Audit Research You are currently working on a public company and your partner ha
ID: 2597312 • Letter: A
Question
Audit Research
You are currently working on a public company and your partner has asked you to provide him with some information that he can use in a report to the audit committee. Your task is to answer his questions in your own words and provide him with the specific authoritative citation.
Example: What is the objective of audit evidence?
AS 1105.03
States that objective of the auditor is to plan and perform the audit to obtain sufficient audit evidence to support the auditor’s report.
1. The auditor should assess the risks of material misstatement at two levels. What are they?
2. How many material weaknesses in internal controls must exist for the company’s internal control over financial reporting not be considered effective?
3. Does the audit risk model impact the confirmation process?
4. Should you only confirm accounts receivable balances when auditing revenue and accounts receivable?
5. Why should the auditor exercise an appropriate level of professional skepticism?
6. How can you mitigate the risk of people signing/returning a confirmation without paying attention to the fact?
7. Can a confirmation response be returned by fax?
8. Can the external auditors use internal auditors to assist with the confirmation process?
9. Can an unqualified opinion be given if you do not confirm accounts receivable?
10. Who is responsible for estimating the Allowance for Doubtful Accounts?
11. Is the auditor always required to recalculate an estimate used in the financial statements?
12. What does the auditor do about inventory owned by their client but held in a public warehouse by an outside custodian?
Example: What is the objective of audit evidence?
AS 1105.03
States that objective of the auditor is to plan and perform the audit to obtain sufficient audit evidence to support the auditor’s report.
1. The auditor should assess the risks of material misstatement at two levels. What are they?
2. How many material weaknesses in internal controls must exist for the company’s internal control over financial reporting not be considered effective?
3. Does the audit risk model impact the confirmation process?
4. Should you only confirm accounts receivable balances when auditing revenue and accounts receivable?
5. Why should the auditor exercise an appropriate level of professional skepticism?
6. How can you mitigate the risk of people signing/returning a confirmation without paying attention to the fact?
7. Can a confirmation response be returned by fax?
8. Can the external auditors use internal auditors to assist with the confirmation process?
9. Can an unqualified opinion be given if you do not confirm accounts receivable?
10. Who is responsible for estimating the Allowance for Doubtful Accounts?
11. Is the auditor always required to recalculate an estimate used in the financial statements?
12. What does the auditor do about inventory owned by their client but held in a public warehouse by an outside custodian?
Explanation / Answer
1. the auditor should assess the risks of material misstatement at two levels: (1) at the financial statement level and (2) at the assertion level.
2. One or more material weaknesses must exist in Internal control which may either individually or in combination result in an error or fraud, to make financial reporting controls ineffective.
3. yes it impacts the confirmation process. Because auditor uses the audit risk assessment in determining the audit procedures to be applied.
4.No, we should also verify sales & Other records to ascertain genuiness of transactions.
5.Because it helps in designing the confirmation request, performing the confirmation procedures, and evaluating the results of the confirmation procedures.
6. Auditor can leave the figures or facts as blank and request the Confirming party to fill the details.
7.Yes , it can be returned by Fax or By post also.
8. yes , external auditor can use internal auditor, provided Extenal auditor excercise due diligence.
9.Yes an unqualifed opinion can be given provided auditor has excercised sufficent audit procedures to ascertain that no material inconsistency exist in accounts recivable which cast doubt on it's truthness.
10.Management is responsible.
11.yes he should verify that estimates used are reasonable and accurate.
12.He can request a confirmation letter from warehouse custodian to confirm it's existence and valuation.
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