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In: Accounting

Question 1 (4 + 4 + 7 = 15 marks) a. Audits and Reviews are two...

Question 1 (4 + 4 + 7 = 15 marks)
a. Audits and Reviews are two types of attestation services provided by public
accounting firms. Discuss the similarities and differences between these two
types of attestation services. Which type provides the most assurance? (4
marks)
Suggested Answer for part a:
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b. What is auditor independence and why is it so important?
Suggested Answer for part b:
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c. The following are 7 examples of audit procedures:
1.Trace selected quantities from the inventory list to the physical inventory to make
sure that it exists and the quantities are the same.
2. Stand by the payroll time clock to determine whether any employee 'punches in'
more than one time.
3. Calculate the ratio of cost of goods sold to sales as a test of overall
reasonableness of gross margin relative to the preceding year.
4. Question operating personnel about the possibility of obsolete or slow-moving
inventory.
5. Review the total of repairs and maintenance for each month to determine whether
any month's total was unusually large.
6. Re-foot entries in the sales journal to determine whether they were correctly
totalled by the client.
7. Obtain a written statement from the client's bank stating the client's year-end
balance on deposit.
Required:
For each of the audit procedure, classify audit procedure according to the following
eight types of audit evidence: (1) physical examination, (2) confirmation, (3)
documentation, (4) observation, (5) inquiry of the client, (6) recalculation, (7)
reperformance, and (8) analytical procedures.

answer please

Solutions

Expert Solution

a.

Meaning An audit refers to the systematic and intelligent examination of the books of accounts of an entity to check whether they present true and fair view or not. A review refers to an evaluation of the financial books, conducted by the auditor, to determine if there are any chances of modifications or not.
Assurance level A reasonable level of assurance Moderate level of assurance
Report provided Positive Assurance Assertion Negative Assurance Assertion
Cost High Comparatively low

b. As auditor is appointed to examine the financial statements and present his view on them, it is necessary for an auditor to be independent i.e. he should not act as per the opinion or order of another person. Any credit agencies, government, investors validate the financial statements of a company only by its audit report this implies a major force on theaudito to be independent.

c.

  1. physical examination
  2. observation
  3. re calculation
  4. inquiry of the client
  5. observation
  6. re performance
  7. confirmation

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