Audit Research You are currently working on a public company and your partner ha
ID: 2597309 • 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. What are they? 1. Assertion level - This is further subdivided into inherent risk and control risk. 2. Financial Statement level - Relates to the financial statements as a whole. This risk is more likely when there is a possibility of fraud 2. How many material weaknesses in internal controls must exist for the company’s internal control over financial reporting not be considered effective? If one or more material weaknesses exist, the company's internal control over financial reporting cannot be considered effective 3. Does the audit risk model impact the confirmation process? Yes. The auditor uses the audit risk assessment in determining the audit procedures to be applied, including whether they should include confirmation 4. Should you only confirm accounts receivable balances when auditing revenue and accounts receivable? Account receivable should confirm to verify whether receivable do exist or not?; Recorded receivable balances are inaccurate?; revenue was incorrectly recognized? Etc 5. Why should the auditor exercise an appropriate level of professional skepticism? The application of professional skepticism throughout the audit is a foundational aspect of audit quality and the integrity of the audit process
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