Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
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Chapter 14, Problem 24RQ
To determine
Explain the reason behind the verification of accounts payable account after the
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Which of the following statements is incorrect?
A. As the risk of material misstatement in the financial statements increases, the auditor relies more on substantive analytical procedures rather than tests of details of transactions and balances
B. It is common, but not required, to use analytical procedures as substantive tests;
C. Tests of transactions are often performed during the interim audit work
D.Tests of details of balances are normally done during the year-end audit work
Auditors make materiality judgments during the planning phase of the audit in order to be sure they ultimately gather sufficient evidence during the audit to provide reasonable assurance that the financial statements are free of material misstatements. The lower the materiality threshold that an auditor has for an account balance, the more the evidence that the auditor must collect. Auditors often use quantitative benchmarks such as 1% of total assets or 5% of net income to determine whether misstatements materially affect the financial statements, but ultimately it is an auditor’s individual professional judgment as to whether a given misstatement is or is not considered material.
What is the relationship between the level of riskiness of the client and the level of misstatement in an account balance that an auditor would consider material? For example, assume that Client A has weaker controls over accounts receivable compared to Client B (therefore, Client A is riskier than Client…
Which of the following is most closely related to the relevance of audit evidence?a. Auditors decide to physically inspect investment securities held by a custodian instead of obtaining confirmations from the custodian.b. In addition to confirmations of accounts receivable, auditors perform an analysis of the aging of accounts receivable to evaluate the collectability of accounts receivable.c. In response to less effective internal control, auditors increase the number of customer accounts receivable confirmations mailed compared to that in the prior year.d. Because of a large number of transactions occurring near year-end, auditors decide to confirm a larger number of receivables following year-end instead of during the interim period.
Chapter 14 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 14 - If a corporation overstates its earnings, are its...Ch. 14 - Prob. 2RQCh. 14 - Prob. 3RQCh. 14 - Prob. 4RQCh. 14 - Prob. 5RQCh. 14 - Prob. 6RQCh. 14 - Prob. 7RQCh. 14 - Prob. 8RQCh. 14 - List the major responsibilities of an accounts...Ch. 14 - Prob. 10RQ
Ch. 14 - Prob. 11RQCh. 14 - Prob. 12RQCh. 14 - Prob. 13RQCh. 14 - Prob. 14RQCh. 14 - Prob. 15RQCh. 14 - Prob. 16RQCh. 14 - Prob. 17RQCh. 14 - Whitehall Company records its liabilities in an...Ch. 14 - Prob. 19RQCh. 14 - Prob. 20RQCh. 14 - Prob. 21RQCh. 14 - Prob. 22RQCh. 14 - What is the purpose of the auditors review of cash...Ch. 14 - Prob. 24RQCh. 14 - Prob. 25RQCh. 14 - Prob. 26RQCh. 14 - Prob. 27QRACh. 14 - Prob. 28QRACh. 14 - Prob. 29QRACh. 14 - Prob. 30QRACh. 14 - Prob. 31QRACh. 14 - Prob. 32QRACh. 14 - Which of the following procedures is least likely...Ch. 14 - Prob. 33BOQCh. 14 - Which of the following is the best audit procedure...Ch. 14 - Prob. 33DOQCh. 14 - Prob. 33EOQCh. 14 - Prob. 33FOQCh. 14 - Prob. 33GOQCh. 14 - Prob. 33HOQCh. 14 - Ordinarily, the most significant assertion...Ch. 14 - Prob. 33JOQCh. 14 - Prob. 33KOQCh. 14 - Prob. 33LOQCh. 14 - Prob. 34OQCh. 14 - Prob. 35OQCh. 14 - Prob. 36OQCh. 14 - Prob. 37OQCh. 14 - Prob. 38PCh. 14 - Prob. 39PCh. 14 - Prob. 40PCh. 14 - Prob. 41PCh. 14 - Prob. 42PCh. 14 - Prob. 43ITC
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- Read the case. Then answer the questions based on it. BACKGROUND: Audit standards indicate that there is a presumption that auditors will confirm accounts receivable unless the balance is immaterial, confirmations are deemed ineffective, or the auditors' assessment of risk is low and other procedures will achieve the same objective. However, these instances are considered few and far between and current trends in auditing indicate that there is an expectation that accounts receivable will be confirmed. Auditors may stratify the population, use haphazard or judgmental sampling, and send positive or negative requests. Jenner & Jenner CPAs are the auditors for the Leno Company. In reviewing the accounts receivable aging, the auditors learn that there is a high number of accounts with balances, there are some very large and very small balances, and many customers' balances consist of multiple invoices. 2. How should the auditors mitigate the risk associated with both very large and…arrow_forwardThe following are typical questions that might appear on an internal control questionnaire for accounts payable. 1. Are monthly statements from vendors reconciled with the accounts payable listing? 2. Are vendors’ invoices matched with receiving reports before they are approved for payment? Assuming that the operating effectiveness of each of the above procedures is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of the risk of material misstatement.arrow_forwardWhen accounts receivable are confirmed at an interim date, auditors need not be concerned witha. Obtaining a summary of receivables transactions from the interim date to the year-end date.b. Obtaining a year-end trial balance of receivables, comparing it to the interim trial balance, and obtaining evidence and explanations for large variations. c. Sending negative confirmations to all customers as of the year-end date.d. Considering the necessity for some additional confirmations as of the balance sheet date if balances have increased materiallyarrow_forward
- In applying a top-down, risk-based approach to an audit, should the auditor start with the ending account balances or does the auditor start with the significant processes that lead to a material account balances? Is one approach preferred over the other? Explain. In what ways does the practice of internal auditing differ from the practice of public accounting? To whom is the internal auditing function responsible?arrow_forwardAuditors make materiality judgments during the planning/risk assessment phase of the audit to be sure they ultimatelygather sufficient evidence during the audit to provide reasonableassurance that the financial statements are free of material misstatements.The lower the materiality threshold that an auditorhas for an account balance, the more the evidence that the auditormust collect. Auditors often use quantitative benchmarks such as 1% of total assets or 5% of net income to determine whethermisstatements materially affect the financial statements, but ultimatelyit is an auditor’s individual professional judgment as towhether a given misstatement is or is not considered material.a. What is the relationship between the level of riskiness of theclient and the level of misstatement in an account balancethat an auditor would consider material? For example,assume that Client A has weaker controls over accountsreceivable compared to Client B (therefore, Client A is riskierthan Client B).…arrow_forward
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