work. You feel that you are not sufficiently experienced to complete the work alone. You would need additional supervision to complete it to the required standard, and your manager appears very busy to offer the necessary support. If you try to complete the work within the proposed timeframe but fail to meet the expected quality, you could face negative consequences. You feel slightly intimidated by your manager, and you are afraid to tell him what you feel. You also feel pressured to do what you can for the auditing firm in what seems to be challenging times. Which of the following ethical principles will be the LEAST affected in the given situation? a. Integrity b. Professional Behavior c.…The audit of KBC Solutions by Carlson and Smith, CPAs, was scheduled to end on February 28, 2019. However, Rick Carlson was uncertain whether it could happen. As the review partner, he had just completed going over the work paper files of the senior auditor in charge of the engagement, Grace Sloan, and had way too many questions to wrap things up by the end of the week. Rick called Grace into his office and asked her about some questionable judgments she had made. He hoped her explanations would be satisfactory and he could move on with completing the audit. Why did you approve the accounting for new acquisitions of plant and equipment that were not supported by adequate underlying documentation? Why did you accept the client’s determinations of accrued expenses rather than make your own independent judgments? How can you justify relying on last year’s work papers to determine the proper allowance for uncollectibles one year later? To say Grace was stressed out would be an…
- The audit of KBC Solutions by Carlson and Smith, CPAs, was scheduled to end on February 28, 2019. However, Rick Carlson was uncertain whether it could happen. As the review partner, he had just completed going over the work paper files of the senior auditor in charge of the engagement, Grace Sloan, and had way too many questions to wrap things up by the end of the week. Rick called Grace into his office and asked her about some questionable judgments she had made. He hoped her explanations would be satisfactory and he could move on with completing the audit. Why did you approve the accounting for new acquisitions of plant and equipment that were not supported by adequate underlying documentation? Why did you accept the client’s determinations of accrued expenses rather than make your own independent judgments? How can you justify relying on last year’s work papers to determine the proper allowance for uncollectibles one year later? To say Grace was stressed out would be an…The audit of KBC Solutions by Carlson and Smith, CPAs, was scheduled to end on February 28, 2019. However, Rick Carlson was uncertain whether it could happen. As the review partner, he had just completed going over the work paper files of the senior auditor in charge of the engagement, Grace Sloan, and had way too many questions to wrap things up by the end of the week. Rick called Grace into his office and asked her about some questionable judgments she had made. He hoped her explanations would be satisfactory and he could move on with completing the audit. Why did you approve the accounting for new acquisitions of plant and equipment that were not supported by adequate underlying documentation? Why did you accept the client’s determinations of accrued expenses rather than make your own independent judgments? How can you justify relying on last year’s work papers to determine the proper allowance for uncollectibles one year later? To say Grace was stressed out would be an…Assume that you are an audit senior in charge of planning the audit of an entity that your firm has audited for the previous four years. During the audit planning meeting with the manager and partner in charge of the engagement, the partner noted that the entity recently adopted an IT-based accounting system to replace its manual system. The manager and partner have limited experience with IT-based accounting systems and are relying on you to help them understand the audit implications of the entity's change. Consequently, they have askd you to respond to a few concerns regarding automated accounting systems. Required: a. In previous years, the audit firm has relied heavily on substantive procedures as a source of audit evidence for this entity. Given that the entity now has changed its accounting system, what are some of the factors that should consider when deciding whether to move to a reliance strategy? b. Under what conditions should the audit firm consider engaging an IT…
