Auditing Case study Answers to case study: 1. What are the auditor ’s primary objectives when he or she observes the client ’s annual physical inventory? Ans. The Primary Objective of auditor is to make sure the inventory reflected on the balance sheet actually exists and that the balance sheet includes all inventory owned by the company .This includes all raw material‚supplies‚inventory in transit.The company may have on consignment with another business and inventory stored off the
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3. When an auditor believes that an illegal act may have occurred‚ the auditor should first: The answer is C‚ to inquire management at a level above those likely to be involved. The reason C is the correct answer is because it is one of the three things that an auditor should do when they believe that an illegal act has occurred. The other 2 things that they should do are: The auditor should consult with the client’s legal counsel or other specialist who is knowledgeable about the potential
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Comply with Generally Accepted Auditing Standards | The auditor must have adequate technical training and proficiency to perform the audit. | Jones‚ CPA hired to students that did not have any experience. | The auditor must maintain independence in mental attitude in all matters relating to the audit. | Arthur Jones‚ CPA‚ accepted the offer of receiving a bonus if bank approves the loan. | The auditor must exercise due professional care in the performance of the
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may have many affluent stakeholders relying on their financial statements in order to make important decisions‚ which may have monetary impacts. Therefore‚ an auditor’s precision is imperative. There have been many proposals in which to deal with auditor liability to non-clients who might rely on financial statements. According to Bailey King of Smith Moore Leatherwood Attorneys at Law‚ there are three different approaches that are practiced across the United States. These are
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6-19. The following questions concern the reasons auditors do audits. Choose the best response. a. Which of the following best describes the reason why an independent auditor reports on financial statements? (1) A misappropriation of assets may exist‚ and it is more likely to be detected by independent auditors. (2) Different interests may exist between the company preparing the statements and the persons using the statements. (3) A misstatement of account balances may exist and is generally
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investors‚ management‚ government‚ and (indirectly) all individuals who are ultimately affected by the integrity of the financial reporting process. Auditors need to remember that they are serving the public interest and not the interests of client management. 1-2. The audit opinion formulation process is a systematic approach by which the auditor evaluates the risk of being associated with a client‚ through the process of gathering and evaluating audit evidence‚ to determining the type of audit
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(ITF) involves auditors establishing a mini company or dummy company on the live files processed by an application system. For example‚ in a payroll system‚ auditors might establish a master-file record for a fictitious employee. Auditors then submit test data to the application system as part of the normal transaction data entered into the system. They monitor the effects of their test data on the dummy entity they have established. Two major design decisions must be made when auditors use ITF. First
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and evaluate the auditors’ compliance with GAAS. Do you think the auditor did all they could to detect the fraud? Evaluate whether auditors exercised due care and the level of professional skepticism to be expected in an audit the size of Parmalat. Clearly‚ auditors failed to do the due diligence‚ thereby indirectly contributing to the failure of Parmalat. Italian law requires both listed and unlisted companies to have a board of statutory auditors as well as external auditors and also requires
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tort (that is ‚ those who the auditor could reasonable foresee would rely on the auditor’s report)‚ owed to another person or persons. (a) What are the liabilities‚ if any‚ of the auditor? To whom is the auditor liable? The liabilities are that the auditor had failed to detect a significant embezzlement by a senior manager at Sonny‚ which led that Sonny failed to obtain loan from Bank of Australia due to some low ratios from the financial statements. The auditor is liable to Sonny because
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EXECUTIVE SUMMERY A banking companies are requires maintaining the books of account in accordance with section 209 of the companies act‚ 1956. Banking generally a sound internal control system their day to day transaction. The auditor has to evaluate such system carefully. The fundamental requirement of an audit‚ as regards reporting on statement of account can be discharged from the examination of the internal checked and verification of assets and liabilities by making a comparison
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