Test bank for Auditing A Risk Based Approach 11th Edition by Karla M. Johnstone
Test bank for Auditing A Risk Based Approach 11th Edition by Karla M. Johnstone
The audit environment continues to change in dramatic ways, and Johnstone/Gramling/Rittenberg’s AUDITING: A RISK BASED-APPROACH, 11E prepares you for that fast-changing world by developing professional and ethical decision-making skills. AUDITING integrates the latest in standards, including new guidance from the PCAOB on audit reports, fraud risks, emerging topics such as data analytics, and ethical challenges facing today’s financial statement auditors within a framework of professional skepticism. Extensively re-written to be more engaging and reader friendly, AUDITING includes features include: “What You Will Learn” and “Let’s Review” sections that highlight important points in each chapter, and integrated true/false and multiple-choice questions throughout the chapter and “Check Your Basic Knowledge” to ensure understanding as you read. Finally, new end-of-chapter problems and new cases provide valuable hands-on experience. Trust AUDITING, 11E to help you master the full range of auditing issues in today’s evolving global environment.
Contents
Preface
About The Authors
How Can You Learn By Leveraging The Features Of This Textbook
1 Quality Auditing: Why It Matters
An Overview Of External Auditing
Decision Makers’ Need For Reliable Information And The Role Of A Financial Statement Audit
What Is A Financial Statement Audit
Parties Involved In Preparing And Auditing Financial Statements
Providers Of External Auditing Services
Skills And Knowledge Needed By External Auditors
Achieving Audit Quality
Audit Firm Culture
Skills And Qualities Of The Engagement Team
Effectiveness Of The Audit Process
Reliability And Usefulness Of Audit Reporting
Factors Outside The Control Of Auditors
Professional Conduct Requirements That Help Auditors Achieve Audit Quality
Aicpa Requirements: Code Of Professional Conduct
Sec And Pcaob: Other Guidance On Professional Responsibilities
International Professional Requirements That Help Auditors Achieve Audit Quality
Frameworks For Professional And Ethical Decision Making
A Framework For Professional Decision Making
A Framework For Ethical Decision Making
Importance Of Client Acceptance And Continuance Decisions To Audit Quality
Risks Considered In Client Acceptance And Continuance Decisions
Other Considerations
Engagement Letters
Significant Terms
Prompt For Critical Thinking
Review Questions And Short Cases
Fraud Focus: Contemporary And Historical Cases
Application Activities
Academic Research Cases
2 The Auditor’s Responsibilities Regarding Fraud And Mechanisms To Address Fraud: Regulation A
Fraud Defined
Misappropriation Of Assets
Fraudulent Financial Reporting
The Fraud Triangle
Incentives Or Pressures To Commit Fraud
Opportunities To Commit Fraud
Rationalizing The Fraud
History Of Fraudulent Financial Reporting
Examples Of Recent Frauds And Implications For External Auditors
Insights From Coso Studies
The Enron Fraud
Fraud: Auditors’ Responsibilities And Users’ Expectations
Fraud-related Requirements In Professional Auditing Standards
The Sarbanes-oxley Act Of 2002 As A Regulatory Response To Fraud
Corporate Governance Defined
Characteristics Of Effective Corporate Governance
Responsibilities Of Audit Committees
Significant Terms
Prompt For Critical Thinking
Review Questions And Short Cases
Fraud Focus: Contemporary And Historical Cases
Application Activities
Academic Research Cases
3 Internal Control Over Financial Reporting: Responsibilities Of Management And The External Audi
Importance Of Internal Control Over Financial Reporting
Internal Control Defined
Entity-wide Controls And Transaction Controls
Control Environment
Commitment To Integrity And Ethical Values (coso Principle 1
The Board Of Directors Exercises Oversight Responsibility (coso Principle 2
Management Establishes Structure, Authority, And Responsibility (coso Principle 3
The Organization Demonstrates Commitment To Competence (coso Principle 4
The Organization Enforces Accountability (coso Principle 5
Risk Assessment
Management Specifies Relevant Objectives (coso Principle 6
The Organization Identifies And Analyzes Risk (coso Principle 7
The Organization Assesses Fraud Risk (coso Principle 8
The Organization Identifies And Analyzes Significant Change (coso Principle 9
Control Activities
The Organization Selects And Develops Control Activities (coso Principle 10
Management Selects And Develops General Controls Over Technology (coso Principle 11
The Organization Deploys Control Activities Through Policies And Procedures (coso Principle 12
Information And Communication
The Organization Uses Relevant Information (coso Principle 13
The Organization Communicates Internally (coso Principle 14
The Organization Communicates Externally (coso Principle 15
Monitoring
The Organization Conducts Ongoing And/or Separate Evaluations (coso Principle 16
Management Evaluates And Communicates Deficiencies (coso Principle 17
Management’s Responsibilities For Internal Control Over Financial Reporting
Management Documentation Of Internal Control
Management Reporting On Internal Control Over Financial Reporting
Evaluating Internal Control Over Financial Reporting
Assessing Deficiencies In Internal Control Over Financial Reporting
Importance Of Internal Control To The External Audit
Application: Assessing Control Design Effectiveness, Implementation, And Operating Effectiveness
Significant Terms
Prompt For Critical Thinking
Review Questions And Short Cases
Fraud Focus: Contemporary And Historical Cases
Application Activities
Academic Research Cases
4 Professional Legal Liability
The Legal Environment And The Effects Of Lawsuits On Audit Firms
Liability Doctrines
Class Action Lawsuits
Contingent-fee Compensation For Lawyers
The Audit Viewed As An Insurance Policy: The Expectations Gap
Applicable Laws And Causes Of Legal Action
Types Of Law And Legal Actions Relevant To Auditors
Parties That May Bring Suit Against Auditors
Auditor Liability Under Contract Law, Common Law, And Statutory Law
Contract Law: Liability To Clients
Common Law: Liability To Third Parties
Statutory Law: Liability To Third Parties
Significant Terms
Review Questions And Short Cases
Fraud Focus: Contemporary And Historical Cases
Application Activities
Academic Research Case
5 Professional Auditing Standards And The Auditopinion Formulation Process
Professional Auditing Standards
Auditing Standards Issued By The Aicpa, Iaasb, And Pcaob
Comparing The Auditing Standards
Principles Underlying The Auditing Standards
Pcaob Guidance—five Topical Categories Of Standards
Aicpa Guidance: Principles Governing An Audit
Iaasb Guidance: Objectives Of An Audit
Overview Of The Audit Opinion Formulation Process
Audit Opinion Formulation Process: Accounting Cycles
Audit Opinion Formulation Process: Financial Statement Assertions
Existence Or Occurrence Assertion
Completeness Assertion
Rights And Obligations Assertion
Valuation Or Allocation Assertion
Presentation And Disclosure Assertion
Audit Opinion Formulation Process: Audit Evidence And Audit Procedures
Evidence Example: Substantive Audit Procedures To Obtain Evidence About Management’s Valuation
Audit Opinion Formulation Process: Audit Documentation
Five Phases Of The Audit Opinion Formulation Process
Phase I—making Client Acceptance And Continuance Decisions
Phase Ii—performing Risk Assessment
Phase Iii—obtaining Evidence About Internal Control
Phase Iv—obtaining Substantive Evidence About Accounts, Disclosures, And Assertions
Phase V—completing The Audit And Making Reporting Decisions
Applying Decision-making Frameworks
Significant Terms
Prompt For Critical Thinking
Review Questions And Short Cases
Fraud Focus: Contemporary And Historical Cases
Application Activities
Academic Research Cases
6 Audit Evidence
Obtaining Sufficient Appropriate Audit Evidence
Sufficiency Of Audit Evidence
Appropriateness Of Audit Evidence
Audit Procedures
Types Of Audit Procedures
Timing Of Procedures
Substantive Analytical Procedures
Performing Analytical Procedures
Brief Application Of Substantive Analytical Procedures
Additional Evidence Considerations
Auditing Management Estimates
Auditing Related-party Transactions
Using A Specialist/expert To Assist With Obtaining Audit Evidence
Documenting Audit Evidence
Documenting Risk Assessment Procedures
Documenting Tests Of Controls And Substantive Procedures
Documenting Significant Findings And Their Resolution
Characteristics Of Quality Audit Documentation
Audit Programs
Applying Decision-making Frameworks
Significant Terms
Prompt For Critical Thinking
Review Questions And Short Cases
Fraud Focus: Contemporary And Historical Cases
Application Activities
Academic Research Cases
Data Analytics Using Acl
7 Planning The Audit: Identifying, Assessing, And Responding To The Risk Of Material Misstatement
Materiality
Materiality Levels
Planning Materiality
Identifying And Assessing The Risk Of Material Misstatement
Client Business Risks
The Audit Risk Model
Responding To Identified Risk Of Material Misstatement
Determining Evidence Needed In The Audit
Audit Procedures To Respond To The Assessed Risk Of Material Misstatement
Applying Decision-making Frameworks
Significant Terms
Prompt For Critical Thinking
Review Questions And Short Cases
Fraud Focus: Contemporary And Historical Cases
Application Activities
Academic Research Cases
8 Specialized Audit Tools: Attributes Sampling, Monetary Unit Sampling, And Data Analytics Tool
Using Sampling And Data Analytics Tools For Gathering And Evaluating Audit Evidence
Objectives Of Sampling And Risks Associated With Sampling
Nonsampling And Sampling Risks
Nonstatistical And Statistical Sampling
Attributes Sampling For Tests Of Controls
Steps In Attributes Sampling
Basic Steps In Sampling Account Balances And Assertions: A Nonstatisical Sampling Application
Basic Steps In Sampling Account Balances And Assertions
Nonstatistical Sampling For Substantive Tests Of Account Balances And Assertions
Statistical Sampling For Substantive Tests Of Account Balances And Assertions: Monetary Unit Sampl
Summary Of Mus Strengths And Weaknesses
Designing And Selecting A Mus Sample
Evaluating A Mus Sample
Using Data Analytics Tools To Obtain And Evaluate Evidence
Defining Data Analytics And Associated Terms
Using Data Analytics Tools In The Audit
Business Intelligence Platforms
Applying Decision-making Frameworks
Significant Terms
Prompt For Critical Thinking
Review Questions And Short Cases
Application Activities
Data Analytics: Spreadsheet Modelling And Database Querying
Academic Research Cases
9 Auditing The Revenue Cycle
Significant Accounts, Disclosures, And Relevant Assertions
Processing Revenue Transactions
An Overview Of The Audit Opinion Formulation Process In The Revenue Cycle
Identifying Inherent Risks
Inherent Risks: Revenue
Inherent Risks: Accounts Receivable
Identifying Fraud Risks
How Do Fraudsters Perpetrate Their Schemes
Identifying Fraud Risk Factors
Identifying Control Risks
Controls Related To Existence/occurrence
Controls Related To Completeness
Controls Related To Valuation
Documenting Controls
Performing Planning Analytical Procedures
Responding To Identified Risks Of Material Misstatement
Obtaining Evidence About Internal Control Operating Effectiveness In The Revenue Cycle
Selecting Controls To Test And Performing Tests Of Controls
Considering The Results Of Tests Of Controls
Obtaining Substantive Evidence About Accounts, Disclosures, And Assertions In The Revenue Cycle
Revenue And Accounts Receivable: Performing Substantive Analytical Procedures
Revenue: Substantive Tests Of Details
Accounts Receivable: Substantive Procedures
Accounts Receivable: Substantive Tests Of Details—confirmations
Accounts Receivable: Substantive Procedures For The Allowance Account
Accounts Receivable: Other Substantive Procedures
Performing Substantive Fraud-related Procedures
Documenting Substantive Procedures
Applying Decision-making Frameworks
Significant Terms
Prompt For Critical Thinking
Review Questions And Short Cases
Fraud Focus: Contemporary And Historical Cases
Application Activities
Data Analytics Using Excel: A Case In The Context Of The Pharmaceutical Industry
Data Analytics Using Acl
Data Analytics Using Tableau
Academic Research Cases
10 Auditing Cash, Marketable Securities, And Complex Financial Instruments
Significant Accounts, Disclosures, And Relevant Assertions
Common Cash Accounts: Checking, Cash Management, And Petty Cash Accounts
Relevant Financial Statement Assertions
An Overview Of The Audit Opinion Formulation Process For Cash Accounts
Identifying Inherent Risks
Identifying Fraud Risks
Identifying Control Risks
Typical Controls Over Cash
Implications Of Ineffective Controls
Controls For Petty Cash
Controls For Cash Management Techniques
Documenting Controls
Performing Planning Analytical Procedures
Responding To Identified Risks Of Material Misstatement
Obtaining Evidence About Internal Control Operating Effectiveness For Cash
Selecting Controls To Test And Performing Tests Of Controls
Considering The Results Of Tests Of Controls
Obtaining Substantive Evidence About Cash Accounts, Disclosures, And Assertions
Cash Accounts: Performing Substantive Analytical Procedures
Cash Accounts: Performing Substantive Tests Of Details
Performing Substantive Fraud-related Procedures For Cash Accounts
Documenting Substantive Procedures
Auditing Marketable Securities
Significant Accounts, Disclosures, And Relevant Assertions
An Overview Of The Audit Opinion Formulation Process For Marketable Securities
Identifying Inherent, Fraud, And Control Risks Relevant To Marketable Securities
Performing Planning Analytical Procedures For Marketable Securities
Responding To Identified Risks Of Material Misstatement
Obtaining Evidence About Internal Control Operating Effectiveness For Marketable Securities
Obtaining Substantive Evidence About Marketable Securities
Auditing Complex Financial Instruments
Overview Of Complex Financial Instruments
Audit Considerations For Complex Financial Instruments
Applying Decision-making Frameworks
Significant Terms
Prompts For Critical Thinking
Review Questions And Short Cases
Fraud Focus: Contemporary And Historical Cases
Application Activities
Data Analytics: Spreadsheet Modelling And Database Querying
11 Auditing Inventory, Goods And Services, And Accounts Payable: The Acquisition And Payment Cycl
Significant Accounts, Disclosures, And Relevant Assertions
Processing Transactions In The Acquisition And Payment Cycle
Assertions Relevant To Inventory
Assertions Relevant To Accounts Payable
An Overview Of The Audit Opinion Formulation Process In The Acquisition And Payment Cycle
Identifying Inherent Risks
Identifying Fraud Risks
Identifying Control Risks
Overview Of Internal Controls In The Acquisition And Payment Cycle
Documenting Controls
Performing Planning Analytical Procedures
Responding To Identified Risks Of Material Misstatement
Obtaining Evidence About Internal Control Operating Effectiveness In The Acquisition And Payment
Selecting Controls To Test And Performing Tests Of Controls
Considering The Results Of Tests Of Controls
Obtaining Substantive Evidence About Accounts, Disclosures, And Assertions In The Acquisition And
Substantive Tests Of Inventory And Cost Of Goods Sold
Substantive Tests Of Accounts Payable And Related Expense Accounts
Documenting Substantive Procedures
Applying Decision-making Frameworks
Significant Terms
Prompt For Critical Thinking
Review Questions And Short Cases
Fraud Focus: Contemporary And Historical Cases
Application Activities
Data Analytics Using Excel: A Case In The Context Of The Pharmaceutical Industry
Academic Research Cases
Acl
12 Auditing Long-lived Assets And Merger And Acquisition Activity
Significant Accounts, Disclosures, And Relevant Assertions
Activities In The Long-lived Asset Acquisition And Payment Cycle
Relevant Financial Statement Assertions
An Overview Of The Audit Opinion Formulation Process In The Revenue Cycle
Identifying Inherent Risks
Identifying Fraud Risks
Identifying Control Risks
Internal Controls For Long-lived Assets
Documenting Controls
Performing Planning Analytical Procedures
Responding To Identified Risks Of Material Misstatement
Obtaining Evidence About Internal Control Operating Effectiveness For Long-lived Asset Accounts A
Selecting Controls To Test And Performing Tests Of Controls
Considering The Results Of Tests Of Controls
Obtaining Substantive Evidence About Accounts, Disclosures, And Assertions For Long-lived Asset Ac
Performing Substantive Analytical Procedures
Substantive Tests Of Details For Tangible Assets
Substantive Tests Of Details For Natural Resources And The Related Expense Accounts
Substantive Tests Of Details For Intangible Assets And The Related Expense Accounts
Substantive Procedures Related To Asset Impairment
Substantive Procedures Related To Leases
Performing Substantive Fraud-related Procedures
Documenting Substantive Procedures
Auditing Merger And Acquisition Activities
Valuing The Assets And Liabilities Of An Acquisition
Audit Considerations For Valuing Identifiable Assets And Liabilities
Audit Considerations For Restructuring Charges Related To An Acquisition
Audit Considerations For Valuing Goodwill
Applying Decision-making Frameworks
Significant Terms
Prompt For Critical Thinking
Review Questions And Short Cases
Fraud Focus: Contemporary And Historical Cases
Academic Research Cases
13 Auditing Debt, Equity, And Long-term Liabilities Requiring Management Estimates
Significant Accounts, Disclosures, And Relevant Assertions
Debt
Equity
An Overview Of The Audit Opinion Formulation Process For Debt And Equity
Identifying Inherent Risks
Inherent Risks—debt
Inherent Risks—equity
Identifying Fraud Risks
Identifying Control Risks
Controls—debt
Controls—equity
Documenting Controls
Performing Planning Analytical Procedures
Responding To Identified Risks Of Material Misstatement
Obtaining Evidence About Internal Control Operating Effectiveness For Debt And Equity
Selecting Controls To Test And Performing Tests Of Controls
Obtaining Substantive Evidence About Accounts, Disclosures, And Assertions For Debt And Equity
Substantive Analytical Procedures—debt
Substantive Tests Of Details—debt
Substantive Tests Of Details—equity
Performing Substantive Fraud-related Procedures For Debt And Equity
Documenting Substantive Procedures
Long-term Liabilities Requiring Management Estimates
Warranty Reserves
Pension Obligations And Other Postemployment Benefits
Applying Decision-making Frameworks
Significant Terms
Prompt For Critical Thinking
Review Questions And Short Cases
Fraud Focus: Contemporary And Historical Cases
Application Activities
Data Analytics Using Excel: A Case In The Context Of The Pharmaceutical Industry
Academic Research Case
14 Completing A Quality Audit
Obtain Remaining Audit Evidence
Detected Misstatements
Loss Contingencies
Adequacy Of Disclosures
Noncompliance With Laws And Regulations
Review Analytical Procedures
The Going-concern Assumption
Subsequent Events
Management Representation Letter Versus A Management Letter
Management Representation Letter
Management Letter
Engagement Quality Review
Audit Committee Communications
Significant Terms
Prompt For Critical Thinking
Review Questions And Short Cases
Fraud Focus: Contemporary And Historical Cases
Application Activities
Using Acl To Perform Benford Analysis
Academic Research Cases
15 Audit Reports For Financial Statement Audits
Audit Reporting Principles
Unqualified/unmodified Audit Reports On Financial Statements
Unqualified Audit Reports: U.s. Public Companies
Unmodified Audit Reports: U.s. Nonpublic Companies
Unmodified Audit Reports: Non-u.s. Companies
Unqualified/unmodified Audit Opinions With Report Modifications
Emphasis-of-matter
Information About Certain Audit Participants
Reference To Other Auditors
Inconsistent Application Of Gaap
Justified Departure From Gaap
Substantial Doubt About The Client Being A Going Concern
Client Correction Of A Material Misstatement In Previously Issued Financial Statements
Qualified Opinions, Adverse Opinions, And Disclaimers Of Opinion
Qualified Opinions
Adverse Opinions
Disclaimers Of Opinion
Critical Audit Matters And Key Audit Matters
Key Audit Matters (kams
Critical Audit Matters (cams
Kams Or Cams
Audit Reports On Internal Control Over Financial Reporting For U.s. Public Companies
Omitted Audit Procedures
Applying Decision-making Frameworks
Significant Terms
Prompt For Critical Thinking
Review Questions And Short Cases
Fraud Focus: Contemporary And Historical Cases
Application Activities
Academic Research Cases
Acl Appendix
References
Case Index
Index
“Why It Matters” Feature Content
Auditing Standards
Additional Resources
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