Posted: July 22nd, 2024

WEEK 1 AUDITING AND ASSUANCE ASSIGNEMENT

WEEK 1 AUDITING AND ASSUANCE ASSIGNEMENT 2.65 Fundamental Principles (comprehensive). In each of the following, identify which of the element of the fundamental principles is most applicable. In addition, discuss what action (s) if any you believe auditors should take with respect to these issues. a. An entity has contacted you about performing its audit engagement. You have not previously served a client in the entity's industry, which has many industry-specific accounting issues that are both technical and complex. b. An entity has entered into a number of lease agreement. Based on the requirements of GAAP, you believe these obligations meet the criteria for being classified as capital leases; however, the entity has elected to treat these leases as operating leases, providing full and complete disclosure of this treatment in the footnotes to the financial statements. c. Because of disagreement with its current auditors, an entity has contacted you about conducting its current year audit. However, because the previous auditors have just recently resigned from the engagement, you have some questions as to whether an audit can be completed in time to meet the entity's deadlines for providing audited financial statements to a lender. d. Based on the effectiveness of the entity's internal control, you have assessed control risk at low levels and decided that a smaller number of costumer accounts need to be confirmed. e. An entity has contacted you about performing their audit engagement. This entity became aware of your firm because the husband of one of your partners is currently serving as the entity's chief financial officer. f. One of your client is currently a potential defendant in several cases because of the damage caused by one of its products. Because this entity does not believe that it is likely to receive an unfavorable outcome from this litigation, it did not disclose the potential litigation in the footnotes accompanying their financial statements. g. You are performing tests of client's controls over the processing of revenue transactions to determine whether these controls are operating effectively and can be relied upon to prevent or detect misstatements. h. One of your supervisors has requested a number of clarifications based on her review of your work on an audit engagement. A subsequent meeting with her has resolved these clarification, and you both have concluded that your work supports the opinion on the client's financial statements. 2.66 Fundamental Principles (comprehensive).Identify which of the major fundamental principles (responsibilities, performance, or reporting) is most closely related to each of the following: a. The need for auditors to consider their financial relationships with prospective clients. b. An auditor has raised some questions with respect to management's response to various inquiries concerning pending litigation facing the client. c. The auditors' consideration of the effectiveness of the entity's internal control on the nature , timing , and extent of substantive procedures. d. The auditor's evaluation of the magnitude of a misstatement that would impact perceptions of the entity's profitability. e. The auditors' issuance of a disclaimer of opinion because of a significant scope limitation. f. Relevant education and experience requirements for CPA licensure. g. The inability of an audit examination to provide absolute assurance with respect to detecting all material misstatements. h. The requirement that auditors possess the skills and knowledge of others in their profession. I. The preparation of a written audit plan that guides the conduct of the audit engagement. j. The auditors' issuance of a qualified opinion because of a departure from GAAP.

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2.67. Fundamental Principles (comprehensive). Comment upon each of the following statements you heard in a conversation between two newly-hired staff auditors. a." Of course, I'm qualified to be assigned to this engagement t. I have an accounting degree from a top university and was an honors graduate. I know some of the accounting rules have changed since I graduate, but I'll be able to figure that out as we go through the audit." b. “It doesn't really matter what others think.... I'm completely independent of Acme Industries and should be a member of the audit team. While I own some stock, it's a small amount and I'm holding it for the long term anyway." c. "You really have to question everything the client tells you. That's what professional skepticism is all about. It's a shame you can't believe a word they say." d. "The evidence is lower in quality, but we typically use internal evidence when we audit property, plant, and equipment. It just takes too much time and costs too much to get more reliable evidence." e. "On that last job, we really planned the audit well. We were able to finish everything by November 1 and didn't need to do any work after year-end." f. "We're not too worried about internal control. We always do the same substantive procedures anyway, so why take the time to look at the client's controls?" g. "Because the client isn't accounting for its leases properly, we need to issue either a qualified opinion or a disclaimer of opinion. Just how large a dollar impact does this have on the financial statements?" h. "When we evaluate items for materiality, the only thing we need to worry about is the absolute dollar amount. There really isn't anything else we need to consider."

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