The independent auditor is allowed to use a specialist for evaluating a complica
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Question
The independent auditor is allowed to use a specialist for evaluating a complicated financial transaction provided the specialist is
Inappropriately dating transfers of funds between bank accounts to cover shortages of cash is properly referred to as
Cash equivalents
A cut-off bank statement primarily is used to
An imprest cash account
An auditor may estimate the appropriate amount of interest expense to be recorded by an audit client by multiplying the average debt by the average interest rate. If the auditor's estimate is considerably larger than the client's recorded interest expense this would be evidence of a potential
Internal controls over fixed assets in a smaller entity
A change in depreciation methods employed by an audit client resulting in a material change in depreciation expense
Auditors typically assess inherent risk for material accounts requiring significant estimates as
Which of the following loans from an audit client, which is a financial institution, made in accordance with the normal lending practices of the financial institution would impair the CPA's independence?
A CPA has obtained some original records from a client during the course of an audit engagement. At the completion of her audit according to the proper professional standards the client fired the CPA and demanded that the CPA return all of his original records immediately. Under these circumstances which of the following statements is most correct according to the AICPA Code of Professional Conduct?
knowledgeable and independent of the audit client.Explanation / Answer
1.The independent auditor is allowed to use a specialist for evaluating a complicated financial transaction provided the specialist is :
Explanation: AU Section 336 : This section provides guidance to the auditor who uses the work of a specialist in performing an audit in accordance with generally accepted auditing standards. For purposes of this section, a specialist is a person (or firm) possessing special skill or knowledge in a particular field other than accounting or auditing.
The auditor should consider the following to evaluate the professional qualifications of the specialist in determining that the specialist possesses the necessary skill or knowledge in the particular field:
Also, The auditor should evaluate the relationship of the specialist with the client.When a specialist does not have a relationship with the client, the specialist's work usually will provide the auditor with greater assurance of reliability.
2. A cut-off bank statement primarily is used to:
determine whether reconciling items on the year-end bank reconciliation have cleared the bank.
Explanation: Client generally prepares bank reconciliations, which compare and adjust the cash balance per its bank statements with its book cash balances.Auditor need to check client’s bank reconciliations to make sure it has recorded the correct amount of cash on the balance sheet. If client doesn’t show correct cash balances on its books, the client may have misstated revenue or expenses. This audit procedure should be fairly easy to do:
Get a bank confirmation to verify ending bank account balances.
Get a cutoff bank statement showing transactions that hit your audit client’s bank statement for the 7- to 10-day period after the end of the financial period. This is used to trace all deposits clearing on the cutoff statement to the client’s bank reconciliation. Also, check all checks clearing on the cutoff statement to the outstanding checks on the client’s bank reconciliation.
Discuss any differences between the cutoff statement and the bank reconciliations with client management.
Ans 3.
A change in depreciation methods employed by an audit client resulting in a material change in depreciation expense:
requires disclosure by the audit client in the footnotes to the financial statements.
US GAAP requires the disclosure of accounting policy for depreciation, depletion and amortization of property and euipment costs, also the changes in the method of depreciation during the year.
Ans. 4.
Inappropriately dating transfers of funds between bank accounts to cover shortages of cash is properly referred to as
Kiting
Kiting is the illegal practice of exploiting settlement delays to transfer unavailable funds from one bank account to another.
knowledgeable and independent of the audit client.Related Questions
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