Test Bank for Auditing and Assurance Services 17th edition by Alvin A. Arens
Test Bank for Auditing and Assurance Services 17th edition by Alvin A. Arens
For core courses in auditing. An integrated, up-to-date approach to auditing and assurance services Comprehensive and up-to-date, including discussion of new standards, codes, and concepts, Auditing and Assurance Services: An Integrated Approach, 17th Edition presents an integrated approach to auditing that details the process from start to finish. Based on the authors’ belief that the fundamental concepts of auditing center on the nature and amount of evidence that auditors should gather in specific engagements, the text’s primary objective is to illustrate auditing concepts using practical examples and real-world settings. Using key real audit decisions as their foundation, students can successfully conduct an audit according to a financial reporting framework.
Additional ISBNs
0135176115, 0134897439, 0136692087, 9780135176115, 9780134897431, 9780136692089, 0135171210, 9780135171219
Table of Contents
Auditing and Assurance Services An Integrated Approach
Continuing the Legacy of Alvin A. Arens
About the Authors
Contents
Preface
New to This Edition
Solving Teaching and Learning Challenges
Table of Contents Overview
Instructor Teaching Resources
Part 1 The Auditing Profession
Chapter 1 The Demand for Audit and Other Assurance Services
Learning Objectives
Brown Goes Green
Nature of Auditing
Information and Established Criteria
Accumulating and Evaluating Evidence
Competent, Independent Person
Reporting
Distinction Between Auditing and Accounting
Economic Demand for Auditing
Causes of Information Risk
Remoteness of Information
Biases and Motives of the Provider
Voluminous Data
Complex Exchange Transactions
Reducing Information Risk
User Verifies Information
User Shares Information Risk With Management
Audited Financial Statements Are Provided
Concept Check
Assurance Services
Attestation Services
Audit of Historical Financial Statements
Audit of Internal Control Over Financial Reporting
Review of Historical Financial Statements
Other Attestation Services
Other Assurance Services
Nonassurance Services Provided by CPAs
Types of Audits
Operational Audits
Compliance Audits
Financial Statement Audits
Types of Auditors
Certified Public Accounting Firms
Government Accountability Office Auditors
Internal Revenue Agents
Internal Auditors
Certified Public Accountant
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
Required
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Required
Chapter 2 The CPA Profession
Learning Objectives
Good Auditing Includes Good Client Service
Certified Public Accounting Firms
Types of CPA Firms
Activities of CPA Firms
Structure of CPA Firms
Organizational Structures
Proprietorship
General Partnership
General Corporation
Professional Corporation
Limited Liability Company
Limited Liability Partnership
Hierarchy of a Typical CPA Firm
Concept Check
Sarbanes–Oxley Act and Public Company Accounting Oversight Board
Securities and Exchange Commission
American Institute of Certified Public Accountants (AICPA)
Establishing Standards and Rules
Other AICPA Functions
International and U.S. Auditing Standards
International Standards on Auditing
AICPA Auditing Standards
PCAOB Auditing Standards
Organization of U.S. Auditing Standards
Purpose
Responsibilities
Appropriate Competence and Capabilities
Comply with Relevant Ethical Requirements
Maintain Professional Skepticism and Exercise Professional Judgment
Performance
Adequate Planning and Supervision
Determine and Apply Materiality Levels
Assess Risks of Material Misstatement
Sufficient Appropriate Evidence
Reporting
Principles Versus Auditing Standards
Standards of Performance
Concept Check
Quality Control
Elements of Quality Control
Peer Review
Audit Practice and Quality Centers
Summary
Essential Terms
Review Questions
Multiple choice Questions From CPA Examinations
Multiple choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Chapter 3 Audit Reports
Learning Objectives
The Rolls-Royce of Audit Reports
Standard Unmodified Opinion Audit Report for Nonpublic Entities
Parts of Standard Unmodified Opinion Audit Report
Disclosure of Key Audit Matters
Conditions for Standard Unmodified Opinion Audit Report
Standard Audit Report and Report on Internal Control Over Financial Reporting Under PCAOB Auditing Standards
Standard Unmodified Opinion Audit Report for Public Companies
Critical Audit Matters
Disclosure of Engagement Partner and Other Audit Participants
Reports on Internal Control Over Financial Reporting
Unmodified Opinion Audit Report With Emphasis-of-Matter Explanatory Paragraph or Nonstandard Report Wording
Lack of Consistent Application of GAAP
Consistency Versus Comparability
Auditor Agrees With a Departure from a Promulgated Principle
Substantial Doubt About Going Concern
Emphasis of Other Matters
Reports Involving Other Auditors
Concept Check
Modifications to the Opinion in the Audit Report
Qualified Opinion
Adverse Opinion
Disclaimer of Opinion
Materiality
Levels of Materiality
Amounts Are Immaterial
Amounts Are Material but Do Not Overshadow the Financial Statements as a Whole
Amounts Are So Material or So Pervasive That Overall Fairness of the Statements Is in Question
Materiality Decisions
Materiality Decisions—Non-GAAP Condition
Dollar Amounts Compared With a Benchmark
Measurability
Nature of the Item
Materiality Decisions—Scope Limitations Condition
Discussion of Conditions Requiring a Modification of Opinion
Auditor’s Scope Has Been Restricted
Statements Are Not in Conformity With GAAP
Justified Departure from GAAP
Auditor Is Not Independent
Auditor’s Decision Process for Audit Reports
More Than One Condition Requiring a Departure or Modification
International Accounting and Auditing Standards
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions from CPA Examinations
Multiple Choice Questions from Becker CPA Exam Review
Discussion Questions and Problems
Other Information
Required
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Chapter 4 Professional Ethics
Learning Objectives
Leakage of Confidential PCAOB Inspections Information
What are Ethics?
Need for Ethics
Why People Act Unethically
Person’s Ethical Standards Differ From General Society’s
The Person Chooses to Act Selfishly
Ethical Dilemmas
Rationalizing Unethical Behavior
Everybody Does It
If It’s Legal, It’s Ethical
Likelihood of Discovery and Consequences
Resolving Ethical Dilemmas
Ethical Dilemma
Resolving the Ethical Dilemma Using the Six-Step Approach
Relevant Facts
Ethical Issue
Who Is Affected and How Is Each Affected?
Bryan’s Available Alternatives
Consequences of Each Alternative
Appropriate Action
Special Need for Ethical Conduct in Professions
Difference Between CPA Firms and Other Professionals
Ways CPAs Are Encouraged to Conduct Themselves Professionally
Concept Check
Code of Professional Conduct
Principles of Professional Conduct
Conceptual Framework for Rules of Conduct
Threats to Compliance
Safeguards
Rules of Conduct
Interpretations of Rules of Conduct
Applicability of the Rules of Conduct
Concept Check
Independence Rule
Financial Interests
Covered Members
Direct Versus Indirect Financial Interest
Material or Immaterial
Financial Interests of Close Relatives
Related Financial Interest Issues
Normal Lending Procedures
Employment of Immediate and Close Family Members
Joint Closely Held Investments With a Client
Director, Officer, Management, or Employee of a Company
Consulting, Bookkeeping, and Other Nonattest Services
Litigation Between CPA Firm and Client
Unpaid Fees
Network of Firms
Sarbanes–Oxley and Related Independence Requirements
Sarbanes–Oxley Act and SEC Provisions Addressing Auditor Independence
Nonaudit Services
Audit Committees
Conflicts Arising From Employment Relationships
Partner Rotation
Ownership Interests
Shopping for Accounting Principles
Engagement and Payment of Audit Fees by Management
Concept Check
Other Rules of Conduct
Integrity and Objectivity
Technical Standards
Confidentiality
Need for Confidentiality
Exceptions to Confidentiality
Contingent Fees
Commissions and Referral Fees
Advertising and Solicitation
Form of Organization and Name
Discreditable Acts
Code Classification System
Concept Check
Enforcement
Action by AICPA Professional Ethics Division
Action by a State Board of Accountancy
PCAOB Enforcement Actions
Summary
Essential Terms
Review Questions
Multiple Choice Questions from CPA Examinations
Multiple Choice Questions from Becker CPA Review
Discussion Questions and Problems
Required
Required
Required
Cases
Required
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Required
Chapter 5 Legal Liability
Learning Objectives
Preventing Lawsuits Starts With Client Acceptance
Legal Environment for CPAs
Distinguishing Business Failure, Audit Failure, and Audit Risk
Legal Concepts Affecting Liability
Prudent Person Concept
Liability for the Acts of Others
Lack of Privileged Communication
Legal Terms Affecting CPAs’ Liability
Sources of Legal Liability
Concept Check
Liability to Clients
Auditor’s Defenses Against Client Suits
Lack of Duty
Nonnegligent Performance
Contributory Negligence
Absence of Causal Connection
Liability to Third Parties Under Common Law
Ultramares Doctrine
Foreseen Users
Credit Alliance
Restatement of Torts
Foreseeable User
Auditor Defenses Against Third- Party Suits
Civil Liability Under the Federal Securities Laws
Securities Act of 1933
Securities Exchange Act of 1934
Rule 10b-5 of the Securities Exchange Act of 1934
Auditor Defenses— 1934 Act
SEC and PCAOB Sanctions
Foreign Corrupt Practices Act of 1977
Sarbanes–Oxley Act of 2002
Concept Check
Criminal Liability
The Profession’s Response to Legal Liability
Protecting Individual CPAs From Legal Liability
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
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Case
Required
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Part 2 The Audit Process
Chapter 6 Audit Responsibilities and Objectives
Learning Objectives
Under Pressure: Wells Fargo Aggressive Sales Practices Lead to Illegal Acts by Employees
Objective of Conducting an Audit of Financial Statements
Management’s Responsibilities
Auditor’s Responsibilities
Auditor’s Responsibilities for Detecting Material Errors
Auditor’s Responsibilities for Detecting Material Fraud
Fraud Resulting From Fraudulent Financial Reporting Versus Misappropriation of Assets
Auditor’s Responsibilities to Consider Laws and Regulations
Laws and Regulations With a Direct Effect on the Financial Statements
Laws and Regulations That Do Not Have a Direct Effect on the Financial Statements
Audit Procedures When Noncompliance Is Identified or Suspected
Reporting of Identified or Suspected Noncompliance
Professional Skepticism
Professional Judgment
Financial Statement Cycles
Cycle Approach to Segmenting an Audit
Relationships Among Cycles
Setting Audit Objectives
Management Assertions
PCAOB Assertions
International and AICPA Assertions
Assertions About Classes of Transactions and Events
Assertions About Account Balances
Assertions Lead to Audit Objectives
Transaction-Related Audit Objectives
General Transaction-Related Audit Objectives
Occurrence—Recorded or Disclosed Transactions Exist
Completeness—Existing Transactions Are Recorded and Disclosures Are Included
Accuracy—Recorded Transactions Are Stated at the Correct Amounts and Disclosures Are Appropriately Measured and Described
Posting and Summarization—Recorded Transactions Are Properly Included in the Master Files and Are Correctly Summarized
Classification—Transactions Included in the Client’s Journals Are Properly Classified
Timing—Transactions Are Recorded on the Correct Dates
Presentation—Transactions Are Appropriately Aggregated or Disaggregated and Described, and Disclosures Are Relevant and Understandable
Specific Transaction-Related Audit Objectives
Relationships Among Management Assertions and Transaction-Related Audit Objectives
Balance-related Audit Objectives
General Balance-Related Audit Objectives
Existence—Amounts Included Exist
Completeness—Existing Amounts and Related Disclosures Are Included
Accuracy—Amounts Included Are Stated at the Correct Amounts, and Disclosures Are Appropriately Measured and Described
Cutoff—Transactions Near the Balance Sheet Date Are Recorded in the Proper Period
Detail Tie-In—Details in the Account Balance Agree With Related Master File Amounts, Foot to the Total in the Account Balance, and Agree With the Total in the General Ledger
Realizable Value—Assets Are Included at the Amounts Estimated to Be Realized
Classification—Amounts Included in the Client’s Listing Are Properly Classified
Rights and Obligations
Presentation—Amounts Are Appropriately Aggregated or Disaggregated and Described, and Disclosures Are Relevant and Understandable
Specific Balance-Related Audit Objectives
Relationships Among Management Assertions and Balance-Related Audit Objectives
How Audit Objectives are Met
Plan and Design an Audit Approach (Phase I)
Obtain an Understanding of the Entity and Its Environment
Understand Internal Control and Assess Control Risk
Assess Risk of Material Misstatement
Perform Tests of Controls and Substantive Tests of Transactions (Phase II)
Perform Substantive Analytical Procedures and Tests of Details of Balances (Phase III)
Complete the Audit and Issue an Audit Report (Phase IV)
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Report of Management Management’s Report on Internal Control Over Financial Reporting
Management’s Responsibility for Consolidated Financial Statements
Required
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Management Assertion
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Specific Balance-Related Audit Objective
Management Assertion About Account Balances
Required
Specific Transaction-Related Audit Objective
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Chapter 7 Audit Evidence
Learning Objectives
CEO Confesses to Falsifying Documents to Hide Fraud for Over 20 Years
Nature of Evidence
Audit Evidence Contrasted With Legal and Scientific Evidence
Audit Evidence Decisions
Audit Procedures
Sample Size
Items to Select
Timing
Audit Program
Persuasiveness of Evidence
Appropriateness
Relevance of Evidence
Reliability of Evidence
Sufficiency
Combined Effect
Persuasiveness and Cost
Types of Audit Evidence
Physical Examination
Confirmation
Inspection
Analytical Procedures
Understand the Client’s Industry and Business
Assess the Entity’s Ability to Continue as a Going Concern
Indicate the Presence of Possible Misstatements in the Financial Statements
Provide Evidence Supporting an Account Balance
Inquiries of the Client
Recalculation
Reperformance
Observation
Appropriateness of Types of Evidence
Cost of Types of Evidence
Terms Used in Audit Procedures
Concept Check
Analytical Procedures
Purposes of Analytical Procedures During the Audit Engagement
Types of Analytical Procedures
Compare Client and Industry Data
Compare Client Data With Similar Prior-Period Data
Compare the Current Year’s Balance With That of the Preceding Year
Compare the Detail of a Total Balance With Similar Detail for the Preceding Year
Compute Ratios and Percent Relationships for Comparison With Previous Years
Compare Client Data With Client-Determined Expected Results
Compare Client Data With Auditor-Determined Expected Results
Use of Data Analytics and Other Advanced Technologies
Audit Data Analytics
Accessing the Data
Preparing the Data
Evaluate the Relevance and Reliability of the Data
Address Circumstances in Which an ADA Identifies a Large Number of Exceptions for Further Consideration
Document Use of ADA
Use of Advanced Technologies in the Audit
Robotics
Machine Learning
Deep Learning
Common Financial Ratios
Short-Term Debt-Paying Ability
Liquidity Activity Ratios
Ability to Meet Long-Term Debt Obligations
Profitability Ratios
Concept Check
Audit Documentation
Purposes of Audit Documentation
A Basis for Planning the Audit
A Record of the Evidence Accumulated and the Results of the Tests
Data for Determining the Proper Type of Audit Report
A Basis for Review by Supervisors and Partners
Ownership of Audit Files
Confidentiality of Audit Files
Requirements for Retention of Audit Documentation
Contents and Organization
Permanent Files
Current Files
Audit Program
Working Trial Balance
Adjusting Entries
Supporting Schedules
Preparation of Audit Documentation
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Audit Procedures
General Transaction-Related Audit Objectives
Required
Audit Procedures
General Balance-Related Audit Objectives
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Audit Procedures
Terms
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Chapter 8 Audit Planning and Materiality
Learning Objectives
The Right Skills
Planning
Accept Client and Perform Initial Audit Planning
Client Acceptance and Continuance
New Client Investigation
Continuing Clients
Identify Client’s Reasons for Audit
Obtain an Understanding With the Client
Develop Overall Audit Strategy
Select Staff for Engagement
Evaluate Need for Outside Specialists
Understand the Client’s Business and Industry
Industry and External Environment
Business Operations and Processes
Tour Client Facilities and Operations
Identify Related Parties
Management and Governance
Code of Ethics
Minutes of Meetings
Client Objectives and Strategies
Measurement and Performance
Perform Preliminary Analytical Procedures
Concept Check
Materiality
Materiality for Financial Statements as a Whole
Factors Affecting Preliminary Materiality Judgment
Materiality Is a Relative Rather Than an Absolute Concept
Benchmarks Are Needed for Evaluating Materiality
Qualitative Factors Also Affect Materiality
Illustrative Guidelines
Application to Hillsburg Hardware
Determine Performance Materiality
Allocation Illustrated
Estimate Misstatement and Compare With Preliminary Judgment
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions from CPA Examinations
Multiple Choice Questions from Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required:
Required
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Case
Required
Integrated Case Application — pinnacle Manufacturing: Part I
Introduction
Background Information
Part I
Required
Chapter 9 Assessing the Risk of Material Misstatement
Learning Objectives
What’s the Big Deal About Risk?
Audit Risk
Risk of Material Misstatement at the Overall Financial Statement Level
Risk of Material Misstatement at the Assertion Level
Risk Assessment Procedures
Inquiries of Management and Others Within the Entity
Analytical Procedures
Observation and Inspection
Discussions Among Engagement Team Members
Other Risk Assessment Procedures
Considering Fraud Risk
Identification of Significant Risks
Nonroutine Transactions
Matters That Require Significant Judgment
Fraud Risk
Concept Check
Audit Risk Model
Audit Risk Model for Planning
Illustration Concerning Risks and Evidence
Planned Detection Risk
Inherent Risk
Control Risk
Acceptable Audit Risk
Distinction Among Risks in the Audit Risk Model
Assessing Acceptable Audit Risk
Impact of Engagement Risk on Acceptable Audit Risk
Factors Affecting Acceptable Audit Risk
The Degree to Which External Users Rely on the Statements
The Likelihood That a Client Will Have Financial Difficulties After the Audit Report Is Issued
The Auditor’s Evaluation of Management’s Integrity
Making the Acceptable Audit Risk Decision
Assessing Inherent Risk
Factors Affecting Inherent Risk
Nature of the Client’s Business
Results of Previous Audits
Initial Versus Repeat Engagement
Related Parties
Complex or Nonroutine Transactions
Judgment Required to Correctly Record Account Balances and Transactions
Makeup of the Population
Factors Related to Fraudulent Financial Reporting and Misappropriation of Assets
Making the Inherent Risk Decision
Obtain Information to Assess Inherent Risk
Relationship of Risks to Evidence and Factors Influencing Risks
Audit Risk for Segments
Relating Performance Materiality and Risks to Balance-Related Audit Objectives
Measurement Limitations
Tests of Details of Balances Evidence-Planning Worksheet
Revising Risks and Evidence
Relationship of Risk and Materiality to Audit Evidence
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions from CPA Examinations
Multiple Choice Questions from Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
Required
Required
Required
Case
Integrated Case Application—Pinnacle Manufacturing: Part II
Required
Chapter 10 Assessing and Responding to Fraud Risks
Learning Objectives
The Fall of Enron: A Story of Corporate Greed
Types of Fraud
Fraudulent Financial Reporting
Misappropriation of Assets
Conditions for Fraud
Risk Factors for Fraudulent Financial Reporting
Incentives/Pressures
Opportunities
Attitudes/Rationalization
Risk Factors for Misappropriation of Assets
Incentives/Pressures
Opportunities
Attitudes/Rationalization
Assessing the Risk of Fraud
Professional Skepticism
Questioning Mind
Critical Evaluation of Audit Evidence
Sources of Information to Assess Fraud Risks
Communications Among Audit Team
Inquiries of Management
Risk Factors
Analytical Procedures
Other Information
Identified Risks of Material Misstatement Due to Fraud
Corporate Governance Oversight to Reduce Fraud Risks
Culture of Honesty and High Ethics
Setting the Tone at the Top
Creating a Positive Workplace Environment
Hiring and Promoting Appropriate Employees
Training
Confirmation
Discipline
Management’s Responsibility to Evaluate Risks of Fraud
Identifying and Measuring Fraud Risks
Mitigating Fraud Risks
Monitoring Fraud Prevention Programs and Controls
Audit Committee Oversight
Concept Check
Responding to the Risk of Fraud
Overall Responses to Fraud Risks
Responses to Fraud Risk at the Assertion Level
Responses to Address Management Override of Controls
Examine Journal Entries and Other Adjustments for Evidence of Possible Misstatements Due to Fraud
Review Accounting Estimates for Biases
Evaluate the Business Rationale for Significant Unusual Transactions
Update Risk Assessment Process
Specific Fraud Risk Areas
Revenue and Accounts Receivable Fraud Risks
Fraudulent Financial Reporting Risk for Revenue
Fictitious Revenues
Premature Revenue Recognition
Manipulation of Adjustments to Revenues
Warning Signs of Revenue Fraud
Analytical Procedures
Documentary Discrepancies
Misappropriation of Receipts Involving Revenue
Failure to Record a Sale
Theft of Cash Receipts After a Sale Is Recorded
Warning Signs of Misappropriation of Revenues and Cash Receipts
Inventory Fraud Risks
Fraudulent Financial Reporting Risk for Inventory
Warning Signs of Inventory Fraud
Analytical Procedures
Purchases and Accounts Payable Fraud Risks
Fraudulent Financial Reporting Risk for Accounts Payable
Misappropriations in the Acquisition and Payment Cycle
Other Areas of Fraud Risk
Fixed Assets
Intangible Assets
Payroll Expenses
Responsibilities When Fraud is Suspected
Responding to Misstatements That May Be the Result of Fraud
Use of Inquiry
Categories of Inquiry
Evaluating Responses to Inquiry
Listening Techniques
Observing Behavioral Cues
Other Responsibilities When Fraud is Suspected
Data Analytics
Expanded Substantive Testing
Other Audit Implications
Documenting the Fraud Assessment
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
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Required
Integrated Case Application—Pinnacle Manufacturing: Part III
Required
Chapter 11 Internal Control and COSO Framework
Learning Objectives
Cyberattacks: A New Reality
Internal Control Objectives
Management and Auditor Responsibilities for Internal Control
Management’s Responsibilities for Establishing Internal Control
Reasonable Assurance
Inherent Limitations
Management’s Section 404 Reporting Responsibilities
Design of Internal Control
Operating Effectiveness of Controls
Auditor Responsibilities for Understanding Internal Control
Controls Over the Reliability of Financial Reporting
Controls Over Classes of Transactions
Auditor Responsibilities for Reporting on Internal Control
Concept Check
COSO Components of Internal Control
The Control Environment
Integrity and Ethical Values
Board of Director or Audit Committee Participation
Organizational Structure
Commitment to Competence
Accountability
Risk Assessment
Control Activities
Adequate Separation of Duties
Separation of the Custody of Assets From Accounting
Separation of the Authorization of Transactions From the Custody of Related Assets
Separation of Operational Responsibility From Record-Keeping Responsibility
Separation of IT Duties From User Departments
Proper Authorization of Transactions and Activities
Adequate Documents and Records
Physical Control Over Assets and Records
Independent Checks on Performance
Information and Communication
Monitoring
Concept Check
Internal Controls Specific to Information Technology
General Controls
Administration of the IT Function
Separation of IT Duties
Systems Development
Physical and Online Security
Backup and Contingency Planning
Hardware Controls
Application Controls
Input Controls
Processing Controls
Output Controls
Impact of IT Infrastructure on Internal Control
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
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Required
Required
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Case
Required
Chapter 12 Assessing Control Risk and Reporting on Internal Controls
Learning Objectives
Override of Controls Hides Missing Copper
Obtain and Document Understanding of Internal Control
Obtain and Document Understanding of Internal Control Design
Narrative
Flowchart
Internal Control Questionnaire
Evaluating Internal Control Implementation
Make Inquiries of Client Personnel
Inspect Documents and Records
Observe Entity Activities and Operations
Assess Control Risk
Determine Assessed Control Risk Supported by the Understanding Obtained
Use of a Control Risk Matrix to Assess Control Risk
Identify Audit Objectives
Identify Existing Controls
Associate Controls With Related Audit Objectives
Identify and Evaluate Control Deficiencies, Significant Deficiencies, and Material Weaknesses
Identify Deficiencies, Significant Deficiencies, and Material Weaknesses
Associate Control Deficiencies With Related Audit Objectives
Assess Control Risk for Each Related Audit Objective
Tests of Controls
Purpose of Tests of Controls
Procedures for Tests of Controls
Extent of Procedures
Manual Versus Automated Controls
Control Frequency
Other Considerations
Reliance on Evidence From the Prior Year’s Audit
Testing of Controls Related to Significant Risks
Testing Less Than the Entire Audit Period
Relationship Between Tests of Controls and Procedures to Obtain an Understanding
Understanding Internal Controls in Outsourced Systems
Reliance on Service Center Auditors
Concept Check
Decide Planned Detection Risk and Design Substantive Tests
Auditor Reporting on Internal Control
Communications to Those Charged With Governance and Management Letters
Communications to Those Charged With Governance
Management Letters
Section 404 Reporting Requirements
Types of Opinions
Unqualified Opinion
Adverse Opinion
Qualified or Disclaimer of Opinion
Evaluating, Reporting, and Testing Internal Control for Nonpublic and Smaller Public Companies
Concept Check
Impact of IT Environment on Control Risk Assessment and Testing
Auditing in More Complex IT Environments
Test Data Approach
Parallel Simulation
Embedded Audit Module Approach
Use of Data Analytics and Generalized Audit Software
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
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Key Controls
Required
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Case
Required
Integrated Case Application—Pinnacle Manufacturing: Part IV
Chapter 13 Overall Audit Strategy and Audit Program
Learning Objectives
Change in Audit Strategy Pays Dividends
Types of Tests
Risk Assessment Procedures
Tests of Controls
Substantive Tests of Transactions
Substantive Analytical Procedures
Tests of Details of Balances
Summary of Types of Tests
Use of Data Analytics in Audit Tests
Selecting Which Types of Tests to Perform
Availability of Types of Evidence for Further Audit Procedures
Relative Costs
Relationship Between Tests of Controls and Substantive Tests
Relationship Between Substantive Analytical Procedures and Other Substantive Tests
Trade-Off Between Tests of Controls and Substantive Tests
Evidence Mix
Design of the Audit Program
Tests of Controls and Substantive Tests of Transactions
Audit Procedures
Substantive Analytical Procedures
Tests of Details of Balances
Identify Significant Risks and Assess Risk of Material Misstatement for Accounts Receivable
Set Performance Materiality
Assess Control Risk for the Sales and Collection Cycle
Design and Perform Tests of Controls and Substantive Tests of Transactions for the Sales and Collection Cycle
Design and Perform Substantive Analytical Procedures for Accounts Receivable Balance
Design Tests of Details of Accounts Receivable Balance to Satisfy Balance-Related Audit Objectives
Level of Disaggregation of Planning Activities
Illustrative Audit Program
Relationship of Transaction-Related Audit Objectives to Balance-Related Audit Objectives
Summary of Key Evidence-Related Terms
Summary of the Audit Process
Phase I: Plan and Design an Audit Approach
Phase II: Perform Tests of Controls and Substantive Tests of Transactions
Phase III: Perform Substantive Analytical Procedures and Tests of Details of Balances
Phase IV: Complete the Audit and Issue an Audit Report
Perform Additional Tests for Presentation and Disclosure
Accumulate Final Evidence
Issue Audit Report
Communicate With Audit Committee and Management
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
Required
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Evidence Decisions
Required
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Cases
Required
Required
Part 3 Application of the Audit Process to the Sales and Collection cycle
Chapter 14 Audit of the Sales and Collection Cycle: Tests of Controls and Substantive Tests of Transactions
Learning Objectives
Internal Controls: Therapy for Financial Statement Fraud
Accounts and Classes of Transactions in the Sales and Collection Cycle
Business Functions in the Cycle and Related Documents and Records
Processing Customer Orders
Customer Order
Sales Order
Granting Credit
Shipping Goods
Shipping Document
Billing Customers and Recording Sales
Sales Invoice
Sales Transaction File
Sales Journal or Listing
Accounts Receivable Master File
Accounts Receivable Trial Balance
Monthly Statement
Processing and Recording Cash Receipts
Remittance Advice
Prelisting of Cash Receipts
Cash Receipts Transaction File
Cash Receipts Journal or Listing
Processing and Recording Sales Returns and Allowances
Credit Memo
Sales Returns and Allowances Journal
Writing off Uncollectible Accounts Receivable
Uncollectible Account Authorization Form
Providing for Bad Debts
Concept Check
Methodology for Designing Tests of Controls and Substantive Tests of Transactions for Sales
Understand Internal Control—Sales
Assess Planned Control Risk—Sales
Adequate Separation of Duties
Proper Authorization
Adequate Documents and Records
Prenumbered Documents
Monthly Statements
Internal Verification Procedures
Determine Extent of Tests of Controls
Design Tests of Controls for Sales
Design Substantive Tests of Transactions for Sales
Recorded Sales Occurred
Recorded Sale for which there was No Shipment
Sale Recorded More Than Once
Shipment Made to Nonexistent Customers
Existing Sales Transactions are Recorded
Direction of Tests
Sales are Accurately Recorded
Sales Transactions are Correctly Included in the Master File and Correctly Summarized
Recorded Sales are Correctly Classified
Sales are Recorded on the Correct Dates
Sales are Properly Aggregated in the Financial Statements and Footnote Disclosures are Relevant and Understandable
Summary of Methodology for Sales
Transaction-Related Audit Objectives (Column 1)
Key Existing Controls (Column 2)
Tests of Controls (Column 3)
Deficiencies (Column 4)
Substantive Tests of Transactions (Column 5)
Design and Performance Format Audit Procedures
Concept Check
Sales Returns and Allowances
Methodology for Designing Tests of Controls and Substantive Tests of Transactions for Cash Receipts
Determine whether Cash Received was Recorded
Prepare Proof of Cash Receipts
Test to Discover Lapping of Accounts Receivable
Audit Tests for Uncollectible Accounts
Effect of Results of Tests of Controls and Substantive Tests of Transactions
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions from CPA Examinations
Multiple Choice Questions from Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Case
Required
Integrated Case Application — pinnacle Manufacturing: Part V
Required
Chapter 15 Audit Sampling for Tests of Controls and Substantive Tests of Transactions
Learning objectives
Sometimes an Isolated Exception is the Tip of the Iceberg
Representative Samples
Statistical Versus Nonstatistical Sampling and Probabilistic Versus Nonprobabilistic Sample Selection
Statistical Versus Nonstatistical Sampling
Probabilistic Versus Nonprobabilistic Sample Selection
Applying Statistical and Nonstatistical Sampling in Practice and Sample Selection Methods
Sample Selection Methods
Probabilistic Sample Selection Methods
Simple Random Sample Selection
Systematic Sample Selection
Probability Proportional to Size and Stratified Sample Selection
Nonprobabilistic Sample Selection Methods
Haphazard Sample Selection
Block Sample Selection
Sampling for Exception Rates
Concept Check
Application of Nonstatistical Audit Sampling
State the Objectives of the Audit Test
Decide Whether Audit Sampling Applies
Define Attributes and Exception Conditions
Define the Population
Define the Sampling Unit
Specify the Tolerable Exception Rate
Specify Acceptable Risk of Overreliance
Estimate the Population Exception Rate
Determine the Initial Sample Size
Sensitivity of Sample Size to a Change in the Factors
Select the Sample
Perform the Audit Procedures
Generalize From the Sample to the Population
Analyze Exceptions
Decide the Acceptability of the Population
Revise TER or ARO
Expand the Sample Size
Revise Assessed Control Risk
Communicate With the Audit Committee or Management
Documentation and Evidence Planning
Statistical Audit Sampling
Differences Between Statistical Sampling and Nonstatistical Sampling for Exception Rates
Sampling Distribution
Application of Statistical Attributes Sampling
Need for Professional Judgment
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions from Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Case
Required
Integrated Case Application— pinnacle Manufacturing: Part Vi
Required
Chapter 16 Completing the Tests in the Sales and Collection Cycle: Accounts Receivable
Learning objectives
When More Isn’t Better
Methodology for Designing Tests of Details of Balances
Identify Significant Risks and Assess the Risk of Material Misstatement for Accounts Receivable (Phase I)
Set Performance Materiality for Accounts Receivable (Phase I)
Assess Control Risk for the Sales and Collection Cycle (Phase I)
Design and Perform Tests of Controls and Substantive Tests of Transactions (Phase II)
Design and Perform Substantive Analytical Procedures (Phase III)
Design and Perform Tests of Details of Accounts Receivable Balance (Phase III)
Designing Tests of Details of Balances
The Summation of Accounts Receivable Agrees With the Master File and the General Ledger
Recorded Accounts Receivable Exist
Existing Accounts Receivable Are Included
Accounts Receivable Are Accurate
Cutoff for Accounts Receivable Is Correct
Sales Cutoff
Sales Returns and Allowances Cutoff
Cash Receipts Cutoff
Accounts Receivable Is Stated at Realizable Value
Bad Debt Expense
Accounts Receivable Are Properly Classified
The Client Has Rights to Accounts Receivable
Accounts Receivable Presentation and Disclosure
Concept Check
Confirmation of Accounts Receivable
Auditing Standards Requirements
Types of Confirmation
Positive Confirmation
Negative Confirmation
Timing
Sampling Decisions
Sample Size
Selection of the Items for Testing
Verification of Addresses and Maintaining Control
Follow-Up on Nonresponses
Subsequent Cash Receipts
Sales Invoices
Shipping Documents
Correspondence With the Client
Analysis of Differences
Payment Has Already Been Made
Goods Have Not Been Received
The Goods Have Been Returned
Clerical Errors and Disputed Amounts
Drawing Conclusions
Developing Tests of Details Audit Program
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Case
Required
Integrated Case Application—pinnacle Manufacturing: Part VII
Required
Chapter 17 Audit Sampling for Tests of Details of Balances
Learning Objectives
Both Statistical and Nonstatistical Sampling Are Acceptable Under Auditing Standards, But Whichever Is Used, It Must Be Done Right
Comparisons of Audit Sampling for Tests of Details of Balances and for Tests of Controls and Substantive Tests of Transactions
Nonstatistical Sampling
State the Objectives of the Audit Test
Decide Whether Audit Sampling Applies
Define a Misstatement
Define the Population
Stratified Sampling
Define the Sampling Unit
Specify Tolerable Misstatement
Specify Acceptable Risk of Incorrect Acceptance
Estimate Misstatements in the Population
Determine the Initial Sample Size
Select the Sample
Perform the Audit Procedures
Generalize From the Sample to the Population and Decide the Acceptability of the Population
Analyze the Misstatements
Action When a Population is Rejected
Take no Action Until Tests of Other Audit Areas are Completed
Perform Expanded Audit Tests in Specific Areas
Increase the Sample Size
Adjust the Account Balance
Request the Client to Correct the Population
Refuse to Give an Unmodified Opinion
Concept Check
Monetary Unit Sampling
Differences Between MUS and Nonstatistical Sampling
The Definition of the Sampling Unit is an Individual Dollar
The Population Size is the Recorded Dollar Population
Sample Size is Determined Using a Formula
Sample Selection is Done Using PPS
The Auditor Generalizes from the Sample to the Population Using MUS Techniques
Decide the Acceptability of the Population Using MUS
Determining Sample Sizes Using MUS
Acceptable Risk of Incorrect Acceptance
Recorded Population Value
Tolerable Misstatement
Tolerable Misstatement as a Percentage of Population Value
Estimated Population Misstatement
Ratio of Estimated Population Misstatement to Tolerable Misstatement
Confidence Factor
Sample Size
Sampling Interval
Generalizing from the Sample to the Population When no Misstatements are Found Using MUS
Generalizing from the Sample to the Population When Misstatements are Found Using MUS
Calculate Percentage Misstatement Assumption (Tainting)
Project Sample Misstatements
Calculate the Allowance for Sampling Risk
Relationship of the Audit Risk Model to Sample Size for MUS
Audit Uses of Monetary Unit Sampling
Concept Check
Variables Sampling
Differences Between Variables and Nonstatistical Sampling
Sampling Distributions
Statistical Inference
Variables Methods
Difference Estimation
Ratio Estimation
Mean-per-Unit Estimation
Stratified Statistical Methods
Sampling Risks
Aria
Arir
Concept Check
Illustration Using Difference Estimation
Plan the Sample and Calculate the Sample Size Using Difference Estimation
Specify Acceptable Risk
Estimate Misstatements in the Population
Calculate the Initial Sample Size
Evaluate the Results
Generalize From the Sample to the Population
Summary
Essential Terms
Review Questions
Multiple Choice Questions from CPA and CIA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
Required
Required
Required
Cases
Required
Required
Part 4 Application of the Audit Process to Other Cycles
Chapter 18 Audit of the Acquisition and Payment Cycle: Tests of Controls, Substantive Tests of Transactions, and Accounts Payable
Learning Objectives
Pepsi Bottling Controller Caught on Appalachian Trail After Embezzling $8.7 Million
Accounts and Classes of Transactions in the Acquisition and Payment Cycle
Business Functions in the Cycle and Related Documents and Records
Processing Purchase Orders
Purchase Requisition
Purchase Order
Receiving Goods and Services
Recognizing the Liability
Vendor’s Invoice
Debit Memo
Voucher
Acquisitions Transaction File
Acquisitions Journal or Listing
Accounts Payable Master File
Accounts Payable Trial Balance
Vendor’s Statement
Processing and Recording Cash Disbursements
Check
Cash Disbursements Transaction File
Cash Disbursements Journal or Listing
Methodology for Designing Tests of Controls and Substantive Tests of Transactions
Understand Internal Control
Assess Planned Control Risk
Authorization of Purchases
Separation of Asset Custody From Other Functions
Timely Recording and Independent Review of Transactions
Authorization of Payments
Determine Extent of Tests of Controls
Design Tests of Controls and Substantive Tests of Transactions for Acquisitions
Design Tests of Controls and Substantive Tests of Transactions for Cash Disbursements
Sampling for Tests of Controls and Substantive Tests of Transactions
Concept Check
Methodology for Designing Tests of Details of Balances for Accounts Payable
Identify Significant Risks and Assess the Risk of Material Misstatement for Accounts Payable (Phase I)
Set Performance Materiality (Phase I)
Assess Control Risk and Design and Perform Tests of Controls and Substantive Tests of Transactions (Phases I and II)
Design and Perform Substantive Analytical Procedures (Phase III)
Design and Perform Tests of Details of Accounts Payable Balance (Phase III)
Search for Unrecorded Liabilities
Examine Underlying Documentation for Subsequent Cash Disbursements
Examine Underlying Documentation for Invoices Not Paid Several Weeks After the Year End
Trace Receiving Reports Issued Before Year End to Related Vendors’ Invoices
Trace Vendors’ Statements That Show a Balance Due to the Accounts Payable Trial Balance
Send Confirmations to Vendors With Which the Client Does Business
Cutoff Tests
Relationship of Cutoff to Physical Observation of Inventory
Inventory in Transit
Reliability of Evidence
Distinction Between Vendors’ Invoices and Vendors’ Statements
Difference Between Vendors’ Statements and Confirmations
Sample Size
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Case
Ward Publishing Company—Part I
Tests of Controls and Substantive Tests of Transactions Audit Procedures for Acquisitions and Cash Disbursements
Required
Part II
Required
Chapter 19 Completing the Tests in the Acquisition and Payment Cycle: Verification of Selected Accounts
Learning Objectives
Incorrect Classifications Hide a Greater Net Loss
Types of Other Accounts in the Acquisition and Payment Cycle
Audit of Property, Plant, and Equipment
Overview of Equipment-Related Accounts
Perform Substantive Analytical Procedures
Verify Current Year Acquisitions
Verify Current Year Disposals
Verify Ending Balance of Asset Account
Verify Depreciation Expense
Verify Ending Balance in Accumulated Depreciation
Verify the Ending Balance Is Properly Classified and Disclosures Are Adequate
Concept Check
Audit of Prepaid Expenses
Overview of Prepaid Insurance
Internal Controls
Audit Tests
Insurance Policies in the Prepaid Insurance Schedule Exist and Existing Policies Are Listed (Existence and Completeness)
The Client Has Rights to All Insurance Policies in the Prepaid Insurance Schedule (Rights)
Prepaid Amounts on the Schedule Are Accurate and the Total Is Correctly Added and Agrees With the General Ledger (Accuracy and Detail Tie-In)
Insurance Transactions Are Recorded in the Correct Period (Cutoff)
The Insurance Expense Related to Prepaid Insurance Is Correctly Classified (Classification) and Properly Presented in the Financial Statements (Presentation)
Audit of Accrued Liabilities
Auditing Accrued Property Taxes
Audit of Income and Expense Accounts
Approach to Auditing Income and Expense Accounts
Substantive Analytical Procedures
Tests of Controls and Substantive Tests of Transactions
Tests of Details of Account Balances—Expense Analysis
Tests of Details of Account Balances—Allocation
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
Required
Required
Cases
Ward Publishing Company—Part III (See Case 18-30 for Parts I and II)
Required
Required
Chapter 20 Audit of the Payroll and Personnel Cycle
Learning Objectives
The Staff Auditor Must Never “Simply Follow Orders”
Accounts and Transactions in the Payroll and Personnel Cycle
Business Functions in the Cycle and Related Documents and Records
Human Resources
Human Resource Records
Deduction Authorization
Rate Authorization
Timekeeping and Payroll Preparation
Time Record
Job Time Ticket
Payroll Transaction File
Payroll Journal or Listing
Payroll Master File
Payment of Payroll
Payment of Payroll
Payroll Bank Account Reconciliation
Preparation of Payroll Tax Returns and Payment of Taxes
W-2 Form
Payroll Tax Returns
Concept Check
Methodology for Designing Tests of Controls and Substantive Tests of Transactions
Understand Internal Control and Assess Control Risk—Payroll and Personnel Cycle
Design Tests of Controls and Substantive Tests of Transactions—Payroll and Personnel Cycle
Adequate Separation of Duties
Proper Authorization
Adequate Documents and Records
Physical Control Over Assets and Records
Independent Checks on Performance
Payroll Tax Forms and Payments
Preparation of Payroll Tax Forms
Timely Payment of the Payroll Taxes Withheld and Other Withholdings
Inventory and Fraudulent Payroll Considerations
Relationship Between Payroll and Inventory Valuation
Tests for Nonexistent Employees
Tests for Fraudulent Hours
Fraudulent Expense Reports
Methodology for Designing Substantive Analytical Procedures and Tests of Details of Balances
Identify Client Business Risks Affecting Payroll (Phase I)
Set Performance Materiality and Assess Inherent Risk (Phase I)
Assess Control Risk and Perform Related Tests (Phases I and II)
Perform Substantive Analytical Procedures (Phase III)
Design and Perform Tests of Details of Balances for Liability and Expense Accounts (Phase III)
Amounts Withheld From Employees’ Pay
Accrued Salaries and Wages
Accrued Commissions
Accrued Bonuses
Accrued Vacation Pay, Sick Pay, or Other Benefits
Accrued Payroll Taxes
Tests of Details of Balances for Expense Accounts
Officers’ Compensation
Commissions
Payroll Tax Expense
Total Payroll
Contract Labor
Balance-Related Presentation Objective
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
Required
Required
Required
Required
Case
Required
Chapter 21 Audit of the Inventory and Warehousing Cycle
Learning Objectives
Phantom Inventory
Business Functions in the Cycle and Related Documents and Records
Process Purchase Orders
Receive Raw Materials
Store Raw Materials
Process the Goods
Store Finished Goods
Ship Finished Goods
Perpetual Inventory Master Files
Parts of the Audit of Inventory
Acquire and Record Raw Materials, Labor, and Overhead
Transfer Assets and Costs
Ship Goods and Record Revenue and Costs
Physically Observe Inventory
Price and Compile Inventory
Audit of Cost Accounting
Cost Accounting Controls
Tests of Cost Accounting
Physical Controls
Documents and Records for Transferring Inventory
Perpetual Inventory Master Files
Unit Cost Records
Concept Check
Substantive Analytical Procedures
Physical Observation of Inventory
Inventory Observation Requirements
Controls Over Physical Count
Audit Decisions
Timing
Sample Size
Selection of Items
Physical Observation Tests
Audit of Pricing and Compilation
Pricing and Compilation Procedures
Pricing and Compilation Controls
Valuation of Inventory
Pricing Purchased Inventory
Pricing Manufactured Inventory
Cost or Market
Concept Check
Integration of the Tests
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Case
Required
Chapter 22 Audit of the Capital Acquisition and Repayment Cycle
Learning Objectives
Growth Through Acquisitions Provides an Opportunity for Fraud
Accounts in the Cycle
Notes Payable
Internal Controls
Tests of Controls and Substantive Tests of Transactions
Substantive Analytical Procedures
Tests of Details of Balances
Concept Check
Owners’ Equity
Internal Controls
Proper Authorization of Transactions
Proper Record Keeping and Segregation of Duties
Independent Registrar and Stock Transfer Agent
Audit of Capital Stock and Paid-In Capital
Audit of Dividends
Audit of Retained Earnings
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
Required
Required
Required
Required
Required
Chapter 23 Audit of Cash and Financial Instruments
Learning Objectives
Chinese Media Company Attempts to Bribe Auditor Over Fictitious Cash Balances
Types of Cash and Financial Instruments Accounts
General Cash Account
Imprest Accounts
Branch Bank Account
Imprest Petty Cash Fund
Cash Equivalents
Financial Instruments
Cash in the Bank and Transaction Cycles
Audit of the General Cash Account
Identify Client Business Risks Affecting Cash (Phase I)
Set Performance Materiality and Assess Inherent Risk (Phase I)
Assess Control Risk (Phase I)
Design and Perform Tests of Controls and Substantive Tests of Transactions (Phase II)
Design and Perform Substantive Analytical Procedures (Phase III)
Design Tests of Details of Cash Balance (Phase III)
Receipt of a Bank Confirmation
Accessing Cutoff Bank Activity After Year End
Tests of the Bank Reconciliation
Concept Check
Fraud-Oriented Procedures
Extended Tests of the Bank Reconciliation
Proof of Cash
Tests of Interbank Transfers
Audit of Financial Instruments Accounts
Identify Client Business Risks Affecting Financial Instruments (Phase I)
Set Performance Materiality and Assess Inherent Risk (Phase I)
Assess Control Risk (Phase I)
Design and Perform Tests of Controls and Substantive Tests of Transactions (Phase II)
Design and Perform Substantive Analytical Procedures (Phase II)
Design Tests of Details of Financial Instruments Balances (Phase III)
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
Required
Required
Required
Required
Part 5 Completing The Audit
Chapter 24 Completing the Audit
Learning Objectives
Good Review Requires More Than Looking at Audit Files
Perform Additional Tests for Presentation and Disclosure
Review for Contingent Liabilities and Commitments
Audit Procedures for Finding Contingencies
Evaluation of Known Contingent Liabilities
Audit Procedures for Finding Commitments
Inquiry of Client’s Attorneys
Review for Subsequent Events
Types of Subsequent Events
Those That Have a Direct Effect on the Financial Statements and Require Adjustment
Those That Do Not Have a Direct Effect on the Financial Statements but for Which Disclosure May Be Required
Audit Tests
Review Records Prepared Subsequent to the Balance Sheet Date
Review Internal Statements Prepared Subsequent to the Balance Sheet Date
Examine Minutes Issued Subsequent to the Balance Sheet Date
Correspond With Attorneys
Inquire of Management
Obtain a Letter of Representation
Dual Dating
Concept Check
Final Evidence Accumulation
Perform Final Analytical Procedures
Evaluate Going-Concern Assumption
Obtain Management Representation Letter
Consider Supplementary Information in Relation to Financial Statements as a Whole
Read Other Information in the Annual Report
Evaluate Results
Sufficient Appropriate Evidence
Evidence Supports Auditor’s Opinion
Financial Statement Disclosures
Audit Documentation Review
Engagement Quality Review
Summary of Evidence Evaluation
Issue the Audit Report
Communicate With the Audit Committee and Management
Communicate Fraud and Illegal Acts
Communicate Internal Control Deficiencies
Other Communications with Audit Committee
Management Letters
Audit Report Considerations
Subsequent Discovery of Facts
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
Required
Required
Required
Case
Required
Part 6 Other Assurance and Nonassurance Services
Chapter 25 Other Assurance Services
Learning Objectives
Skepticism Applies to All Types of Engagements
Review, Compilation, and Preparation Services
Review Services
Procedures Suggested for Reviews
Form of Report
Failure to Follow Applicable Accounting Framework
Compilation Services
Requirements for Compilation
Form of Report
Preparation Services
Review of Interim Financial Information for Public Companies
Concept Check
Attestation Engagements
Attestation Standards
Types of Attestation Engagements
Levels of Service
Reports on Controls at Service Organizations (SOC Reports)
SOC 1 Reports
SOC 2 Reports
SOC 3 Reports
Prospective Financial Statements
Forecasts and Projections
Use of Prospective Financial Statements
Types of Engagements
Examination of Prospective Financial Statements
Agreed-Upon Procedures Engagements
Other Audits or Limited Assurance Engagements
Other Comprehensive Basis of Accounting
Specified Elements, Accounts, or Items
Debt Compliance Letters and Similar Reports
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Revenue
Receivables
Required
Required
Required
Required
Required
Required
Required
Chapter 26 Internal and Governmental Financial Auditing and Operational Auditing
Learning Objectives
Good Auditing Often Results in Improved Cash Flows
Internal Financial Auditing
Institute of Internal Auditors
Relationship of Internal and External Auditors
Governmental Financial Auditing
Financial Audit and Reporting Requirements— Yellow Book
Audit and Reporting Requirements—Single Audit Act and OMB Uniform Guidance
Audit Requirements
Reporting Requirements
AICPA Guidance for Auditors
Concept Check
Operational Auditing
Differences Between Operational and Financial Auditing
Purpose of the Audit
Distribution of the Reports
Inclusion of Nonfinancial Areas
Effectiveness Versus Efficiency
Effectiveness
Efficiency
Relationship Between Operational Auditing and Internal Controls
Purpose
Scope
Types of Operational Audits
Functional Audits
Organizational Audits
Special Assignments
Who Performs Operational Audits
Internal Auditors
Government Auditors
CPA Firms
Independence and Competence of Operational Auditors
Criteria for Evaluating Efficiency and Effectiveness
Specific Criteria
Sources of Criteria
Phases in Operational Auditing
Planning
Evidence Accumulation and Evaluation
Reporting and Follow-Up
Concept Check
Summary
Essential Terms
Review Questions
Multiple Choice Questions From CPA, CIA, and CMA Examinations
Multiple Choice Questions From Becker CPA Exam Review
Discussion Questions and Problems
Required
Required
Required
Required
Required
Required
Index
A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Credits
Chapter 01:
Chapter 02:
Chapter 03:
Chapter 04:
Chapter 05:
Chapter 06:
Chapter 07:
Chapter 08:
Chapter 09:
Chapter 10:
Chapter 11:
Chapter 12:
Chapter 13:
Chapter 14:
Chapter 15:
Chapter 16:
Chapter 17:
Chapter 18:
Chapter 19:
Chapter 20:
Chapter 21:
Chapter 22:
Chapter 23:
Chapter 24:
Chapter 25:
Chapter 26:
Chapter FM:
Chapter cover
Chapter INS:
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