Tutorial 1 Questions

ACCT7103 Tutorial 1 Questions

Tutorial 1 questions (Arens textbook end of chapter questions):

1.14; 1.21 (a, c); 1.23 (corrected, use this format instead of the textbook question);
1.29; 4.28.

1.14 An audit conducted in accordance with auditing standards provides reasonable

assurance as to whether the financial report taken as a whole is free from material
misstatement. What is meant by reasonable assurance?

1.21 The following questions deal with audits by public accounting firms. Choose the
best response.
a. Which of the following best describes why an independent auditor is asked to express
an opinion on the fair presentation of financial statements?
(1) It is difficult to prepare financial statements that fairly present a companys
financial position, operations and cash flows without the expertise of an
independent auditor.
(2) It is managements responsibility to seek available independent aid in the
appraisal of the financial information shown in its financial statements.
(3) The opinion of an independent party is needed because a company may not be
objective with respect to its own financial statements.
(4) It is a customary courtesy that all shareholders of a company receive an
independent report on managements stewardship of the affairs of the business.

c. Which of the following professional services would be considered an attestation

engagement?
(1) A consulting service engagement to provide information technology
processing advice to a client
(2) An engagement to report on statutory requirements
(3) An income tax engagement to prepare Federal and State tax returns
(4) The compilation of financial statements from a clients financial records.

1.23 (Updated based on ASA220. Ignore the textbook version)

The following questions deal with quality controls. Choose the most appropriate quality
control element listed in ASA 220.

Elements of quality control in ASA220:

1. Leadership responsibilities for quality on audits
2. Ethical requirements e.g., independence
3. Client evaluation Acceptance & continuance
4. Assignment of engagement teams
5. Engagement performance
a) Direction, supervision & performance

 Tutorial 1 Questions

b) Reviews
c) Consultation
d) Engagement quality review
e) Differences of opinion
6. Monitoring
7. Documentation

Identify the most appropriate quality control element for the following procedures:
a. Inquiring of third parties as to any information regarding a prospective client and its
management which may have a bearing on evaluating the prospective client.
b. Review and testing of compliance with the firms general quality control policies and
procedures.
c. Utilisation of standardised forms, checklists and questionnaires to assist in the
performance of audits.
d. Having each partner and employee complete annually a questionnaire concerning
ownership of shares and membership on boards of directors.

1.29 In the normal course of performing their responsibilities, auditors often conduct audits
or reviews of the following:
1. Federal income tax returns of an officer of the company to determine whether he or
she has included all taxable income in the return.
2. Disbursements of a branch of the Federal Government for a special research
project to determine whether it would have been feasible to accomplish the same
research results at a lower cost to taxpayers
3. Computer operations of a company to evaluate whether the computer centre is being
operated as efficiently as possible
4. Annual statements for the use of management
5. Operations of the ATO to determine whether the tax auditors are using their time
efficiently in conducting audits
6. Statements for bankers and other creditors when the entity is too small to have an audit
staff.
7. Financial statements of an agency of the Federal Government to ensure that the
statements present fairly the financial position and performance of the agency
during a period of time.
8. Federal income tax returns of a company to determine whether the tax laws have
been followed.
9. Financial statements for the use by shareholders when there is an internal audit
staff.
10. A debenture trust deed to ensure that a company is following all of the contract
11. The computer operations of a large company to evaluate whether the internal
controls are likely to prevent errors in accounting and operating data
12. Disbursements of an agency of the Federal Government for a special research
project to determine whether the expenditures were consistent with the
legislation that authorised the project.

 Tutorial 1 Questions

REQUIRED
a. For these 12 examples, state the most likely type of auditor (public accountant, officer
serving the Auditor-General, tax auditor, internal auditor) to perform each.
b. In each example, state the type of audit (financial statement, performance audit,
compliance audit)

5.28 The following are specific transaction-related audit objectives applied to the audit of cash
payment transactions (a to f) management assertions (1 to 5), and general transaction-related
audit objectives (6 to 11).
Specific transaction-related audit objectives
a. Recorded cash payment transactions are for the amount of goods and services received
and are correctly recorded.
b. Cash payment transactions are properly included in the accounts payable
master file and are correctly summarised.
c. Recorded cash payments are for goods and services actually received.
d. Cash payment transactions are properly classified.
e. Existing cash payment transactions are recorded.
f. Cash payment transactions are recorded on the correct dates.

Management assertions
1. Occurrence
2. Completeness
3. Accuracy
4. Classification
5. Cutoff

General transaction-related audit objectives

6. Occurrence
7. Completeness
8. Accuracy
9. Posting and summarisation
10. Classification
11. Timing

REQUIRED
a. Explain the differences among management assertions, general transaction- related audit
objectives and specific transaction-related audit objectives, and their relationships to each
other.
b. For each specific transaction-related audit objective, identify the appropriate
management assertion.
c. For each specific transaction-related audit objective, identify the appropriate general
transaction-related audit objective.