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Auditing: A Risk Based-Approach to Conducting a Quality Audit

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter7: Planning The Audit: Identifying, And Responding To The Risk Of Material Misstatement

Section: Chapter Questions

Problem 18MCQ

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Question

1. Which of the following procedures is most appropriately done if the control risk and inherent risk was assessed at a below maximum level where the management does not have effective internal controls in place? *

Omit test of controls, then perform substantive testing at year-end

Perform tests of controls, then perform substantive testing at year-end

Perform tests of controls, then perform substantive testing at an interim period

Omit test of controls, then perform substantive testing at an interim period

2. In auditing the financial statements of ESELYU Inc., the management has deliberately precluded you from gathering evidence in one of its cash accounts which you perceive to be material in regards to the audit. Which of the following audit opinion are you most likely to express? *

Qualified opinion if the item is material and pervasive

Unqualified Opinion if the item is material and non-pervasive

Disclaimer of Opinion if the item is material and pervasive

Adverse Opinion if the item is material and pervasive

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Refer to Exhibit 2.5 and answer the following questions. a. (Sections 101, 104, and 105) How does the establishment and operation of the PCAOB help to ensure quality external audits? How will audit firm inspections and investigations by the PCAOB help ensure high audit quality? b. (Sections 201-203) How do Sections 201-203 address audit ()r independence concerns? c. (Section 206) What is a cooling-off period, and how does it address auditor independence concerns? d. (Section 301) How do the audit committee requirements help ensure effective corporate governance? e. (Sections 302 and 906) How do the officer certification requirements help to address the risk of fraud in publicly traded organizations? What is the likelihood that a CFO who is committing fraudulent financial reporting would sign the certification falsely, and what are your reactions to that possibility? f. (Section 401) How does this section relate to the Enron fraud? g. (Section 404) How do the management assessment and audit or attestation of internal controls contained in this section help to address the risk of fraud in publicly traded organizations? h. (Section 407) Why is it important that at least one member of the audit committee be a financial expert? What are the financial reporting implications if the audit committee does not have any individuals serving on it who possess financial expertise? i. (Section 802) How does this section relate to the Enron fraud?
In terms of the timing of the risk response, the following procedures can be completed only at or after period end: comparing the financial statements to the accounting records, evaluating adjusting journal entries made by management in preparing the financial statements, and conducting procedures to response to risks that management may have engaged in improper transactions at period end.
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.

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