Test Bank for Auditing A Practical Approach 3rd Edition by Robyn Moroney
Test Bank for Auditing A Practical Approach 3rd Edition by Robyn Moroney
The second edition of Financial Reporting (Loftus et al.) provides both a conceptual understanding and a practical application of the accounting standards. For students, an understanding of the conceptual basis of accounting and the rationale behind the principles is crucial to the consistent application of standards in a variety of practical contexts.
Cover
Title Page
Copyright
About the authors
Preface
Overview of the text
Structure of each chapter
Chapter 1: Introduction and overview of audit and assurance
Audit process in focus
1.1 Auditing and assurance defined
1.2 Different assurance services
1.2.1 Financial report audits
1.2.2 Compliance audits
1.2.3 Performance audits
1.2.4 Comprehensive audits
1.2.5 Internal audits
1.2.6 Corporate social responsibility (CSR) assurance
1.3 Different levels of assurance
1.3.1 Reasonable assurance
1.3.2 Limited assurance
1.3.3 No assurance
1.4 Different audit opinions
1.5 Preparers and auditors
1.5.1 Preparer responsibility
1.5.2 Auditor responsibility
1.5.3 Assurance providers
1.6 Demand for audit and assurance services
1.6.1 Financial report users
1.6.2 Sources of demand for audit and assurance services
1.6.3 Theoretical frameworks
1.6.4 Demand in a voluntary setting
1.7 The role of regulators and regulations
1.7.1 Regulators
1.7.2 Regulation
1.8 The audit expectation gap
Summary
Key terms
Multiple-choice questions
Review questions
Professional application questions
Research question
Further reading
Notes
Acknowledgements
Chapter 2: Ethics, legal liability and client acceptance
Audit process in focus
2.1 The fundamental principles of professional ethics
2.1.1 Integrity
2.1.2 Objectivity
2.1.3 Professional competence and due care
2.1.4 Confidentiality
2.1.5 Professional behaviour
2.2 Independence
2.2.1 Threats to independence
2.2.2 Safeguards to independence
2.3 The auditor’s relationships with others
2.3.1 Auditors and shareholders
2.3.2 Auditors and the board of directors
2.3.3 Auditors and the audit committee
2.3.4 Auditors and internal auditors
2.4 Legal liability
2.4.1 Legal liability to clients
2.4.2 Contributory negligence
2.4.3 Legal liability to third parties
2.4.4 Avoidance of litigation
2.5 Client acceptance and continuance decisions
Summary
Key terms
Multiple-choice questions
Review questions
Professional application questions
Research question
Further reading
Notes
Acknowledgements
Chapter 3: Risk assessment I
Audit process in focus
3.1 Phases of an audit
3.1.1 Risk assessment phase
3.1.2 Risk response phase
3.1.3 Concluding and reporting on an audit
3.2 Gaining an understanding of the client
3.2.1 Entity level
3.2.2 Industry level
3.2.3 Economy level
3.3 Fraud risk
3.3.1 Incentives and pressures to commit a fraud
3.3.2 Opportunities to perpetrate a fraud
3.3.3 Attitudes and rationalisation to justify a fraud
3.4 Going concern
3.4.1 Going concern risk — indicators
3.4.2 Going concern risk — mitigating factors
3.5 Corporate governance
3.6 Information technology
3.7 Closing procedures
Summary
Key terms
Multiple-choice questions
Review questions
Professional application questions
Research question
Further reading
Notes
Acknowledgements
Chapter 4: Risk assessment II
Audit process in focus
4.1 Audit risk
4.1.1 The audit risk model and its components
4.2 Materiality
4.2.1 Qualitative and quantitative materiality
4.2.2 Setting materiality
4.3 Audit strategy
4.4 Client approaches to measuring performance
4.4.1 Profitability
4.4.2 Liquidity
4.5 Analytical procedures
4.5.1 Comparisons
4.5.2 Trend analysis
4.5.3 Common-size analysis
4.5.4 Ratio analysis
4.5.5 Other analytical procedures
4.5.6 Factors to consider when conducting analytical procedures
Summary
Key terms
Multiple-choice questions
Review questions
Professional application questions
Research question
Notes
Chapter 5: Audit evidence
Audit process in focus
5.1 Assertions
5.2 Types of audit evidence
5.2.1 Sufficient appropriate audit evidence
5.2.2 External confirmations
5.2.3 Documentary evidence
5.2.4 Representations
5.2.5 Verbal evidence
5.2.6 Computational evidence
5.2.7 Physical evidence
5.2.8 Electronic evidence
5.3 Persuasiveness of audit evidence
5.3.1 Internally generated evidence
5.3.2 Externally generated evidence held by the client
5.3.3 Externally generated evidence sent directly to the auditor
5.4 Using the work of an expert
5.4.1 Assessing the need to use an expert
5.4.2 Determining the scope of the work to be carried out
5.4.3 Assessing the capability of the expert
5.4.4 Assessing the objectivity of the expert
5.4.5 Assessing the expert’s report
5.4.6 Responsibility for the conclusion
5.5 Using the work of another auditor
5.6 Evidence gathering procedures
Summary
Key terms
Multiple-choice questions
Review questions
Professional application questions
Research question
Notes
Acknowledgements
Chapter 6: Gaining an understanding of the client’s system of internal controls
Audit process in focus
6.1 Internal control defined
6.2 Objectives of internal controls
6.3 Entity-level internal controls
6.3.1 The control environment
6.3.2 The entity’s risk assessment process
6.3.3 Information systems and communication
6.3.4 Control activities
6.3.5 Monitoring of controls
6.3.6 Internal control in small entities
6.4 Transaction-level internal controls
6.4.1 Example transaction flows — sales process
6.4.2 Example transaction flows — cost of sales process
6.5 Documenting internal controls
6.6 Identifying strengths and weaknesses in a system of internal controls
6.7 Management letters
Summary
Key terms
Multiple-choice questions
Review questions
Professional application questions
Research question
Notes
Acknowledgements
Chapter 7: Sampling and overview of the risk response phase of the audit
Audit process in focus
7.1 Audit sampling
7.2 Sampling and non-sampling risk
7.2.1 Sampling risk and tests of controls
7.2.2 Sampling risk and substantive procedures
7.2.3 Non-sampling risk
7.3 Statistical and non-statistical sampling
7.4 Sampling methods
7.4.1 Random selection
7.4.2 Systematic selection
7.4.3 Haphazard selection
7.4.4 Block selection
7.4.5 Judgemental selection
7.4.6 Factors to consider when selecting a sample
7.5 Factors that influence the sample size — testing controls
7.6 Factors that influence the sample size — substantive testing
7.7 Evaluating sample test results
7.8 Tests of controls and substantive procedures
7.8.1 Tests of controls
7.8.2 Substantive procedures
7.9 Nature, timing and extent of audit testing
7.9.1 Nature of audit testing
7.9.2 Timing of audit testing
7.9.3 Extent of audit testing
7.10 Drawing conclusions
7.11 Documentation — audit working papers
7.11.1 Permanent file
7.11.2 Current file
Summary
Key terms
Multiple-choice questions
Review questions
Professional application questions
Research question
Notes
Acknowledgements
Chapter 8: Execution of the audit — testing of controls
Audit process in focus
8.1 Types of controls
8.1.1 Prevent and detect controls
8.1.2 Manual and automated controls
8.2 Techniques for testing controls
8.2.1 Enquiry
8.2.2 Observation
8.2.3 Inspection of physical evidence
8.2.4 Re-performance
8.3 Selecting and designing tests of controls
8.3.1 Which controls should be selected for testing?
8.3.2 How much testing does the auditor need to do?
8.4 Results of the auditor’s testing
8.5 Documenting conclusions
Summary
Key terms
Multiple-choice questions
Review questions
Professional application questions
Research question
Notes
Chapter 9: Execution of the audit — performing substantive procedures
Audit process in focus
9.1 Overview of substantive procedures
9.1.1 Substantive procedures and assertions
9.1.2 Definition of substantive procedures
9.2 Relationship between risk assessment and the nature, timing and extent of substantive procedures
9.2.1 Timing of substantive procedures
9.3 Substantive audit procedures
9.3.1 Tests of details
9.3.2 Key item testing
9.3.3 Analytical procedures
9.3.4 Types of analytical procedures
9.3.5 Performing substantive testing using computers
9.4 Levels of evidence
9.4.1 Persuasive
9.4.2 Corroborative
9.4.3 Minimal
9.4.4 General
9.5 Evaluating and documenting substantive analytical procedures results
9.5.1 Evaluating errors identified in testing
9.5.2 Concluding and documenting the results of substantive procedures
Summary
Key terms
Multiple-choice questions
Review questions
Professional application questions
Research question
Notes
Chapter 10: Substantive testing and balance sheet accounts
Audit process in focus
10.1 Relationship between risk assessment and substantive procedures
10.1.1 Extent of substantive procedures
10.1.2 Timing of substantive procedures
10.1.3 Matters to consider when designing substantive procedures
10.2 Substantive testing of cash
10.2.1 Principal objectives in auditing cash
10.2.2 Processes affecting cash
10.2.3 Illustrative procedures for auditing cash
10.3 Substantive testing of trade receivables
10.3.1 Principal objectives in auditing trade receivables
10.3.2 Processes affecting trade receivables
10.3.3 Illustrative procedures for auditing trade receivables
10.4 Substantive testing of inventory
10.4.1 Principal objectives in auditing inventory
10.4.2 Processes affecting inventory
10.4.3 Illustrative procedures for auditing inventory
10.5 Substantive testing of property, plant and equipment
10.5.1 Principal objectives in auditing property, plant and equipment
10.5.2 Processes affecting property, plant and equipment
10.5.3 Illustrative procedures for auditing property, plant and equipment
10.6 Substantive testing of payables
10.6.1 Principal objectives in auditing payables
10.6.2 Processes affecting payables
10.6.3 Illustrative procedures for auditing payables
10.7 Special considerations for auditing other balance sheet accounts
10.8 Assessing the results of substantive procedures
Summary
Key terms
Multiple-choice questions
Review questions
Professional application questions
Research question
Notes
Acknowledgements
Chapter 11: Substantive testing and income statement accounts
Audit process in focus
11.1 Relationship between risk assessment and substantive procedures
11.1.1 Differences between auditing income statement and balance sheet accounts
11.1.2 Extent of substantive procedures
11.1.3 Timing of substantive procedures
11.2 Substantive testing of revenue
11.2.1 Principal objectives in auditing revenue
11.2.2 Processes affecting sales revenue
11.2.3 Illustrative procedures for auditing revenue
11.3 Substantive testing of cost of sales and other significant expenses
11.3.1 Principal objectives in auditing costs and expenses
11.3.2 Processes affecting costs and expenses
11.3.3 Illustrative procedures for auditing costs and expenses
11.4 Assessing the results of substantive procedures
Summary
Key terms
Multiple-choice questions
Review questions
Professional application questions
Notes
Acknowledgements
Chapter 12: Completing and reporting on the audit
Audit process in focus
12.1 Engagement wrap-up
12.1.1 Sufficient appropriate audit evidence
12.1.2 Evaluating audit evidence
12.2 Going concern
12.3 Subsequent events
12.3.1 Type 1 subsequent events — adjusting events
12.3.2 Type 2 subsequent events — non-adjusting events
12.3.3 Procedures used when conducting a subsequent events review
12.4 Misstatements
12.4.1 Current-year misstatements
12.4.2 Prior-year misstatements
12.4.3 Qualitative considerations
12.5 Evaluating the conclusions and forming an opinion
12.6 Components of the audit report
12.7 Modifications to the audit report
12.7.1 Emphasis of matter
12.7.2 Limitation of scope
12.7.3 Disagreement with those charged with governance
12.8 Corporations Act 2001 breaches
12.9 Management representation and communication with those charged with governance
12.9.1 Audit matters of governance interest to be communicated
12.9.2 Documentation considerations
Summary
Key terms
Multiple-choice questions
Review questions
Professional application questions
Research question
Notes
Appendix
Cloud 9 Pty Ltd company background
Personnel
Financial information
Transcript of meeting with Carla Johnson
Sales control testing support
EULA
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