Au1 Assignment 1 Essay Example
Assignment 1 Session 3
Question 1 (7 marks)
The following are independent statements concerning certain auditing issues.
Required
Indicate whether you agree or disagree with each statement, and explain your reasoning.
a. An adverse report would be issued when an auditor was unable to observe a company’s inventory count at the beginning of the year because the auditor was appointed during the year. (1 mark)
b. When encountering a violation of generally accepted accounting principles in an audit of financial statements, the auditor will decide between an unqualified report, a qualified report, or an disclaimer of opinion report. The main consideration will be the materiality of the matter in question. (1 mark)
c. A public accountant is not required to be independent of an entity to perform a compilation engagement for that entity. In such a situation, however, disclosure of a lack of independence is not required. (1 mark)
d. If there is significant doubt and material uncertainty that an auditee will continue operating in the future and these doubts have been properly disclosed in the notes to the financial statements, the auditor is required to include an emphasis of matter paragraph in the audit report. (1 mark)
e. When replaced as auditor, the outgoing auditor has a professional responsibility to reply promptly to an enquiry letter from the incoming auditor, but is not required to allow the incoming auditor access to the most recent year’s audit working papers. (1 mark)
f. When an auditor uses a substantive audit approach (setting control risk at maximum) to an audit of financial statements, the auditor is still required to gain an understanding of the internal controls. (1 mark)
g. The auditor is not required to use the same approach (combined or substantive) for all transaction cycles as well as for the various transaction or balance-related audit objectives. (1 mark)
Question 2 (7 marks)
The audit risk model has become the commonly used basis for
Question 1 (7 marks)
The following are independent statements concerning certain auditing issues.
Required
Indicate whether you agree or disagree with each statement, and explain your reasoning.
a. An adverse report would be issued when an auditor was unable to observe a company’s inventory count at the beginning of the year because the auditor was appointed during the year. (1 mark)
b. When encountering a violation of generally accepted accounting principles in an audit of financial statements, the auditor will decide between an unqualified report, a qualified report, or an disclaimer of opinion report. The main consideration will be the materiality of the matter in question. (1 mark)
c. A public accountant is not required to be independent of an entity to perform a compilation engagement for that entity. In such a situation, however, disclosure of a lack of independence is not required. (1 mark)
d. If there is significant doubt and material uncertainty that an auditee will continue operating in the future and these doubts have been properly disclosed in the notes to the financial statements, the auditor is required to include an emphasis of matter paragraph in the audit report. (1 mark)
e. When replaced as auditor, the outgoing auditor has a professional responsibility to reply promptly to an enquiry letter from the incoming auditor, but is not required to allow the incoming auditor access to the most recent year’s audit working papers. (1 mark)
f. When an auditor uses a substantive audit approach (setting control risk at maximum) to an audit of financial statements, the auditor is still required to gain an understanding of the internal controls. (1 mark)
g. The auditor is not required to use the same approach (combined or substantive) for all transaction cycles as well as for the various transaction or balance-related audit objectives. (1 mark)
Question 2 (7 marks)
The audit risk model has become the commonly used basis for