Question

In: Accounting

For each item, select the appropriate fundamental principle. Some principles will be used more than once,...

For each item, select the appropriate fundamental principle. Some principles will be used more than once, but each item has only one principle as its answer.

      -       a.       b.       c.       d.       e.       f.       g.       h.       i.   

Auditors' request to obtain bank statements directly from the financial institutions with whom the client does business.
      -       a.       b.       c.       d.       e.       f.       g.       h.       i.   

Auditors' assessment of control risk and inherent risk.
      -       a.       b.       c.       d.       e.       f.       g.       h.       i.   

Audit firms have policies with respect to the level of expected continuing professional education.
      -       a.       b.       c.       d.       e.       f.       g.       h.       i.   

Auditor reviews the prior year audit workpapers, current industry trends, and client’s unaudited current financial statements to develop the current year audit strategy.
      -       a.       b.       c.       d.       e.       f.       g.       h.       i.   

Audit firms have policies with respect to employee ownership in audit clients.
      -       a.       b.       c.       d.       e.       f.       g.       h.       i.   

Auditor evaluates the magnitude of an inventory misstatement to determine if the misstatement affects the user’s opinion.
      -       a.       b.       c.       d.       e.       f.       g.       h.       i.   

The auditor physically examines inventory to determine the inventory exists.
      -       a.       b.       c.       d.       e.       f.       g.       h.       i.   

An auditor asks the controller questions about the company’s accounting for warranties and determines to investigate the controller’s answers further.
      -       a.       b.       c.       d.       e.       f.       g.       h.       i.   

An auditor is considering accepting a new audit client; however, the auditor and the audit firm have no experience with the potential client’s industry.
      -       a.       b.       c.       d.       e.       f.       g.       h.       i.   

The senior auditor reviews the work of the assistant auditor to provide feedback and quality control of the workpapers.
a.

Competence and capabilities
b.

Ethical requirements
c.

Professional skepticism and professional judgment
d.

Plan work and properly supervise assistants
e.

Determine/apply appropriate materiality levels throughout audit
f.

Identify/assess risks of material misstatement, including internal control.
g.

Obtain sufficient and appropriate audit evidence.
h.

Express an opinion or state an opinion cannot be expressed
i.

Opinion is based on financial statement conformity with financial reporting framework

Solutions

Expert Solution

1) Auditors' request to obtain bank statements directly from the financial institutions with whom the client does business.

Answer: In order to express an opinion by the Auditor in his audit report, he has to obtain sufficient and appropriate audit evidence. for this, he may collect the information and documents. Hence answer is Principle No. G, Obtain sufficient and appropriate audit evidence.

2) Auditors' assessment of control risk and inherent risk.

Answer: In order to minimize the Audit risk by the Auditor, he has to assess the inherent risk and control risk since the both has inverse relationship to Audit risk, so the answer is Identify/assess risks of material misstatement, including internal control.

3) Audit firms have policies with respect to the level of expected continuing professional education.

Answer: In order to make auditors more competent and capable for various audit engagements, they should updated with latest changes in laws and regulations and other relevant information, for this they should continue their education, so answer is Competence and capabilities

4)Auditor reviews the prior year audit working papers, current industry trends, and client’s unaudited current financial statements to develop the current year audit strategy.

Answer: For every audit engagements, auditor should fix the materiality levels to decide the nature, timing and extent of audit procedures. For this he should review the prior year audit working papers, current industry trends, and client’s unaudited current financial statements and other relevant information. So the answer is Determine/apply appropriate materiality levels throughout audit

5) Audit firms have policies with respect to employee ownership in audit clients.

Answer: It is the ethical requirement for all audit firms to have policies with respect to the ownership interest of employees in audit client firms. So the Answer is Ethical requirement.

6) Auditor evaluates the magnitude of an inventory misstatement to determine if the misstatement affects the user’s opinion.

Answer: By evaluating the magnitude of the misstatement of inventory, auditor can assess the risk of material misstatement and strength of internal control. So the answer is Identify/assess risks of material misstatement, including internal control.

7) The auditor physically examines inventory to determine the inventory exists.

Answer: It is the ethical requirement for an auditor to physically examine inventory to minimize the audit risk to an acceptable low level. So the answer is Ethical requirement.

8) An auditor asks the controller questions about the company’s accounting for warranties and determines to investigate the controller’s answers further.

Answer: It is the professional duty of the auditor to remove his suspicion if any, if he come across his audit engagement. For this, auditor should obtain sufficient and appropriate audit evidence. So the answer is Obtain sufficient and appropriate audit evidence.

9) An auditor is considering accepting a new audit client; however, the auditor and the audit firm have no experience with the potential client’s industry.

Answer: While accepting new audit engagements, auditor should plan his audit engagements and associated works in advance to express an opinion, so the answer is Plan work and properly supervise assistants.

10) The senior auditor reviews the work of the assistant auditor to provide feedback and quality control of the work papers.

Answer: It is the ethical requirement of an senior auditor to review the work of assistant auditor, so the answer is Ethical requirement.

ekkarill92 answered 6 months ago
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