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Chapter: 7- Perform audit of accounts payable -Problem: 1 >> Confirmations were emphasized in tests of accounts receivable, but are rarely used in tests of accounts payable. What factors account for this difference? When would confirmation of accounts payable be appropriate?
Answer Preview: The difference in the emphasis on confirmations between tests of accounts receivable and accounts payable can be attributed to various factors, including the nature of the transactions, the relationsh…

, Chapter: 6- Perform audit of accounts receivable -Problem: 2 >> When confirming accounting receivable, the auditor may use positive confirmations, negative confirmations, or a combination of both. Although the use of negative confirmations is less expensive than positive confirmations, negative confirmations are less reliable. Therefore, negative confirmations should be used only in certain circumstances. Discuss those circumstances.
Answer Preview: Negative confirmations in the context of confirming accounts receivable involve sending a request to the debtor, asking them to respond only if they disagree with the stated amount. This method is ind…

, Chapter: 4- Assess control risk and plan tests of controls and substantive tests of transactions -Problem: 2 >> On some audits, the auditor may choose not to rely on controls, and no tests of controls are performed. Indicate circumstances in which the auditor would choose not to test controls.
Answer Preview: An auditor might choose not to test controls in certain circumstances based on their assessment of risks and the audit approach they adopt. Here are some situations where an auditor might decide not t…

, Chapter: 7- Perform audit of accounts payable -Problem: 2 >> What is the primary objective in the audit of accounts payable? How might this affect the sampling method used and how the sample is evaluated?
Answer Preview: The primary objective in the audit of accounts payable is to ensure that the recorded liabilities are accurate, complete, and properly disclosed in the financial statements. This involves verifying th…

, Chapter: 7- Perform audit of accounts payable -Problem: 3 >> The client received and recorded a large shipment of inventory on January 3rd that was shipped FOB shipping point on December29th. How should the auditor account for this in the search for unrecorded liabilities?
Answer Preview: In the search for unrecorded liabilities, the auditor's main objective is to ensure that all liabilities, especially those not yet recorded in the fin…

, Chapter: 10- Complete the audit -Problem: 2 >> Your preliminary judgment of materiality was based on net income. Why is it necessary to compare unadjusted misstatements to other bases of materiality? What should the auditor do if the unadjusted misstatements exceed one or more materiality thresholds?
Answer Preview: Materiality is a fundamental concept in auditing that helps auditors determine the significance of misstatements in financial statements. While net income is often used as a starting point for assessi…

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, Chapter: 8- Perform audit of cash -Problem: 2 >> Suppose there was a deposit-in-transit on the year-end bank reconciliation that was not received by the bank by the cutoff date. Discuss the possible cause(s) of this, and discuss the nature of the potential misstatement(s) that could result.
Answer Preview: A "deposit in transit" refers to a deposit made by a company into its bank account that is recorded on the company's books but has not yet been proces…

, Chapter: 2- Perform preliminary analytical procedures -Problem: 3 >> AU Section 316 indicates that the auditor should consider the results of analytical procedures performed in planning the audit that indicate possible implausible or unexpected relationships in assessing the risk of firaud. For example, if the auditor compares revenue reported by product line each month (i.e., monthly sales volume) with sales (or production) capacity, and determines that the number
Answer Preview: In auditing, analytical procedures involve evaluating financial information through analysis of plausible relationships among both financial and non-financial data. The purpose is to identify potentia…

, Chapter: 2- Perform preliminary analytical procedures -Problem: 1 >> The auditor reviews important financial statement numbers and ratios at both the beginning and the completion of the audit. Compare and contrast the purposes of(1) Preliminary analytical procedures and(2) Analytical procedures performed near the completion of the audit.
Answer Preview: (1) Preliminary Analytical Procedures: Purpose: Preliminary analytical procedures are conducted at the beginning of an audit, typically during the planning phase. The purpose of these procedures is to …

, Chapter: 4- Assess control risk and plan tests of controls and substantive tests of transactions -Problem: 1 >> After obtaining an understanding of the client's internal controls, the auditor may choose to test some of the controls. If the results of those tests are satisfactory, the auditor may then rely on those controls. What is the primary reason for relying on controls? What are other potential benefits from testing controls?
Answer Preview: The primary reason for relying on controls in an audit process is to gain assurance about the reliability of financial information and to reduce the e…

, Chapter: 1- Review client background information -Problem: 2 >> The client and our firm have agreed on an initial estimated audit fee of $21,000 (see the engagement letter). However, the estimated total cost of performing this year's audit is $27,510 (see the fee budget on workpaper 6-5). Discuss possible reasons why a CPA firm might charge a new client an audit fee that is lower than the estimated first-year costs of performing the audit.
Answer Preview: There are several potential reasons why a CPA firm might charge a new client an audit fee that is lower than the estimated first-year costs of perform…

, Chapter: 9- Perform audit of inventory -Problem: 3 >> The client received a large shipment of inventory on December 31st during the inventory observation. What procedures should the auditor perform to verify that the acquisition of inventory is properly accounted for?
Answer Preview: When the client receives a large shipment of inventory on December 31st, the auditor must perform specific procedures to ensure that the acquisition of inventory is properly accounted for. This is cru…

, Chapter: 4- Assess control risk and plan tests of controls and substantive tests of transactions -Problem: 3 >> Indicate the effect on(a) The extent of tests of controls, and(b) The extent of substantive tests of balances if the auditor's preliminary assessment of control risk is below the maximum.
Answer Preview: If the auditor's preliminary assessment of control risk is below the maximum, it implies that the auditor believes the internal controls in place are …

, Chapter: 6- Perform audit of accounts receivable -Problem: 1 >> AICPA auditing standards address the confirmation of accounts receivable for private company audits. What are the circumstances under which confirmation of accounts receivable is not required?
Answer Preview: Under AICPA (American Institute of Certified Public Accountants) auditing standards, there are circumstances under which confirmation of accounts rece…

, Chapter: 1- Review client background information -Problem: 4 >> Oceanview Marine is currently a private company. How would the engagement letter (workpapers 4-1 and and 4-2) change if Oceanview were a publicly traded company? In what way would this affect your firm's ability to provide additional services to Oceanview?
Answer Preview: When a private company like Oceanview Marine transitions to becoming a publicly traded company (going public through an initial public offering or IPO), there are several significant changes that woul…

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12 Reviews for Integrated Audit Practice Case Textbook Questions And Answers