ADMS 4551 Chapter Notes -Promissory Note, General Ledger, Retained Earnings

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browncamel559

19 Sep 2013

School

York University

Department

Administrative Studies

Course

ADMS 4551

Professor

Larry Yarmolinsky

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Document Summary

The objective of the audit- management and auditor responsibilities. The responsibility of management is to adopt sound and appropriate financial reporting framework and corresponding accounting policies, maintaining adequate internal control, and making fair representation in the financial statement. In the event that management insists on financial statement disclosure that the auditor finds unacceptable, the auditor can either issue an adverse or qualified opinion, or as a last resort, withdraw from the engagement. Professional skepticism means that the auditor should not be blind to evidence that suggests that documents, books, or records have been altered or are incorrect. Cas 240 distinguishes between errors and fraud and other irregularities: an error is an unintentional misstatement of the financial statements, fraud and other irregularities are intentional. The auditor should evaluate the likelihood of material employee fraud, which is done initially as part of understanding the entity"s internal control and assessing control risk and fraud risk.

Related Questions

Consider the following statements:

I. The auditor should only provide an opinion on the financial statements if the opinion indicates

that the financial statements are fairly stated in all material respects.

II. The audit report is modified to five paragraphs as a result of another audit firm performing part of

the financial statement audit (Refer to Shared Report topic).

a. I is true; II is true

b. I is true; II is false

c. I is false; II is true

d. I is false; II is false

2. Consider the following statements:

I. After the balance-sheet date but prior to the audit report date, the client decides to acquire

Bargain Company to obtain a significant increase in revenues. The auditor would probably give a

report that includes the statement: âexcept for the acquisition of Bargain Company â¦â

II. For a change in accounting principles that management does not justify to the auditor, the

auditor will likely choose between a qualified and an adverse opinion.

a. I is true; II is true

b. I is true; II is false

c. I is false; II is true

d. I is false; II is false

3. Consider the following statements:

I. The failure of a client to include a Statement of Cash Flows will result in the issuance of a

disclaimer of opinion by the auditor.

II. The auditor will issue an unqualified opinion on Internal Controls over Financial Reporting (ICFR)

if the auditor has identified only one material weakness in ICFR.

a. I is true; II is true

b. I is true; II is false

c. I is false; II is true

d. I is false; II is false

1. A CPA firm has carried out an audit of the GillespieCorporation. The CPA has uncovered a material misstatement in theinventory balance. However, the CPA does not feel that this problemis so serious as to eliminate the credibility of the financialstatements taken as a whole. What wording will be used to begin theopinion paragraph of the audit report?

A. In our opinion, except for adjustments, if any, that mighthave been foundâ¦

B. The scope of our work was not sufficientâ¦

C. In our opinion, except for the effects ofâ¦

D. Because of the effects ofâ¦

2. When an auditor issues a standard unmodified audit report,the implication is that the auditor:

A. Believes the financial statements are presented fairly inconformity with U.S. GAAP.

B. Does not know if the financial statements are presentedfairly in conformity with U.S. GAAP.

C. Believes the financial statements are presented fairly inconformity with U.S. GAAP except for a specific aspect of them.

D. Does not believe the financial statements are presentedfairly in conformity with U.S. GAAP.

3. A CPA's standard report on audited financial statements wouldbe inappropriate if it referred to

A. Management's responsibilities for the financialstatements.

B. An assessment of the entity's accounting principles.

C. The significant estimates made by management.

D. The CPA's assessment of sampling risk factors.

4. The introductory paragraph of the standard audit reportstates that the financial statements and the opinion expressedabout those statements are:

A. The responsibility of management.

B. The responsibility of the auditor.

C. The joint responsibility of the auditor and management.

4. None of the above.

5. Which of the following procedures would an auditor mostlikely perform to obtain evidence about the occurrence ofsubsequent events?

A. Comparing the financial statements being reported on withthose of the prior period.

B. Confirming a sample of material accounts receivableestablished after year end.

C. Inquiring as to whether any unusual adjustments were madeafter year end.

D. Investigating personnel changes in the accounting departmentoccurring after year end.

6. The date of the management representation letter shouldbe

A. The same date as the latest interim financialinformation.

B. The same date as the latest bank reconciliation.

C. No earlier than the auditor's report.

D. No earlier than the balance sheet.

7. The audit step most likely to reveal the existence ofcontingent liabilities is

A. A review of vouchers paid during the month following theyear-end

B. Mortgage-note confirmation

C. Accounts payable confirmations

D. An inquiry directed to legal counsel

8. The Form 10-K filed by management of a public companyincludes a section on managementâs discussion and analysis(MD&A) in addition to the annual financial statements. Which ofthe following best describes the auditorâs responsibility for theMD&A information?

A. The auditor must perform sufficient appropriate auditprocedures to opine on the MD&A information.

B. The auditor has no responsibilities related to the MD&Adisclosures.

C. The auditor must read the MD&A information to determineif there is any material inconsistency with the audited financialstatements.

D. The auditor must provide a disclaimer of opinion related tothe MD&A information.

orangeherring233

The following statements relate to general principles or terms used in the audit of financial statements. Identify at least two errors from each of the following statements (a)-(e) and explain why these are errors and suggest corrections.

(a) Audit objective (4 marks)

The objective of an audit of financial statements is for auditors to make sure the financial statements give a true and correct view in all respects in accordance with an identified financial reporting framework and to ensure that they detect all fraud that may have taken place.

(b) HKSA (4 marks)

The Hong Kong Standards on Auditing specify exactly the necessary audit procedures that auditors should perform. For all private and listed companies, the Financial Reporting Council is responsible for investigating all deviations from the Hong Kong Standards on Auditing.

Auditors and their clients should agree on the terms of the engagement, which can be recorded either in the management representation letter or other suitable form of verbal contract. This letter is required to be reissued before the start of every audit, regardless of whether there are any changes to the terms.

(d) Audit opinion (4 marks)

The auditor was unable to attend and observe the inventory count of the companyâs subsidiary in Bangkok due to the recent riots over the current government. The inventory in Bangkok accounts for 80% of the groupâs total inventory. lnventory is a significant amount within current assets but is not considered significant in respect of total assets. The auditor decided the most appropriate audit opinion is an adverse opinion.

(e) Audit documentation (4 marks)

Since the client paid for the audit, the audit working papers are the property of the audit client and they can be used as substitutes for the company's accounting records in case the companyâs accounting records are destroyed in a fire.

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ADMS 4551 Chapter Notes -Promissory Note, General Ledger, Retained Earnings

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