Departures from GAAP - Auditing Reports

On January 1, Graham Company purchased land (the site of a new building) for $100,000. Soon thereafter, the Highway Department announced a new feeder roadway route that would run alongside the site. The effect was a dramatic increase in local property values. Nearby comparable land sold for $700,000 in December of the current year. Graham shows the land at $700,000 in its accounts, and, after reduction for implicit taxes at 33 percent, the fixed asset total is $400,000 larger, with the same amount shown separately in a stockholders’ equity account titled “Current value increment.” The valuation is fully disclosed in a footnote to the financial statements, along with a letter from a certified... click for more

Various Report Situations - Auditing Reports

Assume the auditors encountered the following separate situations when deciding upon the report to issue for the current-year financial statements. 1. The auditor decided that sufficient competent evidence could not be obtained to complete the audit of significant investments the company held in a foreign company. 2. The company failed to capitalize lease assets and obligations, but explained them fully in the notes to the financial statements. 3. The company is defending a lawsuit on product liability claims. (Customers allege that power saw safety guards were improperly installed.) All the facts about the lawsuit are disclosed in notes to the financial statement, but the auditors ... click for more

Auditing

1. Which is better, statistical sampling or nonstatistical sampling? Why? 2. Should Generally Accepted Auditing Standards prescribe specific risk levels that auditors must use? Why or why not?

First Auditing Multiple Choice Questions

1. Which of the following factors most likely would cause a CPA to not accept a new audit engagement? a. The prospective client has already completed its physical inventory count b. The CPA lacks an understanding of the prospective client’s operations and industry c. The CPA is unable the review the predecessor auditor’s working papers d. The prospective client is unwilling to make all financial records available to the CPA. 2. The primary purpose of establishing quality control policies and procedures for deciding whether to accept a new client is to a. Enable the CPA firm to attest to the reliability of the client b. Satisfy the CPA firm’s ... click for more

Second Auditing Multiple Choice Questions

11.When obtaining an understanding of an entity’s internal control procedures, an auditor should concentrate on the substance of the procedures rather than their form because a. The procedures may be operating effectively but may not be documented b. Management may implement procedures whose costs exceed their benefits c. The procedures may be so inappropriate that no reliance is contemplated by the auditor d. Management may establish appropriate procedures but not enforce compliance with them. 12.An auditor uses the knowledge provided by the understanding of internal control and the final assessed level of control risk primarily to determine the nature, timing, a... click for more