审计学：一种整合方法_第12版_英文版Chapter18共32页
审计学：一种整合方法_第12版_英文版Chapter01-46页精选文档
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1 - 10
Distinguish Between Auditing and Accounting
Accounting is the recording, classifying, and summarizing of economic events for the purpose of providing financial information used in decision making.
Auditing should be done by a competent, independent person.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1-4
Information and Established Criteria
The competence of the individual performing the audit is of little value if he or she is biased in the accumulation and evaluation of evidence.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1 - 12
Economic Demand for Auditing
Information risk reflects the possibility that the information upon which the business risk decision was made was inaccurate.
审计学一种整合的方法1ppt课件
Understand the client’s business and industry.
Assess client business risk.
Perform preliminary analytical procedures.
Understand internal control and assess control risk.
Gather information to assess fraud risks.
Develop overall audit plan and audit program.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
➢ Web site visitors ➢ same-store sales ➢ sales/square foot
Performance measurement includes ratio analysis and benchmarking against key competitors.
8-7
Initial Audit Planning
➢ Client acceptance and continuance ➢ Identify client’s reasons for audit ➢ Obtain an understanding with the client ➢ Develop overall audit strategy
?2008prenticehallbusinesspublishingauditing12earensbeasleyelder829keypartsofplanningacceptclientandperforminitialplanning?newclientacceptanceandcontinuance?identifyclientsreasonsforaudit?obtainanunderstandingwithclient?stafftheengagement?2008prenticehallbusinesspublishingauditing12earensbeasleyelder830keypartsofplanningunderstandtheclientsbusinessandindustry?understandclientsindustryandexternalenvironment?understandclientsoperationsstrategiesandperformancesystem?2008prenticehallbusinesspublishingauditing12earensbeasleyelder831keypartsofplanning?assessclientbusinessrisk?evaluatemanagementcontrolsaffectingbusinessrisk?assessriskofmaterialmisstatements?2008prenticehallbusinesspublishingauditing12earensbeasleyelder832keypartsofplanningperformpreliminaryanalyticalprocedures?2008prenticehallbusinesspublishingauditing12earensbeasleyelder833learningobjective6statethepurposesofanalyticalproceduresandthetimingofeachpurpose
审计学：一种整合方法-阿伦斯-英文版-第12版-课后答案-Chapter-7-Solutions-Manual
Chapter 7Audit EvidenceReview Questions7-1In both a legal case and in an audit of financial statements, evidence is used by an unbiased person to draw conclusions. In addition, the consequences of an incorrect decision in both situations can be equally undesirable. For example, if a guilty person is set free, society may be in danger if the person repeats his or her illegal act. Similarly, if investors rely on materially misstated financial statements, they could lose significant amounts of money. Finally, the guilt of a defendant in a legal case must be proven beyond a reasonable doubt. This is similar to the concept of sufficient appropriate evidence in an audit situation. As with a judge or jury, an auditor cannot be completely convinced that his or her opinion is correct, but rather must obtain a high level of assurance.The nature of evidence in a legal case and in an audit of financial statements differs because a legal case relies heavily on testimony by witnesses and other parties involved. While inquiry is a form of evidence used by auditors, other more reliable types of evidence such as confirmation with third parties, physical examination, and documentation are also used extensively. A legal case also differs from an audit because of the nature of the conclusions made. In a legal case, a judge or jury decides the guilt or innocence of the defendant. In an audit, the auditor issues one of several audit opinions after evaluating the evidence.7-2The four major audit evidence decisions that must be made on every audit are:1.Which audit procedures to use.2.What sample size to select for a given procedure.3.Which items to select from the population.4.When to perform the procedure.7-3An audit procedure is the detailed instruction for the collection of a type of audit evidence that is to be obtained. Because audit procedures are the instructions to be followed in accumulating evidence, they must be worded carefully to make sure the instructions are clear.7-4An audit program for accounts receivable is a list of auditprocedures that will be used to audit accounts receivable for a given client. The audit procedures, sample size, items to select, and timing should be included in the audit program.7-5The auditor must obtain sufficient appropriate evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit. There are three major phrases of the standard.7-5(continued)7-6There are two primary reasons why the auditor can only be persuaded with a reasonable level of assurance, rather than be convinced that the financial statements are correct:1.The cost of accumulating evidence. It would be extremelycostly for the auditor to gather enough evidence to becompletely convinced.2.Evidence is normally not sufficiently reliable to enable theauditor to be completely convinced. For example,confirmations from customers may come back with erroneousinformation, which is the fault of the customer rather thanthe client.7-7The two determinants of the persuasiveness of evidence are appropriateness and sufficiency. Appropriateness refers to the relevance and reliability of evidence, or the degree to which evidence can be considered believable or worthy of trust. Appropriateness relates to the audit procedures selected, including the timing of when those procedures are performed. Sufficiency refers to the quantity of evidence and it is related to sample size and items to select.7-8Following are six characteristics that determine reliability and an example of each.7-97-9 (continued)7-10The four characteristics of the definition of a confirmation are:1.Receipt2.Written or oral response3.From independent third party4.Requested by the auditorA confirmation is prepared specifically for the auditor and comes from an external source. External documentation is in the hands of the client at the time of the audit and was prepared for the client's use in the day-to-day operation of the business.7-11Internal documentation is prepared and used within the client's organization without ever going to an outside party, such as a customer or vendor.Examples:check request formreceiving reportpayroll time cardadjusting journal entryExternal documentation either originated with an outside party or was an internal document that went to an outside party and is now either in the hands of the client or is readily accessible.Examples:vendor's invoicecancelled checkcancelled notevalidated deposit slip7-12Analytical procedures are useful for indicating account balances that may be distorted by unusual or significant transactions and that should be intensively investigated. They are also useful in reviewing accounts or transactions for reasonableness to corroborate tentative conclusions reached on the basis of other evidence.7-13The most important reasons for performing analytical procedures are the following:1.Understanding the client's industry and business2.Assessment of the entity's ability to continue as a goingconcern3.Indication of the presence of possible misstatements in thefinancial statements4.Reduction of detailed audit tests7-14The decrease of the current ratio indicates a liquidity problem for Harper Company since the ratio has dropped to a level close to the requirements of the bond indenture. Special care should be exercised by the auditor to determine that the 2.05 ratio is proper since management would be motivated to hide any lower ratio. The auditor should expand procedures to test all current assets for proper cutoff and possible overstatement and to test all current liabilities for proper cutoff and possible understatement.7-15Attention directing analytical procedures occur when significant, unexpected differences are found between current year's unaudited financial data and other data used in comparisons. If an unusual difference is large, the auditor must determine the reason for it, and satisfy himself or herself that the cause is a valid economic event and not an error or misstatement due to fraud.When an analytical procedure reveals no unusual fluctuations, the implication is minimized. In that case, the analytical procedure constitutes substantive evidence in support of the fair statement of the related account balances, and it is possible to perform fewer detailed substantive tests in connection with those accounts.Frequently, the same analytical procedures can be used for attention directing and for reducing substantive tests, depending on the outcome of the tests. Simple procedures such as comparing the current year account balance to the prior year account balance is more attention directing (and provides less assurance) than more complex analytical procedures; i.e., those which rely on regression analysis. More sophisticated analytical procedures help the auditor examine relationships between several information variables simultaneously. The nature of these tests may provide greater assurance than simpleprocedures.7-16The statement is correct. Except for certain accounts with small dollar balances, analytical procedures are essential to help the auditor identify trends in a client's business and to see the relationship between the client's performance and industry averages. However, the auditor is responsible for gathering sufficient appropriate evidence in addition to the evidence obtained as a result of the analytical procedures.7-17The purposes of audit documentation are as follows:1.To provide a basis for planning the audit. The auditor mayuse reference information from the previous year in order toplan this year's audit, such as the evaluation of internalcontrol, the time budget, etc.2.To provide a record of the evidence accumulated and theresults of the tests. This is the primary means ofdocumenting that an adequate audit was performed.3.To provide data for deciding the proper type of audit report.Data are used in determining the scope of the audit and thefairness with which the financial statements are stated.4.To provide a basis for review by supervisors and partners.These individuals use the audit documentation to evaluatewhether sufficient appropriate evidence was accumulated tojustify the audit report.Audit documentation are used for several purposes, both during the audit and after the audit is completed. One of the uses is the review by more experienced personnel. A second is for planning the subsequent year audit. A third is to demonstrate that the auditor has accumulated sufficient appropriate evidence if there is a need to defend the audit at a later date. For these uses, it is important that the audit documentation provide sufficient information so that the person reviewing an audit schedule knows the name of the client, contents of the audit schedule, period covered, who prepared the audit schedule, when it was prepared, and how it ties into the rest of the audit files with an index code.7-18The two criteria used by auditors of public companies when determining whether memos, correspondence, and other documents must be maintained in the audit files are as follows:1.The materials are created, sent, or received in connectionwith the audit or review.2.The materials contain conclusions, opinions, analyses, orfinancial data related to the audit or review.7-19 The Sarbanes-Oxley Act of 2002 requires auditors of public companies to prepare and maintain audit schedules and other information related to any audit report in sufficient detail to support the auditor’s conclusions, for a period of not less than 7 years.7-20Audit schedules should include the following:Name of the client Enables the auditor to identify the appropriate file to include the audit schedule in if it is removed from the files.Period covered Enables the auditor to identify the appropriate year to which an audit schedule for a client belongs if it is removed from the files.7-20 (continued)Description of the contents A list of the contents enables the reviewer to determine whether all important parts of the audit schedule have been included. The contents description is also used as a means of identifying audit files in the same manner that a table of contents is used.Initials of the preparer Indicates who prepared the audit schedule in case there are questions by the reviewer or someone who wants information from the files at a later date. It also clearly identifies who is responsible for preparing the audit documentation if the audit must be defended.Date of preparation Helps the reviewer to determine the sequence of the preparation of the audit schedules. It is also useful for the subsequent year in planning the sequence of preparing audit schedules.Indexing Helps in organizing and filing audit schedules. Indexing also facilitates in searching between related portions of the audit documentation.7-21The permanent file contains data of an historical and continuing nature pertinent to the current audit. Examples of items included in the file are:1.Articles of incorporation2.Bylaws, bond indentures, and contracts3.Analysis of accounts that have continuing importance to theauditorrmation related to the understanding of internal control:a.flowchartsb.internal control questionnaires5.Results of previous years' analytical procedures, such asvarious ratios and percentages compiled by the auditorsBy separating this information from the current year's audit files, it becomes easily accessible for the following year's auditors to obtain permanent file data.7-22The purpose of an analysis is to show the activity in a general ledger account during the entire period under audit, tying together the beginning and ending balances. The trial balance includes the detailed make-up of an ending balance. It differs from an analysis in that itincludes only those items comprising the end of the period balance. A test of reasonableness schedule contains information that enables the auditor to evaluate whether a certain account balance appears to be misstated. One example of a test of reasonableness schedule is a schedule that compares current year expenses to prior years' amounts. This type of schedule is intended to show which accounts need investigation due to significant variances.7-23Unanswered questions and exceptions may indicate the potential for significant errors or fraud in the financial statements. These should be investigated and resolved to make sure that financial statements are fairly presented.7-23 (continued)The audit files can also be subpoenaed by courts as legal evidence. Unanswered questions and exceptions may indicate lack of due care by the auditor.7-24Tick marks are symbols adjacent to information in audit schedules for the purpose of indicating the work performed by the auditor. An explanation of the tick mark must be included at the bottom of the audit schedule to indicate what was done and who did it.7-25Audit files are owned by the auditor. They can be used by the client if the auditor wants to release them after a careful consideration of whether there might be confidential information in them. The audit files can be subpoenaed by a court and thereby become the property of the court. They can be released to another CPA firm without the client's permission if they are being reviewed as a part of a voluntary peer review program under AICPA, state CPA society, or state Board of Accountancy authorization. The audit files can be sold or released to other users if the auditor obtains permission from the client.7-26It is a violation unless the CPA obtains permission from each client before the audit files for that client are released.7-27 When evidence can be examined only in machine-readable form, auditors use computers to read and examine evidence. There are commercial audit software programs designed specifically for use by auditors, such as ACL Software and Interactive Data Extraction and Analysis (IDEA). Spreadsheet software packages can also be used by auditors to perform audit tests on data that is available only in machine-readable form.7-28 The purposes of audit documentation software are to convert traditional paper-based documentation into electronic files and to organize the audit documentation. The benefits of audit documentation software, such as Automated Client Engagement (ACE), are as follows:The auditor can more efficiently prepare a trial balance, lead schedules, supporting audit documentation, financialstatements, and ratio analysis using the computer ratherthan by hand.The effects of adjusting journal entries are automatically carried through to the trial balance and financialstatements, making last-minute adjustments easier to make.Tick marks and review notes can be entered directly into computerized files.Data can be imported and exported to other applications. For example, a client’s general ledger can be downloaded into ACE and tax information can be downloaded into a commercial tax preparation package after the audit is completed.** Bills of lading are ordinarily signed by the freight company.That signature will be included on the top of the bill oflading, therefore, it is an external document.Multiple Choice Questions From CPA Examinations7-29 a. (2) b. (1) c. (4) d. (1)7-30 a. (3) b. (3) c. (4) d. (4)Discussion Questions And Problems7-31 a.1.External 7. Internal 13. Internal2.Internal 8. Internal 14. External3.External 9. External 15. Internal4.External 10. Internal* 16. External5.Internal* 11. External 17. External6.Internal 12. External** 18. External* Even though these may be signed or initialed by employees, they are still internal documents.b.External evidence is considered more reliable than internalevidence because external evidence has been in the hands ofboth the client and another party, implying agreement aboutthe information and the conditions stated on the document.7-32 1. (5) inquiry of client2.(8) observation3.(1) physical examination4.(2) confirmation5.(6) recalculation6.(2) confirmation7.(3) documentation8.(4) analytical procedures9.(5) inquiry of client10.(7) reperformance11.(8) observation12.(1) physical examination13.(4) analytical procedures14.(3) documentation15.(5) inquiry of client16.(4) analytical procedures17.(3) documentation18.(6) recalculation19.(1) physical examination20.(2) confirmation7-33Examples of audit evidence the auditor can use to support each of the functions are:a.Examine invoice from vendorDirect confirmation with vendorb.Physical examinationDirect confirmation with custodianc.Direct confirmation with customerExamine cash receipts journal and bank deposits forsubsequent cash receiptsd.Examine title for ownership of assetExamine invoice from vendore.Direct confirmation with vendorExamine client's copy of vendor's statementf.Physical examinationExamine sales invoice of subsequent sale of goods showingmarked down sale priceg.Count petty cashDirect confirmation with custodian7-34 a. Confirmations are normally more reliable evidence than inquiries of the client because of the independence of theoutside party confirming the information.b.Confirmation of bank balances is considered highly reliablewhereas confirmation of a department store charge account isoften not considered reliable. Banks are accustomed toconfirmations from auditors and normally maintain excellentaccounting records, whereas most customers of departmentstores have neither characteristic.c.If an auditor is not qualified to distinguish betweenvaluable inventory (e.g., diamonds) and worthless inventory(e.g., glass), the physical examination of inventory wouldnot be considered to be reliable evidence.d.Recalculation tests are highly reliable because the auditoris able to gain 100% assurance of the accuracy, but thetests only verify whether the recorded amounts areaccurately totaled. These tests do not uncover omissions orfictitious amounts.e.Relatively reliable documentation examples include: vendorstatements, bank statements, and signed lease agreements.Relatively unreliable documentation examples may be: copiesof customer invoices, internal memoranda and othercommunications, and a listing of fixed asset additions.The difference between reliable and unreliable documentation examples above is whether they originate fromoutside or inside the client's organization. Externalinformation is considered more reliable than internal documentation.7-34 (continued)f.1.Confirmation of accounts receivable - Corporationaccustomed to confirmations compared to a member ofthe general public.2.Examination of the corporate minutes - Experiencedpartner compared to a new assistant.3.Physical observation of inventory - Auditorknowledgeable in the client's inventory compared toone who is not.4.Attorney's letter - General counsel compared to anattorney involved only with patents.g. Analytical procedures are evidence of the likelihood ofmisstatements in the financial statements, but they arerarely sufficient by themselves to conclude that thestatements are misstated. Other supportive evidence isneeded to determine whether apparent misstatements areactually material.7-357-35 (continued)7-367-37 a. The six factors determining the reliability of evidence are:1.Independence of provider2.Effectiveness of client's internal controls3.Auditor's direct knowledge4.Qualifications of individuals providing theinformation5.Degree of objectivity6.Timelinessb. andc.7-387-38 (continued)7-39 a. The purpose of audit documentation is to aid the auditor in providing reasonable assurance that an adequate audit wasconducted in accordance with auditing standards.Specifically, the audit documentation provides:1. a basis for planning the audit2. a record of the evidence accumulated and results oftests3.data for deciding the proper audit report4. a basis for review by supervisors and partnersb.Audit files are the CPA's records of the procedures followed,tests performed, and conclusions reached during the audit.Audit files may include audit programs, analyses, memoranda,letters of confirmation and representation, abstracts ofcompany documents, and schedules or commentaries prepared orobtained by the auditor.c.The factors that affect the CPA's judgment of the type andcontent of the audit files for an engagement include:1.The nature of the auditor's report2.The nature of the client's business3.The nature of the financial statements, schedules, orother information upon which the CPA is reporting andthe materiality of the items included therein4.The nature and condition of the client's records andinternal controls5.The needs for supervision and review of work performedby assistants7-40In general, the audit schedule is not set up in a logical manner to show what the auditor wants to accomplish. The primary objective of the audit schedule is to verify the ending balance in notes receivable and interest receivable. A secondary objective is to account for allinterest income, cash received and cash disbursed for new notes, collateral as security, and other information about the notes for disclosure purposes.Specific deficiencies of the audit schedule presented in the question are:7-40 (continued)c.Spreadsheet SolutionThe purpose of using an Excel spreadsheet in this problem is to give the student some experience in preparing a simple audit schedule using an Excel spreadsheet. It should be explained to students that this type of audit schedule may or may not be prepared in actual practice, and that often templates are used to prepare more time-consuming audit schedules. Also, whether or not tick marks are computerized is a matter to be decided. The advantage is that the completed audit work can then be stored and reviewed electronically, a direction many firms are going. On the other hand, it may be more efficient to indicate audit work manually as it is performed, and a contrast in the color of the tick marks through use of a colored pencil may be desirable.The following solution was prepared with Excel (Filename P740.xls). The formulas used are self-evident, so no listing is provided, although it is available on the Companion Website and on the Instructor’s Resource CD- ROM, which is available upon request. Two items deserve comment:1.An advantage of using a spreadsheet program for thesetypes of analyses is that footing and crossfooting aredone automatically.2.When auditor tick marks are done by computer, aproblem arises as to how to place them on theworksheet. One could use narrow columns insertedbetween the scheduled client data, or, as done here,the tick marks are placed in blank rows beneath therelated data.7-40 (continued)-可编辑修改-VANDERVOORT COMPANYSchedule N-1 DateA/C #110 - NOTES RECEIVABLE Prepared by JD 01/21/08 12/31/07Approved by PP 02/15/08Account #110 - Notes Receivable InterestDate InterestMade/ Rate/ Face Value ofBalance Balance Receivable Receivable Maker Due Date Paid toAmount Security12/31/06 Additions Payments 12/31/07 12/31/06 Earned Received 12/31/07Apex Co. c *6/15/06 / 5% / 5000 None4000 0 1000 3000104 175 0 279 06/15/08 None pd.tp r tp < Ajax, Inc. c *11/21/06 / 5% / 3591 None3591 0 3591 0 0 102 102 0 Demand 12/31/07tp r tp < r J.J. Co. c *11/1/06 / 5% / 13180 2400012780 0 2400 10380 24 577 601 0 04/01/12 12/31/07 tp r tp < r ($200/Mo.)P.Smith c *7/26/07 / 5% / 25000 500000 250005000 200000 468 200 268 08/01/09 09/30/07 r r < r ($1000/Mo.)Martin-Peterson c *5/12/06 / 5% / 2100 None2100 0 2100 0 0 105 105 0 Demand 12/31/07tp r tp < r Tent Co. c *9/3/07 / 6% / 12000 100000 12000 1600 10400 0 162 108 54 02/01/10 11/30/07 r r < r ($400/Mo.) 2247137000156914378012815891116601f f f f, cf f f f f, cf Tpwtbtb opwtbLegend of Auditor's Tick Marks f Footed cf Crossfooted7-40 (continued)7-19tp Traced to prior year audit fileswtb Traced total to working trial balanceop Traced total to operations audit schedule - OP6* Examined note for payee, made and due dates,interest rate, face amount, and value ofsecurity. No exceptions noted.c Received confirmation, including date interest paid to,interest rate, interest paid during 2007, notebalance, and security. No exceptions noted.r Traced to cash receipts records< Recomputed for the year-可编辑修改-Cases7-41 The following are deficiencies in the sufficiency and appropriateness of the evidence in the audit of accounts payable for Grande Stores:McClure Advertising Credits–An insufficient number of confirmations (four) were sent. The use of alternative procedures is probably acceptable. However, one credit was confirmed by telephone, rather than by written confirmation. Although the differences found were immaterial, the auditors should have determined the reason for the differences, and any errors should have been projected to the population.Twenty additional credits were selected for testing. Whether this is a sufficient number is a matter of judgment, and depends on several factors. With a fairly small sample, it is critical that the items selected for testing adequately represent the population. The testing relied on internal documentation, which is insufficient to support the credits. The placing of the ad is insufficient evidence without supporting evidence from the vendor supporting the reduction in accounts payable.Springbrook Credits –These credits were confirmed by telephone, and were not supported by a written confirmation. The staff auditor was suspicious of the client’s unwillingness to allow written confirmation of the amounts, as well as the client’s changing explanation of the nature of the credits, but did not perform additional testing to resolve any doubts about the validity of the credits.Ridolfi Credits– The auditor obtained an oral confirmation that these credits were not valid. The client indicated that the auditor's information was incorrect, but would not allow the auditor to obtain written confirmation for these credits. In addition, the credit memos had been altered, which should have further indicated to the auditor that the credits were not valid.Accounts Payable Accrual–The auditors sent 50 accounts payable confirmations. Whether this is a sufficient number of confirmations is a matter of auditor judgment. However, the adequacy of the confirmations as evidence is significantly undermined by the knowledge that the client told suppliers how to respond. As a result, the auditor should have verified the confirmed balances using alternative procedures. There is no discussion of the performance of alternative procedures for nonresponses, or the resolution of the six responses that were not reconciled to Grande’s records.The auditors agreed to an adjustment of $260,000 when their cutoff tests indicated a potential liability of $500,000. It would be appropriate for the auditors to agree to a lower amount only if additional testing supported a lower accrued liability.7-42The audit schedule contains the following deficiencies:1.There is no indication of follow-up on the identified errorin the accrued interest payable computation.2.There is no indication whether the confirmation exceptionwas resolved.。
审计学：一种整合方法_第12版_英文版Chapter01
1 - 12
Economic Demand for Auditing
Information risk reflects the possibility that the information upon which the business risk decision was made was inaccurate.
1 - 11
Learning Objective 3
Explain the importance of auditing in reducing information risk.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1-5
Accumulating Evidence and Evaluating Evidence
Evidence is any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1 - 16
Learning Objective 5
Describe assurance services and distinguish audit services from other assurance and nonassurance services provided by CPAs.
审计学一种整合的方法
statements and internal control
from the auditor’s responsibility
for verifying the financial
statements and effectiveness
of internal control.
PPT文档演模板
审计学一种整合的方法
审计学一种整合的方法
Transaction Flow Example
•Transactions •Sales
•Cash •receipts
•Journals •Sales •journal
•Cash receipts •journal
•Ledgers, •Trial Balance, •and Financial
➢ Material versus immaterial misstatements ➢ Reasonable assurance ➢ Errors versus fraud ➢ Professional skepticism ➢ Fraud resulting from fraudulent financial reporting versus misappropriation of assets
•Sales and •collection
•cycle
•Acquisition •and payment
•cycle
•Payroll and •personnel
•cycle
•Inventory and •warehousing
•cycle
PPT文档演模板
审计学一种整合的方法
Learning Objective 5
•Payroll •journal
审计学：一种整合方法_第12版_英文版Cha(1)
Accumulating Evidence and Evaluating Evidence
Evidence is any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria.
Determines correspondence
Report on results
Report on tax deficiencies
Established criteria
Internal Revenue Code and all
interpretations
Learning Objective 2
Auditing is determining whether recorded information properly reflects the economic events that occurred during the accounting period.
Learning Objective 3
The final stage in the auditing process is preparing the Audit Report, which is the communication of the auditor’s findings to users.
Audit of a Tax Return Example
Learning Objective 1
Describe auditing.
Nature of Auditing
审计学：一种整合方法 阿伦斯 英文版 第12版 课后答案 Chapter 20 Solutions Manual
Chapter 20Completing the Tests in theAcquisition and Payment Cycle:Verification of Selected AccountsReview Questions20-1Because the source of the debits in the asset account is the acquisitions journal (or similar record), the current period acquisitions of property, plant and equipment have already been partially verified as part of the acquisition and payment cycle. The disposal of assets, depreciation and accumulated depreciation are not tested as a part of the acquisition and payment cycle.20-2The reason for the emphasis on current period acquisitions in auditing property, plant, and equipment is that there is an expectation that permanent assets will be kept and maintained on the records for several years. The assets carried over from the preceding years can be assumed to have been verified in the prior years' audits.If it cannot be shown through tests of controls and substantive tests of transactions that all disposals have been recorded, additional testing of the prior balance could be required. A first year audit also necessitates tests of the beginning balance.20-3Many clients may accidentally or intentionally record purchases of assets in the repair and maintenance account. The misstatement is caused by a lack of understanding of generally accepted accounting principles and some clients' desire to avoid income taxes. Repair and maintenance accounts are verified primarily to uncover unrecorded property purchases.The auditor typically vouches the larger amounts debited to those expense accounts at the same time that property accounts are being audited.20-4The audit procedures that may be applied to determine that all property, plant and equipment retirements have been recorded are as follows:1. Review whether newly acquired assets replace existing assets. Ifso, inquire as to whether the old asset has been removed from thebooks.2. Analyze gains on the disposal of assets and miscellaneous incomefor receipts from the disposal of assets. Compare these to property,plant and equipment accounts to see whether the asset has beenremoved from the books.3. Review planned modification and changes in product lines, taxes,or insurance coverage for indications of deletions of equipment.4. Make inquiries of management and production personnel about thedisposal of assets.20-5The two considerations to be kept in mind in auditing depreciation expense are:1. Whether the client is following a consistent depreciation policy fromperiod to period.2. The accuracy of the client's calculations.An overall reasonableness test can be made by calculating the depreciation rate for the year times the undepreciated fixed assets. In addition, it is desirable to check the accuracy of the depreciation calculation. The extent of the accuracy tests will vary depending on the engagement circumstances.20-6Since the source of the debits to prepaid insurance is the acquisitions journal or similar record (assuming all insurance premiums are charged to prepaid insurance rather than insurance expense), the current period premiums have already been partially verified as a part of the acquisition and payment cycle. The allocation of the premium between prepaid insurance is not tested as a part of the acquisition and payment cycle.20-7The audit of prepaid insurance should ordinarily take a relatively small amount of audit time because:1. The balance in prepaid insurance is normally immaterial;2. There are ordinarily few transactions during the year and mosttransactions are immaterial;3. The transactions are ordinarily not complex.20-8The evaluation of the adequacy of insurance is a test of reasonable protection against the loss of existing assets. The verification of prepaid insurance is performed to determine whether:1. The balances represent proper charges against future operations.2. The additions represent charges to these accounts and arereflected at actual cost.3. Amortization or write-off is reasonable under the circumstances.The evaluation of adequacy of insurance coverage is more important because of the potential loss due to under-insurance. Verification of prepaid insurance usually involves an immaterial amount and is not emphasized in most audits.20-9The audit of prepaid expenses differs from the audit of other asset accounts, such as accounts receivable or property, plant, and equipment, because prepaid expenses are often immaterial. Analytical procedures are often sufficient for auditing prepaid expenses, while tests of details of balances are usually required for other accounts such as accounts receivable and property, plant, and equipment.20-10Debits to accrued rent arise from the cash disbursements journal, which is verified as a part of tests of controls and substantive tests of transactions for cash disbursements. The credits typically arise from the general journal and may not have been verified as a part of these tests. Furthermore, tests of controls and substantive tests of transactions do not include verification of the inclusion of accruals on all existing property and verification of the consistent treatment of the accruals from year to year.20-11Property tax accruals take little audit time for most audits, and since there are relatively few transactions to test and they are typically material in amount, it is common to verify the accounts 100 percent. On the other hand, accounts payable takes quite a bit of audit time and since there are usually a large number of transactions to test and they are typically varied in amount, it is common to verify the account on a test basis.20-12The following documents will be used to verify accrued property taxes and related expense accounts:1. Deeds to properties2. Property tax returns3. Cancelled checks4. Invoices from the taxing authority20-13Three expense accounts that are tested as part of the acquisition and payment cycle or the payroll and personnel cycle are:1. Property tax expense2. Payroll expense3. Rent expenseThree expense accounts that are not directly verified as part of either of these cycles are:1. Depreciation expense2. Amortization of patents3. Year-end bonuses to officers20-14The analysis of expense accounts is a procedure by which selected expense accounts are verified by examining underlying supporting vendors' invoices or other documentation to determine if the transactions making up the total are correctly stated. The emphasis in most expense account analysis is on the occurrence of recorded amounts, accuracy, and classification.Potentially the same objectives are accomplished in tests of controls and substantive tests of transactions as for expense account analysis. The major differences are that tests of controls and substantive tests of transactions are selected from all of the acquisitions and cash disbursements journals for the entire period whereas transactions examined for expense analysis are limited to the account being analyzed. Nevertheless, the procedures are closely related, and if the tests of controls and substantive tests of transactions procedures results are satisfactory, reduced expense account analysis is implied.20-15The approach for verifying depreciation expense should emphasize the consistency of the method of depreciation used and the related computations, since these aspects of depreciation expense are the main determinants of the account balance. The use of analytical procedures and reperformance tests is important for depreciation expense.In verifying repair expense, the emphasis should be on vouching transactions that may be capital items; therefore, examining supporting documentation for transactions from months with unusually large totals or transactions that are themselves large or unusual is the normal audit approach followed.The approach is different because in repairs and maintenance the primary objective is to locate improperly classified fixed assets, whereas in depreciation the emphasis is on consistency from period to period and accurate depreciation calculations.20-16The factors that should affect the auditor's decision whether or not to analyze an account balance are:1. The analytical procedures indicate there is a high likelihood ofmisstatement in an account.2. The tests of controls and substantive tests of transactions indicatethere is a high likelihood of misstatement in an account.3. The account is likely to contain misstatements because it is difficultfor the client to properly classify or value the transactions.4. The auditor knows that the account is frequently subject to abuse ormisstatement.5. The analysis of the account might disclose a contingency.6. Tax returns and the SEC require the disclosure of certaininformation, which the account is likely to provide.Four expense accounts that are commonly analyzed in audit engagements are:1. Legal expense2. Travel and entertainment expense3. Tax expense4. Repair and maintenance expenseMultiple Choice Questions From CPA Examinations20-17 a. (1) b. (1) c. (4)20-18 a. (3) b. (4) c. (4)20-19 a. (1) b. (4) c. (3)20-20 a. (2) b. (4) c. (4)Discussion Questions and Problems 20-2120-24a. No. In a first audit the audi tor’s attention cannot be confined to activity in the year under audit because (1) some balance sheetaccounts include material amounts which originated in prior years,(2) some income and expense accounts include entries which arebased on decisions or transactions of prior years, and (3)consistency over the years in the application of generally acceptedaccounting principles is necessary for fairly presented financialstatements. Also, some audit testing of a nonrecurring nature willbe necessary in an initial engagement because the auditor does nothave the benefits of (1) familiarity with the company's history,personnel, system and operations, (2) information regarding thecomposition and reliability of beginning of the year balances, and (3)preceding year's audit working papers. Consequently, in the firstaudit the auditor will require such corporation documents as bylaws,articles of incorporation, minutes since incorporation, organizationcharts and flowcharts, and must comprehensively obtain anunderstanding of internal control and assess control risk todetermine the scope of audit testing.b. The audit program procedures that the auditor should use to verifythe January 1, 2007, balances in the land, building and equipment,and accumulated depreciation accounts of Hardware ManufacturingCompany should include the following:1. Read the minutes since incorporation in 2003 to ascertainthat for major property transactions approved, alltransactions were recorded in the accounts, and recordedtransactions were properly approved.2. Scan activity in the general ledger accounts sinceincorporation in 2003 for both fixed assets and accumulateddepreciation to identify items of large amount and unusualnature which will warrant further investigation.3. Examine support for principal property additions to ascertainthat the capitalization includes costs of freight-in, installation,and major improvements and labor, and overhead on self-constructed assets.4. Ascertain that fixed assets donated by stockholders wererecorded at fair market value on the date of donation andthat contributed capital was properly credited.5. Compare the yearly totals of repairs and maintenanceaccount balances and test abnormally high amounts to seethat they do not include assets charged to expense.6. Examine recorded deeds supporting ownership of buildingsand determine that any encumbrance was properly reportedin the financial statements.7. Examine support (asset and accumulated depreciation) forrecorded disposals or abandonments of material amounts.20-24 (continued)8. Tour the plants and account for major property items onhand to substantiate the reasonableness of fixed assetmaster file records and to ascertain that idle, obsolete orworthless assets are not being reported at more than theirfair value in the financial statements.9. Test the assigned lives of depreciable assets and the bases,methods and computations of accumulated depreciation forpropriety and consistency.10. Review charges to the accumulated depreciation accounts todetermine that they properly represent disposals,abandonments or extraordinary repairs.11. Review the gains and losses on property disposals as anadditional means of assurance that the depreciation livesand methods used are reasonable.12. Scan federal income tax returns of prior years and revenueagents' reports pertaining to them to determine whetheradjustments made for tax purposes should also be made onthe books.13. Determine that generally accepted accounting principles ofincome tax allocation are being used for differences betweentax depreciation and financial statement depreciation.14. Inspect real estate and property tax bills to furthersubstantiate ownership and valuation of fixed assets.20-25Overall, the program fails to emphasize the possibility of omitted property from the list. The key to an adequate audit of accrued property taxes is making sure all owned property and only owned property is included and on the list.20-2620-27 The banker has failed to recognize that the audit tests discussed relate as much to the income statement as to the balance sheet. For example, obtaining an understanding of internal control and the tests of controls and substantive tests of transactions are heavily income statement oriented, analytical procedures are more closely related to the income statement than to the balance sheet, and even tests of details of the balance sheet help to uncover misstatements in the income statement. The typical audit recognizes the interrelationship between the income statement and the balance sheet and uses this interrelationship to help design more effective tests to uncover misstatements in both statements. The auditor is and should be greatly concerned about the fair presentation of the income statement.Case – Ward Publishing Company20-28a. The tests of acquisition and cash disbursement transactions have two purposes: to determine whether related internal accountingcontrols are functioning (tests of controls), and to determinewhether the transactions actually contain any monetarymisstatements (substantive). The results of the tests apply to thepopulation of all acquisitions and cash disbursements, includingplant and equipment and lease acquisitions and cashdisbursements, even though the specific sample tested does notinclude any such transaction. Thus, if the results of the tests arefavorable, it is concluded that there is a lower expectation ofmisstatements in plant and equipment and lease transactions, andvice-versa.b. A summary of the results from tests of controls and substantivetests of transactions for acquisitions and cash disbursements from Case 19-32 is: all transaction-related audit objectives are being met at a satisfactory level except:1. All supporting documents are not always attached to thevendor's invoice. Note: Students using a nonstatisticalapproach to Case 19-32 may not conclude that the resultsfor this attribute [9.b.(1)] are unacceptable, depending ontheir estimate of CUER. However, most students will likelyconclude that the results are unacceptable.2. All vendors’ invoices are not initialed for internal verification.Half of those not initialed had account classification errors.The impact of these results and the results from items 1 through 7 affect the balance-related audit objectives for plant and equipment in the following way:Conclusions 3, 5, and 7 indicate a need for more extensive auditing for existence, completeness, accuracy, and classification.All large items should be verified and samples should be larger than normal. All other tests can be performed at minimum levels.c. The results of tests of controls and substantive tests of transactionsare directly related to the tests of many expense accounts, primarilythrough tests for account classification, but also through tests ofaccuracy and existence. For example, if the auditor concludes thatthe internal controls are effective for recording acquisitiontransactions, the likelihood of misstatements for accounts such assupplies, purchases, and repairs and maintenance is greatlyreduced. The auditor must keep in mind, however, that certainexpense accounts are not usually verified as a part of tests ofcontrols and substantive tests of transactions. An example isdepreciation expense. Similarly, certain accounts may have ahigher inherent risk such as legal expense and therefore requireadditional testing even if tests of controls and substantive tests oftransactions results are satisfactory. Also, analytical proceduresand tests of details of balances for balance sheet accounts resultsaffect the extent of auditing needed for expense accounts.d. The results of tests of controls and substantive tests of transactionsindicate the potential for significant classification misstatements.(See the results for Audit Procedure 9b(5) for classification in Part 2of Case 19-32.) This potential for misclassification misstatementcombined with the analytical procedures results in Conclusion 6indicate a need for more extensive account analysis for repairs andmaintenance, small tools expense, and the three other accountswhere there are significant changes from prior years. No otherconclusions should cause the auditor significant concern in theaudit of expense accounts.20-29 a. Items 1 through 6 would have been found in the following way:1. The company's policies for depreciating equipment areavailable from several sources:a) The prior year's audit schedules and permanent file.b) Footnote disclosure in the annual report and SECForm 10-K.c) Company procedures manuals.d) Detailed fixed asset records.2. The ten-year lease contract would be found when supportingdata for current year's equipment additions were examined.Also, it may be found by a review of company lease files,contract files, or minutes of meetings of the board ofdirectors. The calculations would likely be shown on asupporting schedule and can be traced to the general journal.3. The building wing addition would be apparent by the additionto buildings during the year. The use of the low constructionbid amount would be found when support for the additionwas examined. When it was determined that thisinappropriate method was followed, the actual costs couldbe determined by reference to construction work orders andsupporting data. The wing could also be examined.4. The paving and fencing could be discovered when supportwas examined for the addition to land.5. The details of the retirement transactions could bedetermined by examining the sales agreement, cash receiptsdocumentation, and related detailed fixed asset record. Thisexamination would be instigated by the recording of theretirement in the machinery account or the review of cashreceipts records.6. The auditor would become apprised of a new plant in severalways:a) Volume would increase.b) Account details such as cash, inventory, prepaidexpenses, and payroll would be attributed to the newlocation.c) The transaction may be indicated in documents suchas the minutes of the board, press releases, andreports to stockholders.d) Property tax and insurance bills examined show thenew plant.One or more of these occurrences should lead the auditor to investigate the reasons and circumstances involved. Documents from the city and appraisals could be examined to determine the details involved.b. The appropriate adjusting journal entries are as follows:1. No entry necessary.2. This is an operating lease and should not have beencapitalized.Prepaid rent $50,000Lease liability 354,000Allowance for depreciation-machinery and equipment 20,200Machinery and equipment $404,000Depreciation expense 20,200To correct initial recording of lease:Equipment rent expense $37,500Prepaid rent $37,500 To record nine months rent:9/12 x $50,000 = $37,5003. The wing should have been recorded at its cost to the company.(Accounts originally credited) $15,000Buildings $15,000 To correct initial recording of new wing:Depreciation expense $3,167Allowance for depreciation—Buildings $3,167 To correct depreciation for excess cost.Depreciation on beginning balance1,200,000/25 = 48,000Depreciation recorded on addition51,500 - 48,000 = 3,500Correct depreciation for addition:Remaining useful life of addition is 12 years(600,000/1,200,000 x 25 = 12-1/2 years; 12-1/2 - ½ = 12 years)Depreciation = $160,000/12 x ½ = $6,667Correction = $6,667 - $3,500 = $3,1674. The paving and fencing are land improvements and should bedepreciated over their useful lives.Land improvements (may be $50,000combined with buildingswith buildings account—buildings and improvements)Land $50,000To correct initial recording of paving and fencing:Depreciation expense $2,500Allowance for depreciation—Land Improvements $2,500 To record first year's depreciation on paving and fencing:$50,000/10 x ½ = $2,5005. The cost and allowance for depreciation should have beenremoved from the accounts and a gain or loss on sale recorded.Cost of asset $480,000Allowance for depreciation:To 12/31/06 - 480,000/10 x 3-1/2 168,000For 2007 - 480,000/10 x ½ 24,000192,000Net book value 288,000Cash proceeds 260,000Loss on sale $28,000The correcting entry is:Allowance for depreciation—Machinery and Equipment $203,000Loss on sale of assets 28,000Machinery and Equipment $220,000Depreciation expense 11,0006. Donated property should be capitalized at its fair market value.Land $100,000Buildings 400,000Contributed capital- $500,000Donated PropertyTo record land and building for new plant donated by Crux City:Depreciation expense $8,000Allowance for depreciation—Buildings $8,000 To record depreciation on new plant:$400,000/25 x ½ = $8,00020-30a.To: In-Charge AuditorFrom: Audit ManagerSubject: Concerns about the schedule prepared by the client and the staff assistant in the audit of Vernal Manufacturing CompanyThe analytical procedures schedule for the audit of Vernal Manufacturing Company is completely inadequate and needs to be redone. There are several deficiencies:1. The headings, references, and indexing on the audit schedule areincomplete. It appears that the schedule was prepared by the client, but itis not possible to determine from the schedule.2. A classified income statement would provide more useful informationthan the single-step statement provided.3. The schedule should include the additional columns showing the percentof net sales for 12-31-06 and 12-31-07. This information would permit usto more effectively evaluate the relative change in each account.4. There is no indication that the general ledger totals were compared togeneral ledger balances or that calculations were tested.5. There is no identification of accounts that we are concerned may bematerially misstated. For example, the $1,381 change in insurance expenseappears immaterial but the 427% change in other expense may besignificant.6. There is no indication of specific accounts that require additionalinvestigation and the nature of such investigation.7. There is no indication that the client's explanations have been evaluatedand supported by evidence. Management inquiry is a weak form ofevidence and unsatisfactory by itself.b. For every explanation provided by the client, an alternativepossibility is a misstatement in the financial statements. The auditor must be satisfied that significant differences are not material misstatements. The following are a few examples:c. To perform a meaningful determination of the most importantvariances, an alternative design of the audit schedule follows. It is much easier to determine relevant variances with an adequate analytical procedures schedule.PER G/L PERCENT PER G/L PERCENT CHANGE12-31-06 12-31-06 12-31-07 12-31-07 Amount PercentSales $8,467,312 100.8% $9,845,231 102.5% $1,377,919 16.3%Sales returns andallowances (64,895) (0.8%) (243,561) (2.5%) (178,666) 275.3%Net Sales 8,402,417 100.0% 9,601,670 100.0% 1,199,253 14.3%Cost of goods sold:Beginning inventory 1,487,666 17.7% 1,389,034 14.5% (98,632) (6.6%) Purchases 2,564,451 30.5% 3,430,865 35.7% 866,414 33.8% Freight-in 45,332 0.5% 65,782 0.7% 20,450 45.1% Purchase returns (76,310) (0.9%) (57,643) (0.6%) 18,667 (24.5%) Factory wages 986,755 11.7% 1,145,467 11.9% 158,712 16.1% Factory benefits 197,652 2.4% 201,343 2.1% 3,691 1.9% Factory overhead 478,659 5.7% 490,765 5.1% 12,106 2.5% Factory depreciation 344,112 4.1% 314,553 3.3% (29,559) (8.6%) Ending inventory (1,389,034) (16.5%) (2,156,003) (22.5%) (766,969) 55.2%Total 4 ,639,283 55.2% 4,824,163 50.2% 184,880 4.0%Gross margin 3,763,134 44.8% 4,777,507 49.8% 1,014,373 27.0% Selling, general and administrative:Executive salaries 167,459 2.0% 174,562 1.8% 7,103 4.2% Executive benefits 32,321 0.4% 34,488 0.4% 2,167 6.7%Office salaries 95,675 1.1% 98,540 1.0% 2,865 3.0%Office benefits 19,888 0.2% 21,778 0.2% 1,890 9.5%Travel and entertainment 56,845 0.7% 75,583 0.8% 18,738 33.0% Advertising 130,878 1.6% 156,680 1.6% 25,802 19.7%Other sales expense 34,880 0.4% 42,334 0.4% 7,454 21.4% Stationery and supplies 38,221 0.5% 21,554 0.2% (16,667) (43.6%) Postage 14,657 0.2% 18,756 0.2% 4,099 28.0% Telephone 36,551 0.4% 67,822 0.7% 31,271 85.6%Dues and memberships 3,644 0.0% 4,522 0.0% 878 24.1%Rent 15,607 0.2% 15,607 0.2% 0 0.0%Legal fees 14,154 0.2% 35,460 0.4% 21,306 150.5% Accounting fees 16,700 0.2% 18,650 0.2% 1,950 11.7% Depreciation, SG&A 73,450 0.9% 69,500 0.7% (3,950) (5.4%)Bad debt expense 166,454 2.0% 143,871 1.5% (22,583) (13.6%) Insurance 44,321 0.5% 45,702 0.5% 1,381 3.1%961,705 11.4% 1,045,409 10.9% 83,704 8.7%Total operating income 2,801,429 33.3% 3,732,098 38.9% 930,669 33.2%Other expenses:Interest expense 120,432 1.4% 137,922 1.4% 17,490 14.5%Other 5,455 0.1% 28,762 0.3% 23,307 427.3%Total 125,887 1.5% 166,684 1.7% 40,797 32.4%Other income:Gain on sale of assets 43,222 0.5% (143,200) (1.5%) (186,422) (431.3%) Interest income 243 0.0% 223 0.0% (20) (8.2%) Miscellaneous income 6,365 0.1% 25,478 0.3% 19,113 300.3%Total 49,830 0.6% (117,499) (1.2%) (167,329) (335.8%) Income before taxes 2,725,372 32.4% 3,447,915 35.9% 722,543 26.5% Income taxes 926,626 11.0% 1,020,600 10.6% 93,974 10.1%Net income $1,798,746 21.4% $2,427,315 25.3% $ 628,569 34.9%The following are variances of special significance to the audit that have been determined from the revised analytical procedures worksheet. Before doing additional work, there should be further discussion with knowledgeable management about the variances identified. After investigating management's explanations, the following additional audit procedures may be appropriate:。
审计学：一种整合方法_第12版_英文版Cha
6 - 13
Financial Statements Cycles
Audits are performed by dividing the financial statements into smaller segments or components.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
cycle
Inventory and warehousing
cycle
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
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Learning Objective 5
Describe why the auditor obtains a combination of assurance by auditing classes of transactions and ending balances in accounts, including presentation and disclosure.
6 - 16
Relationships Among Transaction Cycles
General cash
Capital acquisition and repayment cycle
Sales and collection
cycle
Acquisition and payment
cycle
Payroll and personnel
审计学：一种整合方法_第 12版_英文版Cha
审计学：一种整合方法_第12版_英文版Chapter06共43页文档
6 - 14
Transaction Flow Example
Transactions Sales
Cash receipts
Journals Sales journal
Cash receipts journal
Ledgers, Trial Balance, and Financial
Statements
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Balance and Transactions Affecting Balances Example
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
6-3
Steps to Develop Audit Objectives
1. Understand objectives and responsibilities for the audit.
Direct-effect illegal acts
Indirect-effect illegal acts
Evidence accumulation when there is no reason to believe indirect-effect illegal act exists
cycle
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Payroll and personnel
审计学：一种整合方法_第12版_英文版Chapter06-43页PPT资料
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
6-9
6-8
Auditor’s Responsibilities
➢ Material versus immaterial misstatements ➢ Reasonable assurance ➢ Errors versus fraud ➢ Professional skepticism ➢ Fraud resulting from fraudulent financial
6-7
Learning Objective 3
Explain the auditor’s responsibility for discovering material misstatements.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
It requires the CEO and the CFO of public companies to certify the quarterly and annual financial statements submitted to the SEC.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
6-3
Steps to Develop Audit Objectives
4. Know general audit objectives for classes of transactions and accounts.
审计学：一种整合方法_第12版_英文版Cha
Financial Statements Cycles
Learning Objective 4
• Classify transactions and account • balances into financial statement • cycles and identify benefits of a • cycle approach to segmenting • the audit.
Objective of Conducting an Audit o f Financial Statements
The objective of the ordinary audit of financial statements is the expression of an opinion of the fairness with which they present fairly, in all respects, financial position, result of operations, and its cash flows in conformity with GAAP.
Management’s Responsibilities
Management is responsible for the financial statements and for internal control.
The Sarbanes-Oxley Act increases management’s responsibility for the finຫໍສະໝຸດ ncial statements.
The Sarbanes-Oxley Act provides for criminal penalties for anyone who knowingly falsely certifies the statements.
Chapter18 - final
CHAPTER 18Multiple-Choice Questions1. The payroll cycle consists of how many classes of transactions?easy a. Onea b. Twoc. Threed. It differs across entities.2. Payroll policies should require a competent, independent person to:easy a. recalculate actual hours worked.d b. review for the proper approval of all overtime.c. examine time cards for erasures and alterations.d. do all of the above.3. Which of the following statements is false?easy a. The payroll cycle consists of one class of transactions.b b. Balance sheet accounts related to payroll are generally more significant than relatedtransactions.c. Internal controls over payroll are effective for most companies.d. Small companies usually have effective controls over payroll.4. Which of the following is not an important control consideration in the processing of payroll?easy b a. The person authorized to sign paychecks should not be otherwise involved in thepreparation of the payroll.b. A check-signing machine should not be used to replace a manual signature.c. Distribution of pay checks should be performed by someone who is not involved in theother payroll functions.d. Unclaimed paychecks should be immediately returned for redeposit.5. Which of the following statements about the payroll and personnel cycle is correct?easy c a. There are three classes of transactions within the payroll cycle –salaried employees, hourly employees, and commissioned employees.b. Transactions are less significant than related balance sheet accounts.c. Internal controls over payroll are effective for almost all companies, even small ones.d. All of the above are correct.6. easy Which of the following types of audit procedures is ordinarily emphasized the least when auditing payroll?d a. Tests of controlsb. Tests of transactionsc. Analytical proceduresd. Tests of details of balances7. easy A form issued for each employee summarizing the earnings and income tax deductions for the calendar year is the:d a. rate authorization form.b. summary payroll report.c. payroll master file.d. W-2 form.8. The payroll and personnel cycle begins with which of the following events? easy a. Interviewing job candidates.b b. Hiring a new employee.c. Existing employees submitting requests for payment for work performed.d. Issuance of paychecks.9. Most systems of internal control for payroll are:easy a. loosely structured but well controlled.c b. loosely structured and loosely controlled.c. highly structured and well controlled.d. highly structured but loosely controlled.10. The payroll and personnel cycle ends with which of the following events? easy a. Interviewing job candidates.d b. Hiring a new employee.c. Existing employees submitting requests for payment for work performed.d. Issuance of paychecks.11. easy The retirement savings deductions, number of exemptions for withholding allowances, union dues deductions, and other deductions are found on what form?b a. Time cardsb. Deduction authorization formc. Rate authorization formd. None of the above12. easy A ____________ includes all payroll transactions processed by the accounting system for a given period of time.b a. payroll journalb. payroll transaction filec. time reportd. payroll summary13. An imprest payroll account ordinarily carries a ______ balance.easy a. largec b. zeroc. smalld. negative14. Records that include data such as employment date, performance ratings and pay rates are the: easy a. personnel records.a b. employee screening forms.c. summary payroll reports.d. none of the above.15. easy In audits of companies in which payroll is a significant portion of inventory, the improper account classification of payroll can:c a. increase asset valuations.b. decrease asset valuations.c. either a or b.d. not affect asset valuations.16. To minimize the opportunity for fraud, unclaimed salary checks should be:easy a. deposited in a special bank account.a b. kept in the payroll department.c. left with the employee’s supervisor.d. held for the employee in the personnel department.17. Which of the following type of employee typically does not complete time cards?medium a. Hourly employees.b b. Salaried employees.c. All employees must complete time cards.d. Time cards are typically completed by salaried employees, but may also be completed byhourly employees.18. When examining payroll transactions, an auditor is primarily concerned with the possibility of: medium a. incorrect summaries of employee time records.b b. overpayments and unauthorized payments.c. under withholding of amounts required to be withheld.d. posting of gross payroll amounts to incorrect salary expense accounts.19. medium a For which of the following functions is the use of prenumbered documents least important?e of prenumbered time cards in the payroll function.e of prenumbered sales invoices in the sales function.e of prenumbered receiving reports in the acquisitions function.e of prenumbered deposit slips in the cash receipts function.20. Which of the following statements about payroll checks is correct?medium b a. After a payroll check is cashed and returned to the employee it is referred to as adepository check.b. As soon as a payroll check is signed by an authorized employee, it becomes an asset.c. Payroll checks are written for the amount of gross pay due employees.d. It is rare that payroll checks are direct-deposited into employees’ bank accounts.21. Which of the following is not an advantage of using an imprest payroll account? medium a. It limits the company’s exposure to payroll fraud.c b. It allows the delegation of payroll check-signing duties.c. Companies have fewer banking transactions.d. It facilitates cash management.22. medium No individual with access to time cards, payroll records, or checks should also be permitted access to:c a. the computer.b. job time tickets.c. personnel records.d. the canceled check file.23. medium The file for recording each payroll transaction for each employee and maintaining total employee wages paid for the year to date is the:a a. payroll master file.b. summary payroll report.c. payroll journal.d. job time ticket.24. medium Many companies use outside payroll services to process payroll. Auditors _____ rely on the internal controls of these outside payroll services.d a. mustb. cannotc. rarelyd. can often25. The total of the individual employee earnings in the payroll master file equals the total: medium a. balance of gross payroll in general ledger accounts.a b. of the checks drawn to employees for payroll.c. gross payroll plus the total contributed by the employer for payroll taxes.d. gross pay for the current week’s payroll.26. medium If auditors rely on the internal controls of an outside payroll service provider, they will receive a(n) _____ report.b a. relianceb. SAS 70c. outsourcer’sd. quality assurance27. medium Most companies use an imprest account to pay the payroll. Which of the following is not an advantage of such an account?d a. It facilitates cash management.b. It limits the c ompany’s exposure to payroll fraud.c. It allows the delegation of payroll check-signing duties.d. It eliminates the requirement of keeping a minimum balance in a checking account.28. medium The careful and timely preparation of all payroll tax returns is necessary to avoid penalties and criminal charges. The most important control in the timely preparation of these returns is:b a. computerized preparation of tax returns.b. a well-defined set of policies that indicate when each form must be filed.c. independent verification of computer output by a competent individual.d. a Gaant chart.29. medium Which of the following types of audit tests is usually emphasized due to a lack of independent third-party evidence related to payroll transactions?c a. Analytical proceduresb. Tests of details of balancesc. Tests of controlsd. Each of the above is emphasized.30. The most important means of verifying account balances in the payroll and personnel cycle are: medium a. tests of controls and tests of transactions.a b. analytical procedures and tests of controls.c. analytical procedures and tests of transactions.d. test of controls and tests of details of balances.31. Tests of payroll are usually not extensive because:medium a. employees will likely complain if underpaid.d b. payroll transactions are uniform and uncomplicated.c. payroll transactions are subject to audit by federal and state governments.d. all of the above.32. medium If an auditor wishes to test the completeness transaction-related audit objective in the payroll and personnel cycle, which of the following would be a reasonable test of control?a a. Account for a sequence of payroll checks.b. Examine procedures manual and observe the recording of transactions.c. Examine payroll records for indication of pay rate approval.d. All of the above are acceptable.33. Which of the following is a substantive test of transactions?medium a. Review personnel policies.c b. Account for a sequence of payroll checks.c. Reconcile the disbursements in the payroll journal with the disbursements on the payrollbank statement.d. Examine printouts of transactions rejected by the computer as having invalid employeeIDs.34. medium As a p art of the auditor’s responsibility for ____________, the auditor should review the preparation of at least one of each type of payroll tax form the client is responsible for filing.d a. doing tests of controls.b. doing tests of balances.c. doing tests of transactions.d. understanding the client’s internal controls.35. medium Which of the following is not an assertion related to the classes of transactions underlying the payroll cycle?c a. Classificationb. Accuracyc. Existenced. Occurrence36. medium Which of the following circumstances would not cause an auditor to extend payroll procedures considerably?d a. Payroll significantly affects inventory valuation.b. There is a possibility of material fraudulent payroll transactions.c. There is a weak internal control structure.d. There is a lack of independent third-party evidence, such as confirmations.37. medium When labor is a material factor in inventory valuation, the auditor should place special emphasis on testing the internal controls concerning:c a. fictitious employees.b. authorization of wage rates.c. proper valuation and allocation of balances.d. completeness of recorded transactions.38. medium Which of the following is not a procedure that can be performed on canceled checks in an effort to detect defalcations?d a. Compare the endorsements on checks with authorized signatures.b. Scan endorsements for unusual or recurring second endorsements.c. Examine voided checks to be sure they ha ven’t been used.d. Examine the payroll records in subsequent periods to determine that terminated employeesare no longer being paid.39. medium What potential problems may arise when an auditor considers the relationship between payroll and inventory valuation?d a. Improper account classification.b. Improper allocation to jobs or processes.c. Non-manufacturing payroll expenses charged to inventory.d. All of the above are potential problems.40. The primary concern in testing payroll-related liabilities is to make sure that: medium a. accruals are properly valued.c b. transactions are recorded in the proper period.c. there are no understated or omitted accruals.d. the accruals are not overstated.41. medium Which department should be authorized to add and delete employees from the payroll or change pay rates and deductions?c a. The supervising departmentb. The accounting departmentc. The human resources departmentd. Any of the above42. medium Which of the following is not a reasonable combination of analytical procedure and possible misstatement?a a. Compare payroll expense with prior year – Misstatement of direct labor and inventory.b. Compare payroll tax expense as a percent of salaries and wages with prior year –Misstatement of payroll tax expense and liability.c. Compare accrued payroll tax with prior year – Misstatement of accrued payroll taxes andexpense.d. None of the above is reasonable.43. Paychecks should be distributed by someone:medium a. independent of the payroll function.c b. independent of the timekeeping function.c. Both a and b.d. Neither a nor b.44. medium Verification of the legitimacy of year-end unpaid bonuses to officers and employees can be accomplished by comparing the recorded accrual to the amount:c a. in the expense account.b. used in the prior period.c. authorized in the minutes of the board.d. paid in the subsequent period.45. medium Which of the following errors gives the auditor the least concern in auditing payroll transactions?d a. An error that indicates possible fraud.b. Computational errors in formulas when a computerized system is used.c. Classification errors in charging labor to inventory and job cost accounts.d. Each of the above gives the auditor significant concern.46. (Public) medium The usual audit test for a public company’s officer compensation is to obtain the authorized salary of each officer from the minutes of the board of directors and compare it with:d a. the related earnings record.b. the SEC’s 10-K report.c. the company’s federal income tax return.d. any of the three above.47. Auditors may extend their tests of payroll in which of the following circumstances?medium a. Payroll materially affects the valuation of inventory.d b. The auditor is concerned there may be nonexistent employees on the payroll.c. There is an increased risk of employees being paid for fraudulent hours.d. All of the above.48. To check the accuracy of hours worked, an auditor would ordinarily compare clock cards with: medium a. personnel records.b b. job time tickets.c. labor variance reports.d. time recorded in the payroll register.49. medium A surprise payroll payoff in which employees must pick-up and sign for their pay check is one means of:c a. identifying employees who do not have proper work credentials.b. establishing a tightly controlled, fraud-free work environment .c. testing for nonexistent employees.d. achieving all of the above.50. medium Which of the following is the best way for an auditor to determine that every name on a company’s payroll is that of a bona fide employee presently on the job?c a. Examine personnel records for accuracy and completeness.b. Examine employees’ names listed on payroll tax returns for agreement with payrollaccounting records.c. Make a surprise observation of the company’s regular distribution of paychecks.d. Visit the working areas and confirm with employees their badge or identification numbers.51. Inherent risk is typically _____ for balance-related audit objectives as they relate to payroll. medium a. very nominalb b. lowc. moderated. high52. medium It would be appropriate for the payroll department to be responsible for which of the following functions?d a. Approval of employee time records.b. Maintain records of employment, firings, and raises.c. Temporary retention of unclaimed employee paychecks.d. Preparation of governmental repo rts as to employees’ earnings and withholding taxes.53. What are the two major balance-related audit objectives in testing payroll liabilities? medium a. Accuracy and detail tie-ind b. Completeness and valuationc. Completeness and rights and obligationsd. Accuracy and cutoff54. Which of the following best describes proper internal control over payroll?medium a. The preparation of the payroll must be under the control of the personnel department.c b. The confidentiality of employee payroll data should be carefully protected to preventfraud.c. The duties of hiring, payroll computation, and payment to employees should be segregated.d. The payment of cash to employees should be replaced with payment by checks.55. medium The periodic payment from the general cash account to the payroll account for net payroll should be tested for at least one payroll period. The primary audit procedure is a(n):d a. analytical review procedure that net pay is reasonable.b. test of controls that an imprest account is being used for payroll.c. substantive test that the correct amount was transferred for this test period.d. test of transactions that the check is prepared for the proper amount and deposited beforepayroll checks are handed out.56. challenging Once the auditor determines that the company’s policy for accruing wages is consistent with prior years, the appropriate audit procedure to test for accuracy and cutoff is:a a. recalculating the client’s accrual.b. performing extensive tests of controls.c. performing extensive tests of details.d. none of the above.57. challenging In auditing payroll, which of the following procedures will ordinarily require the least amount of auditor time under normal circumstances?d a. Tests of controls.b. Substantive tests of transactions.c. Analytical procedures.d. Tests of details of balances.58. challenging a A weak internal control system allows a department supervisor to “clock in”for a fictitious employee and then approve the employee’s time card at the end of the pay period. This fraud would be detected if other controls were in place, such as having an independent party:a. distribute paychecks.b. recompute hours worked from time cards.c. foot the payroll journal and trace postings to the general ledger and the payroll master file.d. compare the date of the recorded check in the payroll journal with the date on the canceledchecks and time cards.59. challenging The most important consideration in evaluating the fairness of the amounts accrued for vacation pay, sick pay, and other benefits is the:a a. consistent accrual of these liabilities relative to those of preceding periods.b. actual expense incurred for the prior period.c. amount expended to date in the current period.d. profitability of the client which will enable these liabilities to be met.60. challenging Effective internal accounting control over unclaimed payroll checks that are kept by the company would include accounting department procedures that require:d a. effective cancellation and stop payment orders for checks representing unclaimed wages.b. preparation of a list of unclaimed wages on a periodic basis.c. accounting for all unclaimed wages in a current liability account.d. periodic accounting for the actual checks representing unclaimed wages.61. challenging Which of the following internal controls in the payroll and personnel cycle is generally least important to an auditor?b a. Formal methods of informing payroll personnel of new employees.b. Reconciliation of total payroll expense in the general ledger with the payroll tax returnsand the W-2 forms.c. Authorization of changes in pay rates.d. Notice of the termination date of employees no longer working for the company.62. Which of the following statements is correct?challenging d a. The overhead charged to inventory at the balance sheet date can be understated if thesalaries of administrative personnel are inadvertently or intentionally charged to indirect manufacturing overhead.b. When jobs are billed on a cost-plus basis, revenue and total expenses are both affected bycharging labor to incorrect jobs.c. Payroll is a significant portion of inventory for retail and service industry companies.d. The valuation of inventory is affected if the direct labor cost of individual employees isimproperly charged to the wrong job or process.63. challenging Which of the following is an effective internal accounting control used to prove that production department employees are properly validating payroll time cards at a time-recording station?d a. Internal auditors should make observations of distribution of paychecks on a surprise basis.b. Time cards should be carefully inspected by those persons who distribute pay envelopes tothe employees.c. One person should be responsible for maintaining records of employee time for whichsalary payment is not to be made.d. Daily reports showing time charged to jobs should be approved by the supervisor andcompared to the total hours worked on the employee time cards.64. challenging a Once the auditor has determined the company’s policy for accruing wages and knows it is consistent with that of previous years, the appropriate audit procedure to test for cutoff and accuracy is to:a. recalculate the client’s accruals.b. compare the ledger balance with the journal and the tax form.c. confirm the amount with employees.d. compare the recorded accrued wages with the amount approved in the minutes of theBoard.Essay Questions65. easy What are two possible reasons that internal controls over payroll are effective for most companies?Answer:Harsh federal and state penalties encourage effective controls for withholding and paying payroll taxes. Also, employee morale problems can occur if employees are not paid or are underpaid.66.easyWhat events initiate and terminate the payroll and personnel cycle?Answer:The hiring of an employee initiates the cycle and the payments to employees, governments,and other organizations terminate the cycle.67.easyWhat types of audit procedures are typically emphasized during the audit of the payroll cycle?Answer:Auditors typically emphasize tests of controls, tests of transactions and analyticalprocedures.68.easyDiscuss the procedures involved in, and the purpose of, a surprise payroll payoff.Answer:A surprise payroll payoff is a procedure in which each employee must pick up and sign forhis or her check in the presence of a supervisor and the auditor. Any checks that are notclaimed are subject to an extensive investigation to determine whether an unclaimed checkis fraudulent. The purpose is to test for nonexistent employees; that is, the issuance ofpayroll checks to individuals who do not work for the company.69. medium Discuss three important differences between the payroll and personnel cycle and other cycles in a typical audit.Answer:Three important differences between the payroll and personnel cycle and other cycles in a typical audit are:∙There is only one class of transactions for payroll, whereas most cycles include at least two classes of transactions.∙In the payroll cycle, transactions are far more significant than related balance sheet accounts.∙Internal controls over payroll are effective for almost all companies, even small ones.This is primarily due to severe federal and state penalties for errors in withholding andpaying payroll taxes and employee morale problems if employees are not paid or areunderpaid.70. medium What key separation of duties should the auditor expect to find within the payroll and personnel cycle?Answer:The human resources department should be independent of the payroll function and should be responsible for hiring and terminating employees, as well as changes in pay rates and deductions. In additional payroll processing should be separate from the custody of signed payroll checks.71. medium Discuss each of the following primary documents and records used in the personnel and employment function in the payroll and personnel cycle: personnel records, deduction authorization form, and the rate authorization form.Answer:∙Personnel records. These records include employees’ date of em ployment, personnel investigations, rates of pay, authorized deductions, performance evaluations, andtermination of employment.∙Deduction authorization form. This form authorizes payroll deductions, including the number of exemptions for withholding of income taxes, U.S. savings bonds, and uniondues.∙Rate authorization form.This form authorizes employees’ rate of pay.72. medium Discuss each of the following documents and records used in the timekeeping and payroll preparation function in the payroll and personnel cycle: time card, job time ticket, summary payroll report, payroll journal and payroll master file.Answer:The primary documents and records used in the timekeeping and payroll preparation function are:∙Time card. The time card is used to indicate the time the employee started and stopped working each day and the number of hours the employee worked.∙Job time ticket.This document indicates jobs on which a factory employee worked during a given time period. This form is used only when an employee works ondifferent jobs or in different departments.∙Summary payroll report. This report summarizes payroll for a period.∙Payroll journal. This journal is used to record payroll checks.∙Payroll master file.This file contains each payroll transaction for each employee, along with total employee wages paid for the year to date.73. medium Discuss each of the following primary documents and records used in the (1) payment of payroll function, and (2) preparation of payroll tax returns and payment of taxes function in the payroll and personnel cycle: payroll check, W-2 form, and payroll tax returns.Answer:The primary documents and records used in the payment of payroll function and the preparation of payroll tax returns and payment of taxes function are:∙Payroll check. This is a check written to the employee for services performed.∙W-2 form. This form is issued for each employee summarizing the earnings record for the calendar year.∙Payroll tax returns. These are tax forms submitted to local, state, and federal units of government for the payment of withheld taxes and the employer’s tax.74. medium There are several key internal controls over the payment of payroll function that should be present. For example, the payroll should be distributed by someone who is not involved in the other payroll functions. Discuss other key internal controls over the payment of payroll function.Answer:Controls over payroll checks should include limiting the authorization for signing thechecks to a responsible employee who does not have access to timekeeping or thepreparation of the payroll, and the immediate return of unclaimed checks for redeposit. If acheck-signing machine is used to replace a manual signature, the machine must becarefully controlled. An imprest payroll account can be used to prevent the payment ofunauthorized payroll transactions.75.mediumDiscuss the advantages of using an imprest payroll account.Answer:The advantages of an imprest account are that it limits the client’s exposure to payrollfraud, allows the delegation of payroll check-signing duties, separates routine payrollexpenditures from irregular expenditures, and facilitates cash management. It alsosimplifies the reconciliation of the payroll bank account.76. medium Discuss the two circumstances under which auditors would extend their procedures considerably in the audit of payroll.Answer:Auditors often extend their procedures considerably in the audit of payroll under the following circumstances: (1) when payroll significantly affects the valuation of inventory and (2) when the auditor is concerned about the possibility of material fraudulent payroll transactions.77.mediumHow do auditors commonly verify sales commission expense?Answer:If all employees receive the same commission rate, then verifying the expense is done bymultiplying the commission rate by the amount of the sales. If there are differentcommission rates, then the auditor will likely select a sample of employees to examineseparately on a monthly or annual basis.78. medium What is one audit procedure that may be used to test for proper handling of terminated employees?Answer:A procedure that tests for proper handling of terminated employees is to select several filesfrom the personnel records for employees who were terminated in the current year to determine whether each received termination pay consistent with company policy.Continuing payments to terminated employees can be tested by examining payroll records in the subsequent period to verify that the employee is no longer being paid. Naturally, this procedure is not effective if the personnel department is not informed of terminations.。
经济学审计学一种整合方法第12版英文版
1
Overall Audit Plan and Audit Program
Chapter 13
Learning Objective 1
Use the five types of audit tests to determine whether financial statements are fairly stated.
Relationship Between Further Audit Procedures and Evidence
Type of Evidence
Physical examination Confirmation Documentation Observation
Further Audit Procedures
Risk Assessment Procedures
A major part of these procedures are done to obtain an understanding of internal control.
Role of All Audit Tests in the
Sales and Collection Cycle
➢ Program change controls ➢ Access controls
Learning Objective 4
Understand the concept of evidence mix and how it should be varied in different circumstances.
Types of Tests
➢ Risk assessment procedures ➢ Further audit procedures
审计学一种整合方法第英文版
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1-4
Information and Established Criteria
The Act established the Public Company Accounting Oversight Board.
It also requires auditors to attest to management reports on the effectiveness of internal control over financial reporting.
1-3
Nature of Auditing
Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1-6
Competent, Independent Person
The auditor must be qualified to understand the criteria used and must be competent to know the types and amount of evidence to accumulate to reach the proper conclusion after the evidence has been examined.
审计学：一种整合方法 阿伦斯 英文版 第12版 课后答案 Chapter 18 Solutions Manual
Chapter 18Audit of the Payroll andPersonnel CycleReview Questions18-1 General ledger accounts that are likely to be affected by the payroll and personnel cycle in most audits include the following:Cash Direct laborInventory Salary expenseConstruction in progress Commission expenseWages payable Payroll tax expensePayroll taxes withheldAccrued payroll taxes18-2In companies where payroll is a significant portion of inventory, as in manufacturing and construction companies, the improper account classification of payroll can significantly affect asset valuation for accounts such as work in process, finished goods, and construction in process. For example, if the salaries of administrative personnel are incorrectly charged to indirect manufacturing overhead, the overhead charged to inventory on the balance sheet can be overstated. Similarly, if the indirect labor cost of individual employees is charged to specific jobs or processes, the valuation of inventory is affected if labor is improperly classified. When some jobs are billed on a cost plus basis, revenue and the valuation of inventory are both affected by improperly classifying labor to jobs.18-3Five tests of controls that can be performed for the payroll and personnel cycle are:1. Examine time card for indication of approval to ensure that payrollpayments are properly authorized. The purpose of this test is todetermine that recorded payroll payments are for work actuallyperformed by existing employees (occurrence).2. Account for a sequence of payroll checks to ensure existing payrollpayments are recorded. The purpose of this test is to determinethat existing payroll transactions are recorded (completeness).3. Examine time cards to ensure that recorded payroll payments arefor work actually performed by existing employees. The purpose ofthis test is the same as in item 1 above.4. Compare postings to the chart of accounts to ensure that payrolltransactions are properly classified. (Classification)5. Observe when recording takes place to ensure that payrolltransactions are recorded on a timely basis. (Timing)18-4The percentage of total audit time in the cycle devoted to performing tests of controls and substantive tests of transactions is usually far greater in the payroll and personnel cycle than for the sales and collection cycle because there is relatively little independent third party evidence, such as confirmation, to verify the related payroll accounts. In contrast, the accounts related to the sales and collection cycle can usually be verified for the most part by confirmations from customers. In addition, in the sales and collection cycle, verification of the realizability of receivables and sales cutoff tests are important and time- consuming tasks.18-5The auditor should be concerned with whether the human resources department is following the proper hiring and termination procedures. An obvious reason for this would be to ensure that there are adequate safeguards against hiring and retaining incompetent and untrustworthy people. The ramifications of hiring such people can range from simple inefficiency and waste to outright fraud or theft. More importantly, though, it is necessary for the auditor to assure himself or herself that the client is hiring and terminating according to operations standards and procedures. It is necessary to see if the internal controls are working as planned before they can be effectively evaluated. To say that the auditor doesn't care who is hired and who is fired is to suggest that he or she doesn't care if the internal controls work according to any standards. Failure to follow proper termination procedures could lead to fraudulent payments for work not performed.18-6To trace a random sample of prenumbered time cards to the related payroll checks in the payroll register and compare the hours worked to the hours paid is to test if those employees who worked are being paid for their time actually worked. Employees are likely to inform management if they are not paid, or underpaid. To trace a random sample of payroll checks from the payroll register and compare the hours worked to the hours paid is to test if the recorded payroll payments are for work actually performed by existing employees. This test, in effect, attempts to discover nonexistent employees or duplicate payments, if there are any. For this reason, the second procedure is typically more important to the audit of payroll.18-7In auditing payroll withholding and payroll tax expense, the emphasis should normally be on evaluating the adequacy of the payroll tax return preparation procedures rather than the payroll tax liability, because a major reason for misstatements in the liability account is incorrect preparation of the returns in the past. If the preparation procedures are inadequate, and the amounts do not appear reasonable, then the auditor should expand his or her work and recompute the withholding and expense amounts to determine that the proper amount has been accrued. In addition, the auditor should consider the amount of penalties which may be assessed for inadequate withholdings and include these amounts in the accrual if they are significant.18-8Several analytical procedures for the payroll and personnel cycle and misstatements that might be indicated by significant fluctuations are as follows:18-9An auditor should perform audit tests primarily designed to uncover fraud in the payroll and personnel cycle when he or she has determined that internal controls are deficient (or the opportunity exists for management to override the internal controls) or when there are other reasons to suspect fraud. Audit procedures that are primarily for the detection of fraud in the payroll and personnel cycle include:1. Examine cancelled payroll checks for employee name, authorizedsignature, and proper endorsement (especially for secondendorsements) to discover checks going to nonexistent employees.The endorsement should be compared to signatures on W-4 forms.2. Trace selected transactions recorded in the payroll journal or listingto the human resources department files to determine whether theemployees were actually employed during the period.3. Select several terminated employees from payroll records todetermine whether each former employee received his or hertermination pay in accordance with company policy and todetermine that the employee's pay was discontinued on the date oftermination.4. Examine the subsequent payroll periods of terminated employeesto ascertain that the employees are no longer being paid.5. Request a surprise payroll payoff to observe if any unclaimedchecks result, which will necessitate extensive investigation.18-10 The Payroll Master File is maintained for each employee indicating the gross pay for each payment period, deductions from the gross pay, the net pay, the check number, and the date. The purpose of this record is to provide detailed information for federal and state income tax purposes, and to serve as the final record of what each employee was actually paid.The W-2 Form is issued to each employee at the end of each calendar year and indicates his or her gross pay, income taxes withheld, and FICA withheld for the year. In serving as a summary of the employee's earnings record, the W-2 form conveniently provides information necessary for the employee to fill out his or her income tax returns.A Payroll Tax Return is the form required by and submitted to the local, state and federal governments for the payment of withheld taxes and the employer's portion of FICA taxes and state and federal unemployment compensation taxes.18-11 Where the primary objective is to detect fraud, the auditor will examine the following supporting documents and records:1. Cancelled payroll checks for employee name, authorized signatureand proper endorsement, watching specifically for unusual orrecurring second endorsements.2. Payroll journal or listing, tracing transactions to the personnel filesto determine whether the employees were actually employed duringthe payroll period.3. Payroll journal or listing and individual payroll records, selectingterminated employees to determine whether each terminatedemployee received his or her termination pay in accordance withcompany policy and whether each employee was paid in thesubsequent payroll period.4. Payroll checks, observing each employee as he or she picks upand signs for his or her check.5. Time cards, testing them for reasonableness or observing whetherthey are being punched by the proper employees.18-12 Types of authorizations in the payroll and personnel cycle are:1. Deduction authorization, without which the wrong amount (or nodeduction) may be deducted from the employee's paycheck.2. Rate authorizations, without which the employee may be gettingpaid at the wrong rate.3. Time card authorization, without which the employee may begetting paid for the wrong quantity of hours worked.4. Payroll check authorization, without which unauthorized funds maybe paid out.5. Commission rate authorization, without which the salespeoplemight be improperly compensated for their sales efforts.6. Authorization to hire a new employee, without which nonexistent orunqualified personnel may be added to the payroll.18-13 It is common to verify total officers' compensation even when the tests of controls and substantive tests of transactions results in payroll are excellent because the salaries and bonuses of officers must be included in the SEC's 10-K Report and the federal income tax return and because management may be in a position to pay themselves more than the authorized amount, since the controls over the officers' payroll are typically weaker and therefore easier to override than those of the normal payroll.The usual audit procedure used to verify the officers' compensation is to obtain the authorized salary of each officer from the minutes of the board of directors and compare it to the related earnings record.18-14 An imprest payroll account is a separate payroll bank account in which a constant balance, either zero or small, is maintained. When a payroll is paid, the exact amount of the net payroll is transferred by check or electronic funds transfer from the general account to the imprest account. The purpose and advantage of an imprest payroll account is that it limits the company's exposure to payroll fraud by limiting the amount that may be misappropriated.18-15 Several audit procedures the auditor can use to determine whether recorded payroll transactions are recorded at the proper amounts are:1. Recompute hours worked from time cards.2. Compare pay rates with union contract, approval by the board ofdirectors, or other source.3. Recompute gross pay.4. Check withholdings by reference to tax tables and authorizationforms in personnel files.5. Recompute net pay.6. Compare cancelled check with payroll journal or listing for amount.18-16 Attributes sampling can be used in the payroll and personnel cycle in performing tests of controls and substantive tests of transactions with the following objectives:1. Time card hours agree with payroll computations.2. Overtime hours are approved.3. Foreman approves all time cards.4. Hourly rates agree with personnel files and union contracts.18-16 (continued)5. Gross pay calculation is verified.6. Exemptions taken agree with W-4.7. Income tax, other deductions, and net pay calculations are verified.8. Authorizations are available for voluntary withholdings andmiscellaneous deductions.9. Paycheck endorsement is same as signature on W-4 form.The frequency of control deviations or monetary errors must be estimated prior to performing the tests. This estimate together with the acceptable risk of assessing control risk too low (ARACR) and the tolerable exception rate will enable the auditor to determine the sample size required. Once the tests are performed on the sample, evaluation of the results will indicate whether the exception rate is lower than, equal to, or higher than that anticipated. The auditor must then use this judgment to decide the appropriate action to take.Multiple Choice Questions From CPA Examinations18-17 a. (2) b. (1) c. (3)18-18 a. (1) b. (4) c. (4) d. (4)Discussion Questions and Problems18-1918-2118-23 A flowchart of steps for each type of test is given below (requirements a, b, and c):18-24 a. Brendin's approach to determining why this year's payroll tax expense was so high suffers from two serious deficiencies: First, itlacks relevance, and second, it is too narrowly focused. Theapproach lacks relevance in that he is testing payroll withholdingwhich is not the same as payroll tax expense. Some payroll taxesare related to withholding such as FICA, but income tax withhelddoes not give rise to an expense, and certain payroll taxes, such asunemployment compensation, are not withheld. The approach istoo narrowly focused in that the analytical test results could haveresulted from a misstatement of the payroll itself; Brendin does notappear to be considering this possibility.b. A more suitable approach for determining whether payroll tax wasproperly stated in the current year would be to evaluate thereasonableness of the total payroll, reconcile the payroll to amountsshown on payroll tax reports, and check computations as shown onthose reports for reasonableness.18-25 The following audit procedures should be used to verify the payroll related accounts:1. Accrued payroll:a. Review the company's policy for computing the accrual andwhether it is consistent with the prior year.b. Assess whether 60 percent is a reasonable approximation ofthe portion of the subsequent payroll application to thecurrent year.c. Test the subsequent payroll for cutoff and accuracy.d. Determine that the computation of the accrual is correct.2. Withheld payroll taxes:a. Compare the balance in the liability account with the payrolljournal or listing.b. Reconcile the amount to subsequent payroll tax reports andcash disbursed.c. Review in light of the subsequent period's payroll.3. Accrued payroll taxes:a. Trace FICA withheld from payroll journal or listing to payrolltax reports.b. Review amounts on payroll tax reports for reasonableness.c. Reconcile accruals to payroll tax reports.d. Examine subsequent cash disbursed.18-26 a. The purpose of a surprise payroll payoff is to determine whether or not nonexistent personnel are included in the payroll.b. Procedures other than a surprise payroll payoff that can be used todiscover nonexistent employees are:1. Examine cancelled payroll checks for employee name, authorizedsignature, and proper endorsement that agrees with theemployee's signed W-4 form.18-26(continued)2. Select several terminated employees from payroll records todetermine whether each former employee received his or hertermination pay in accordance with company policy and was notpaid in subsequent payrolls.c. When the payroll payoff is taking place, the client should observethese control procedures:1. All employees must prove identity.2. Unclaimed paychecks must be further investigated.Unclaimed paychecks might be accounted for by employeeswho are sick or on vacation. After all present employeeshave received their checks, the remaining paychecks shouldbe traced to the personnel files to determine if theseemployees were ever employed by the client. Thereafter, ifpractical, the remaining checks should be held until theemployees can be present with proper identification to claimthe check.d. See c.2 above.18-2718-27 (continued)18-28 a. An audit program to verify sales commission expense is as follows:1. Select a sample of office copies of sales invoices.a. Check commissions rate to commissions rate file.b. Check computation of sales commissions.c. Examine invoices for internal verification by accountsreceivable clerk.d. Trace sales commission amounts to salescommission ledger.2. Foot the sales commission ledger for one or more months,and trace the total to the general ledger.3. Compare totals for periods in the sales commission ledger toperiod balances of sales commission expense.b. An audit program to verify accrued sales commissions is:1. Compare the accrual with that of the previous year.Investigate any significant change.2. Compare the amount of commissions paid to the salesmenon the fifteenth of the month following year-end to the totalaccrued commissions at year-end. Obtain a reconciliationand explanation for any reconciling items.3. Send confirmations to salesmen for the larger amounts ofaccrued commissions and a sample of the smaller amounts.Case18-29 a. Conventional forms and documents in a payroll system include the following:Personnel recordsDeduction authorization formsRate authorization formsTime cards and job time ticketsPayroll checksPayroll journal or listing and labor distributionEarnings recordW-2 formPayroll tax returnsIn using the computer service center, it appears that there is no loss in documentation in substance; however, the earningsrecord is not printed out each pay period, thus, the current versionis usually in machine readable form. (This assumes thatauthorization forms exist although they are not discussed in thecase.) The fact that the earnings record is in magnetic form is not aproblem, as long as the service bureau has adequate backup andrecovery controls.The above analysis reflects the fact that Leggert's internal controls in the payroll area are generally good. There is goodsegregation of duties between the President and Clark, assumingboth are trustworthy, honest people. Procedures, forms, records,and reports are comprehensive and well-designed.The only potential deficiency in internal control is that errors in details could be made by the service bureau and not necessarilybe caught. It is difficult to imagine that these would be material.18-29 (continued)b.c. Procedures in performance format:1. Make observations of the following activities by Mary Clark:a) Control, collection and processing of time cards.b) Rechecking of hours on time cards.c) Processing and approval of payroll journal or listing.d) Posting of general ledger.2. Make observations of the following activities by the President:a) Maintenance of personnel files.b) Distribution of paychecks.c) Processing and approval of payroll journal or listing.d) Posting of general ledger.3. Make observations of the following general matters andactivities:a) Use of time clock by employees.b) Existence and use of adequate chart of accounts.4. Select a sample of payroll check numbers and:a) Account for existence and recording of paychecks.b) Examine paychecks for President's signature.c) Examine checks for proper endorsement.d) Compare cancelled checks with personnel records. 18-29 (continued)e) Compare date on check with date recorded in payrolljournal or listing and on the time card.5. Select a sample of payroll entries from the payroll journal orlisting and perform the following steps:a) Obtain time cards, examine for President's approval,and trace hours to payroll journal or listing.b) Examine personnel files and authorization for ratesand deductions.c) Recompute gross pay, deductions, and net pay.d) Compare account classification with chart of accountsor procedures manual.6. Select a sample of payroll journals and perform the followingsteps:a) Examine payroll journal for approval by Clark.b) Trace postings to general ledger.d. A sampling data sheet follows. Note that this sampling data sheetwas prepared using attributes sampling. The only differencebetween this approach and a nonstatistical approach is thedetermination of sample size. Under nonstatistical sampling,students’ sample sizes will vary.Internet Problem Solution: Outsourcing the Payroll Function18-1 You have just landed a new client for your firm - a new hotel constructed in Atlanta, Georgia. Although construction of the hotel is complete, the company has not completed hiring all the necessary employees. The company's president has approached you with several questions related to the company's payroll. Please answer the following questions posed by the president about outsourcing the payroll function. (Hint: Visit [/] to find some of your answers. You may need to do other research on the Internet to answer these questions.)1. “I'm considering outsourcing our payroll function. What are some ofthe issues that I should think about before deciding to outsource?”Answer: Student responses will vary. However, the followingissues are among those that the president should consider:Typical outsourcing agreements are long-term. A long-termcontract with the outsourcing provider may prove inflexibleif future business needs necessitate a change.∙Outsourcing results in a loss of control over the company’s data. The president may be concerned about sharing ofdata with competitors.∙The president should also consider the adequacy of the service provider’s system. Does the provider utilize themost current technology? Can the provider manage asignificant increase in volume of transactions? Will theprovider continue to offer excellent service?∙Can the service provider deliver all of the necessary salaries and wages reports and analyses that the companymay want or need?∙Costs are typically lower when outsourcing major IS functions. The company will be able to avoid investmentsin certain hardware and software as well as in personnel ifthe payroll function is outsourced.2. “If I decide to outsource the payroll function, what payroll servicecompanies would you suggest I consider?”Answer: There are a variety of payroll service companies including ADP [/] and Ceridian [/].18-1 (continued)3. “I have several vacant positions at my new hotel. I'm concernedthat my beginning salaries might be too low. Could you find outwhat nationwide median salaries are for the vacant positions? Thevacant positions are: restaurant manager, catering sales manager,security director, and the front office manager. Make certain thatyou let me know what salaries are in our region of the country. Imay have not considered that properly when I advertised thepositions.”Answer: Median salary information can be found on’s web site. The “HCE Compensation” link[/careerresources/lodgprop.asp]will direct students to the appropriate location. There they will haveto select the appropriate category which, in this case, is a “lodgingproperty.” Students should then scroll down the salaries informationuntil they find data for the South Atlantic Region. The mediansalaries are: restaurant manager - $37,151.62; catering salesmanager - $38,472.10; security director - $52,810.67; and frontoffice manager - $37,947.73. You might wish to point out to thestudents the difficulty in interpreting such data as that presented onthis site. Specifically, median salaries data are presented for anumber of categories such as size of facility, geographic region,and location. The inquisitive student should inquire about thesedifferences and so a liberal view may be appropriately appliedwhen grading this component of the problem.(Note: Internet problems address current issues using Internet sources. Because Internet sites are subject to change, Internet problems and solutions are subject to change. Current information on Internet problems is available at /arens).。
审计学：一种整合方法_第12版_英文版Chapter01-46页PPT资料
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1-1
Learning Objective 1
Describe auditing.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1-2
Nature of Auditing
Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria.
1-7
Audit of a Tax Return Example
Competent, independent
person
Information
Federal tax returns filed by taxpayer
Internal Revenue
审计学：一种整合方法_第12版_英文版Chapter01-文档资料
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
The Act established the Public Company Accounting Oversight Board.
It also requires auditors to attest to management reports on the effectiveness of internal control over financial reporting.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1-2
Learning Objective 1
Describe auditing.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
The Demand for Audit and Other Assurance Services
Chapter 1
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
1-1
Sarbanes-Oxley Act
1-8
Audit of a Tax Return Example
Competent, independent
peral tax returns filed by taxpayer
阿伦斯审计学：一种整合方法课后习题答案.docx
Chapter 1The Demand for Audit and Other Assurance ServicesReview Questions1-1The relationship among audit services,attestation services,and assurance services is reflected in Figure 1-3 on page 13 of the text. Anassurance service is an independent professional service to improve thequality of information for decision makers. An attestation service is aform of assurance service in which the CPA firm issues a report about the reliability of an assertion that is the responsibility of another party.Audit services are a form of attestation service in which the auditor expresses a written conclusion about the degree of correspondence between information and established criteria.The most commonform of audit service is an audit of historical financial statements, in which the auditor expresses a conclusion as towhether the financial statements are presented in conformity with generally accepted accounting principles.An example of an attestation service is a report on the effe ctiveness of an entity’s internal control over financial reporting.There are many possible forms of assurance services,including services related to business performance measurement, health care performance, and information system reliability.1-2An independent audit is a means of satisfying the need for reliable information on the part of decision makers.Factors of a complex society which contribute to this need are:1.Remoteness of informationa.Owners (stockholders) divorced from managementb.Directors not involved in day-to-day operations or decisionsc.Dispersion of the business among numerous geographiclocations and complex corporate structures2.Biases and motives of providerrmation will be biased in favor of the providerwhen his or her goals are inconsistent with thedecision maker's goals.3.Voluminous dataa.Possibly millions of transactions processed dailyvia sophisticated computerized systemsb.Multiple product linesc.Multiple transaction locationsplex exchange transactionsa.New and changing business relationships leadto innovative accounting and reporting problemsb.Potential impact of transactions not quantifiable, leading toincreased disclosures1-3 1. Risk-free interest rate This is approximately the rate the bank couldearn by investing in U.S. treasury notes for the same length of time asthe business loan.2.Business risk for the customer This risk reflects the possibility that thebusiness will not be able to repay itsloan because of economic or business conditions such as arecession,poor management decisions,or unexpectedcompetition in the industry.rmation risk This risk reflects the possibility thatthe information upon which the business risk decision was made wasinaccurate. A likely cause of the information risk is the possibility ofinaccurate financial statements.Auditing has no effect on either the risk-free interest rate or business risk.However, auditing can significantly reduce informationrisk.1-4The four primary causes of information risk are remoteness of information,biases and motives of the provider,voluminous data,and the existence of complex exchange transactions.The three main ways to reduce information risk are:er verifies the information.er shares the information risk with management.3.Audited financial statements are provided.The advantages and disadvantages of each are as follows:ADVANTAGES DISADVANTAGESUSER VERIFIES 1. User obtains information 1.High cost ofINFORMATION desired.obtaining2. User can be more information.confident of the 2.Inconvenience toqualifications and the personactivities of the person providing thegetting the rmation becauselarge number ofusers would be onpremises.USER SHARES 1.No audit costs incurred. INFORMATIONRISK WITHMANAGEMENT er may not beable to collecton losses.AUDITED 1.Multiple users obtain 1. May not meet needs FINANCIAL the information.of certain users. STATEMENTS ARE rmation risk can 2. Cost may be higher PROVIDED usually be reduced than the benefitssufficiently to satisfy in some situations,users at reasonable such as for a smallpany.3.Minimal inconvenience tomanagement by havingonly one auditor.1-5To do an audit, there must be information in a verifiable form and some standards( criteria)by which the auditor can evaluate the information. Examples of established criteria include generally acceptedaccounting principles and the Internal Revenue Code.Determining the degree of correspondence between information and established criteria is determining whether a given set of information is in accordance with theestablished criteria. The information for Jones Company's tax return isthe federal tax returns filed by the company. The established criteriaare found in the Internal Revenue Code and all interpretations. For theaudit of Jones Company's financial statements the information is the financial statements being audited and the established criteria are generally accepted accounting principles.1-6The primary evidence the internal revenue agent will use in the audit of the Jones Company's tax return include all available documentation and other information available in Jones' office or fromother sources.For example,when the internal revenue agent audits taxable income, a major source of information will be bank statements,the cash receipts journal and deposit slips. The internal revenue agentis likely to emphasize unrecorded receipts and revenues. For expenses,major sources of evidence are likely to be cancelled checks,vendors' invoices and other supporting documentation.1-7This apparent paradox arises from the distinction between the function of auditing and the function of accounting.The accounting function is the recording,classifying and summarizing of economic events to provide relevant information to decision makers. The rules ofaccounting are the criteria used by the auditor for evaluating the presentation of economic events for financial statements and he or shemust therefore have an understanding of generally accepted accounting principles(GAAP), as well as auditing standards.The accountant need not, and frequently does not, understand what auditors do, unless he orshe is involved in doing audits, or has been trained as an auditor.1-8OPERATIONAL COMPLIANCE AUDITS OF FINANCIALAUDITS AUDITS STATEMENTSPURPOSE To evaluate To determine To determinewhether whether the client whether theoperating is following overallprocedures are specific procedures financialefficient and set by higher statements areeffective authority presented inaccordance withspecifiedcriteria(usually GAAP) USERS OF Management of Authority setting Different groups AUDIT REPORT organization down procedures,for differentinternal or purposes — manyexternal outside entities NATURE Highly Not standardized,Highlynonstandard;but specific and standardizedoften usually objectivesubjectivePERFORMED BY:CPAsFrequently Occasionally AlmostuniversallyGAOFrequently Frequently Occasionally AUDITORSIRSNever Universally NeverAUDITORSINTERNALFrequently Frequently Frequently AUDITORS1-9 Five examples of specific operational audits that could be conducted by an internal auditor in a manufacturing company are:1.Examine employee time cards and personnel records to determine ifsufficient information is available to maximizethe effective use of personnel.2.Review the processing of sales invoices to determine ifit could be done more efficiently.3.Review the acquisitions of goods,including costs,todetermine if they are being purchased at the lowest possiblecost considering the quality needed.4.Review and evaluate the efficiency of the manufacturingprocess.5.Review the processing of cash receipts to determine ifthey are deposited as quickly as possible.1-10 When using a strategic systems auditing approach in an audit of historical financial statements,an auditor must have a thorough understanding of the client and its environment. This knowledge shouldinclude the client ’s regulatory and operating environment,business strategies and processes,and measurement indicators.The strategic systems approach is also useful in other assurance or consulting engagements. For example, an auditor who is performing an assurance service on information technology would need to understand the client’s business strategies and processes related to information technology, including such things as purchases and sales via the Internet. Similarly,a practitioner performing a consulting engagement to evaluate the efficiency and effectiveness of a cli ent ’s manufacturing process would likely start with an analysis of various measurement indicators, including ratio analysis and benchmarking against key competitors.1-11The major differences in the scope of audit responsibilities are:1.CPAs perform audits in accordance with auditing standards ofpublished financial statements prepared in accordance withgenerally accepted accounting principles.2.GAO auditors perform compliance or operational audits inorder to assure the Congress of the expenditure of publicfunds in accordance with its directives and the law.3.IRS agents perform compliance audits to enforce thefederal tax laws as defined by Congress, interpreted by thecourts, and regulated by the IRS.4.Internal auditors perform compliance or operational auditsin order to assure management or the board of directors thatcontrols and policies are properly and consistentlydeveloped, applied and evaluated.1-12 The four parts of the Uniform Attestation, Financial Accounting CPA Examinationand Reporting,are: AuditingRegulation,andandBusiness Environment and Concepts.1-13 It is important for CPAs to be knowledgeable about e-commerce technologies because more of their clients are rapidly expanding theiruse of e-commerce. Examples of commonly used e-commerce technologiesinclude purchases and sales of goods through the Internet,automatic inventory reordering via direct connection to inventory suppliers,and online banking.CPAs who perform audits or provide other assurance services about information generated with these technologies need a basic knowledge and understanding of information technology and e-commerce in order to identify and respond to risks in the financialand other information generated by these technologies.Multiple Choice Questions From CPA Examinations1-14 a.(3) b.(2) c.(2) d.(3)1-15 a.(2) b.(3) c.(4) d.(3)Discussion Questions And Problems1-16 a.The relationship among audit services, attestation servicesand assurance services is reflected in Figure 1-3 on page 13of the text.Audit services are a form of attestationservice,and attestation services are a form of assuranceservice. In a diagram, audit services are located within theattestation service area, and attestation services arelocated within the assurance service area.b. 1.(1)Audit of historical financial statements2.(2)An attestation service other than an auditservice; or(3)An assurance service that is not an attestationservice ( WebTrust developed from the AICPASpecial Committee on Assurance Services, but theservice meets the criteria for an attestation service.)3.(2)An attestation service other than an auditservice4.(2)An attestation service other than an auditservice5.(2)An attestation service other than an auditservice6.(2)An attestation service that is not an auditservice(Review services are a form ofattestation,but are performed according toStatements on Standards for Accounting andReview Services.)7.(2)An attestation service other than an auditservice8.(2)An attestation service other than an auditservice9.(3) An assurance service that is not an attestationservice1-17 a.The interest rate for the loan that requires a review reportis lower than the loan that did not require a review becauseof lower information risk. A review report provides moderateassurance to financial statement users,which lowersinformation risk. An audit report provides further assuranceand lower information risk.As a result of reducedinformation risk, the interest rate is lowest for the loanwith the audit report.b.Given these circumstances,Vial-tek should select the loanfrom City First Bank that requires an annual audit. In thissituation, the additional cost of the audit is less than thereduction in interest due to lower information risk.Thefollowing is the calculation of total costs for each loan:LENDERCPA COST OF CPA ANNUAL ANNUAL SERVICE SERVICES INTEREST LOAN COSTExisting loan None0$ 142,500$ 142,500 First National Review$ 12,000$ 127,500$ 139,500 BankCity First Bank Audit$ 20,000$ 112,500$ 132,5001-17 (continued)c.Vial-tek may desire to have an audit because of the manyother positive benefits that an audit provides.The auditwill provide Vial-tek ’s management with assurance aboutannual financial information used for decision-makingpurposes. The audit may detect errors or fraud, and providemanagement with information about the effectiveness ofcontrols.In addition,the audit may result inrecommendations to management that will improve efficiencyor effectiveness.d.Under a strategic systems audit approach,the auditor musthave a thorough understanding of the client and itsenvironment, including the client’s e -commerce technologies,industry,regulatory and operating environment,suppliers,customers, creditors, and business strategies and processes.This thorough analysis helps the auditor identify risksassociated with the client ’s strategies that may affectwhether the financial statements are fairly stated.Whenapplying the strategic systems audit approach,the auditoroften discovers ways to help the client improve businessoperations,thereby providing added value to the auditfunction.1-18 a.The services provided by Consumers Union are very similar toassurance services provided by CPA firms.The servicesprovided by Consumers Union and assurance services providedby CPA firms are designed to improve the quality ofinformation for decision makers.CPAs are valued for theirindependence,and the reports provided by Consumers Unionare valued because Consumers Union is independent of theproducts tested.b.The concepts of information risk for the buyer of anautomobile and for the user of financial statements areessentially the same.They are both concerned with theproblem of unreliable information being provided.In thecase of the auditor, the user is concerned about unreliableinformation being provided in the financial statements. Thebuyer of an automobile is likely to be concerned about themanufacturer or dealer providing unreliable information.c.The four causes of information risk are essentially the samefor a buyer of an automobile and a user of financialstatements:(1)Remoteness of information It is difficult for a userto obtain much information about either an automobilemanufacturer or the automobile itself withoutincurring considerable cost. The automobile buyer doeshave the advantage of possibly knowing other users whoare satisfied or dissatisfied with a similar automobile.(2)Biases and motives of provider There is a conflictbetween the automobile buyer and the manufacturer. Thebuyer wants to buy a high quality product at minimumcost whereas the seller wants to maximize the sellingprice and quantity sold.(3)Voluminous data There is a large amount of availableinformation about automobiles that users might like tohave in order to evaluate an automobile.Either that information is not available or too costly to obtain.1-18(continued)(4)Complex exchange transactions The acquisition of anautomobile is expensive and certainly a complexdecision because of all the components that go intomaking a good automobile and choosing between a largenumber of alternatives.d. The three ways users of financial statements and buyers ofautomobiles reduce information risk are also similar:(1)User verifies information him or herself That can beobtained by driving different automobiles,examiningthe specifications of the automobiles,talking toother users and doing research in various magazines.(2)User shares information risk with management The manufacturerof a product has a responsibility to meetits warranties and to provide a reasonable product.The buyer of an automobile can return the automobilefor correction of defects. In some cases a refund maybe obtained.(3)Examine the information prepared by Consumer ReportsThis is similar to an audit in the sense thatindependent information is provided by an independentparty. The information provided by Consumer Reports iscomparable to that provided by a CPA firm that auditedfinancial statements.1-19 a. The following parts of the definition of auditing are relatedto the narrative:(1)Virms is being asked to issue a report aboutqualitative and quantitative information for trucks.The trucks are therefore the information with whichthe auditor is concerned.(2)There are four established criteria which must beevaluated and reported by Virms:existence of thetrucks on the night of June30, 2005,ownership ofeach truck by Regional Delivery Service,physicalcondition of each truck and fair market value of eachtruck.(3)Susan Virms will four types ofaccumulate and evaluateevidence :(a)Count the trucks to determine their existence.(b)Use registrations documents held by Oatley forcomparison to the serial number on each truck todetermine ownership.(c)Examine the trucks to determine each truck's physicalcondition.(d)Examine the blue book to determine the fair marketvalue of each truck.(4)Susan Virms,CPA, appears qualified,as a competent,independent person. She is a CPA, and she spends mostof her time auditing used automobile and truck dealerships and has extensive specialized knowledge about used trucks that is consistent with the nature of the engagement.1-19(continued)(5)The report results are to include:(a)which of the 35 trucks are parked in Regional'sparking lot the night of June 30.(b)whether all of the trucks are owned byRegional Delivery Service.(c)the condition of each truck, using establishedguidelines.(d)fair market value of each truck using the current bluebook for trucks.b.The only parts of the audit that will be difficult forVirms are:(1)Evaluating the condition, using the guidelines of poor,good, and excellent. It is highly subjective to do so.If she uses a different criterion than the"bluebook,"the fair market value will not be meaningful.Her experience will be essential in using thisguideline.(2)Determining the fair market value,unless it isclearly defined in the blue book for each condition.1-20 a. The major advantages and disadvantages of a career as an IRS agent, CPA, GAO auditor, or an internal auditor are:EMPLOYMENT ADVANTAGES DISADVANTAGESINTERNAL 1.Extensive training in 1.Experience limited to REVENUE individual, corporate,taxes.AGENT gift, trust and other 2.No experience withtaxes is available with operational or financialconcentration in area statement auditing.chosen. 3.Training is not2.Hands-on experience with extensive with anysophisticated selection business enterprise.techniques.CPA 1.Extensive training in 1. Exposure to taxes and toaudit of financial the business enterprisestatements, compliance may not be as in-depthauditing and operational as the internal revenueauditing.agent or the internal2.Opportunity for auditor.experience in auditing, 2. Likely to be lesstax consulting, and exposed to operationalmanagement consulting auditing than is likelypractices.for internal auditors.3.Experience in a diversityof enterprises andindustries with theopportunity to specializein a specific industry.GAO AUDITOR 1.Increasing opportunity 1.Little exposure tofor experience in diversity of enterprisesoperational auditing.and industries.2.Exposure to highly 2.Bureaucracy of federalsophisticated statistical government.sampling and computerauditing techniques.1-20(continued)EMPLOYMENT ADVANTAGESINTERNAL 1.Extensive exposure to all AUDITOR segments of theenterprise with whichemployed.2.Constant exposure to oneindustry presentingopportunity for expertisein that industry.3.Likely to have exposureto compliance, financialand operational auditing.DISADVANTAGES1.Little exposure totaxation and theaudit thereof.2.Experience is limited toone enterprise, usuallywithin one or a limitednumber of industries.(b)Other auditing careers that are available are:Auditors within many of the branches of the federalgovernment ., Atomic Energy Commission)Auditors for many state and local government units .,state insurance or bank auditors)1-21 The most likely type of auditor and the type of audit for each ofthe examples are:EXAMPLE TYPE OF AUDITOR TYPE OF AUDITIRS Compliance1.GAO OperationalInternal auditor or CPA Operational2.CPA or Internal auditor Financial statementsGAO Operational3.CPA Financial statementsGAO Financial statements4.IRS ComplianceCPA Financial statements5.Internal auditor or CPA ComplianceInternal auditor or CPA Financial statements6.GAO Compliance7.8.9.10.11.12.1-22 a.The conglomerate should either engage the management advisory services division of a CPA firm or its own internalauditors to conduct the operational audit.b.The auditors will encounter problems in establishingcriteria for evaluating the actual quantitative events andin setting the scope to include all operations in whichsignificant inefficiencies might exist.In writing thereport,the auditors must choose proper wording to statethat no financial audit was performed,that the procedureswere limited in scope and that the results reported do notnecessarily include all the inefficiencies that might exist.1-23 a.The CPA firm for the Internet company described in this problem could address these customer concerns by performinga WebTrust attestation engagement.The WebTrust assuranceservice was created by the profession to respond to thegrowing need for assurance resulting from the growth ofbusiness transacted over the Internet.b.The appropriate WebTrust principle for each of the customerconcerns noted in the problem is as follows:1.Accuracy of product descriptions and adherence tostated return policies: (3) Processing Integrity.2.Credit card and other personal information: (1)Online Privacy and (2) Security.3.Selling information to other companies: (1) Online Privacy and(2) Security.4.System failure: (4) Availability.Internet Problem Solution: Assurance Services1-1 This problem requires students to work with the AICPA assurance services Web site.1.Considering the assurance needs of customers and thecapabilities of CPAs, the Special Committee on AssuranceServices developed business plans for six assurance services.Chapter 1of the textbook discussed several of theseservices.Go to the service description for the assuranceservice that most interests you (any one of the six). Whatare the major aspects or sections of the associatedbusiness plan ., does the plan address market potential,competition, etc.?)Answer: Each business plan provides background information,describes the service, assesses market potential, discussesissues such as competition and why CPAs should offer the service,identifies practice tools available and steps that CPAs must take tobegin offering the services.2.The Special Committee's report on Assurance Services discussescompetencies needed by assurance providers todayand in the coming decade.Briefly describe the 5 generalcompetencies needed in the next decade (Hint:See the“About Assurance Services ”link.Then follow the“Assurance Services and Academia” link.)Answer: The Committee identified the following five imperatives regarding future competencies, each of implies increasing emphasis on the competencies noted:major which1-1(continued)Customer focus .Assurance service providers need tounderstand user decision processes and how informationshould enter into those processes.Increased emphasis isneeded on:understanding user needs,communication skills,relationship management, responsiveness and timeliness.Migration to higher value-added information activities.Toprovide more value to client/decision makers and others,assurance service providers need to focus less on activitiesinvolved in the conversion of business events intoinformation.,collecting,classifying,and summarizingactivities)and more on activities involved in thetransformation of information into knowledge .,analyzing,interpreting,and evaluating activities)that effectivelydrives decision processes.This will require:analyticalskills, business advisory skills, business knowledge, modelbuilding (including sensitivity analysis), understanding theclient’s business processes,measurement theory(development of operational definitions of concepts, designof appropriate measurement techniques, etc.).Information technology(IT).Assurance services deal ininformation.Hence,the profound changes occurring ininformation technology will shape virtually all aspects ofassurance services.As information specialists,assuranceservice providers need to embrace information technology inall of its complex dimensions.Embracing IT meansunderstanding how it is transforming all aspects of business.It also means learning how to effectively use newdevelopments in hardware, software, communications, memory,encryption, etc., in everything assurance service providersdo as information specialists,not only in dealing withclients, but also in dealing with each other as individuals,teams,firms,state societies,and national professionalorganizations.Pace of change and complexity.Assurance services will takeplace in an environment of rapid change and increasingcomplexity.Assurance service providers need to investheavily in life-long learning in order to maintain up-to-date knowledge and skills.They will require:intellectualcapability, learning and rejuvenation.Competition.Growth in new assurance services will dependless on franchise/regulation and more on market forces.Assurance service providers need to develop their marketingskills—the ability to see clients ’ latent informationand assurance needs and rapidly design and deploy cost-effective services to meet those needs—in order toeffectively compete for market-driven assurance services.Required skills include:marketing and selling,understanding customer needs,designing and deployingeffective solutions.1-1(continued)( Note: Internet problems address current issues using Internet Because Internet sites are subject to change, Internet problems and solutionsare subject to change.Current information on Internet problems is atsources. available。
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Accounts in the Payroll and Personnel Cycle
Withheld Income Taxes and Other Deductions
Cash in Bank
Paymenning balance
Payroll withholding
18 - 1
Accounts in the Payroll and Personnel Cycle
The overall objective in the audit of the payroll and personnel cycle is to evaluate whether the account balances affected by the cycle are fairly stated in accordance with generally accepted accounting principles.
Timekeeping and Payroll Preparation
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
18 - 9
Payroll Master File
A payroll master file is used for recording each payroll transaction for each employee and maintaining total employee wages paid for the year to date.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
18 - 6
Business Functions in the Cycle and Related Documents and Records
The payroll and personnel cycle….
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
18 - 8
Timekeeping and Payroll Preparation
Time Card Job Time Ticket Payroll Transaction File Payroll Journal
Payment Beginning balance
Payroll withholding
Ending balance
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
Direct Labor
18 - 3
Payment for payroll taxes
Ending balance
Payroll Tax Expense
Accrued Payroll Tax Expense
Payment Beginning balance
Payroll tax expense
Ending balance
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
18 - 4
Accounts in the Payroll and Personnel Cycle
In most systems the accrued wages and salaries account is used only at the end of an accounting period.
Learning Objective 1
Identify the accounts and transactions in the payroll and personnel cycle.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
Cash in Bank
Payment for salaries
Payment
Beginning balance
Earned wages, salaries, etc.
Payment for payroll taxes
Ending balance
Withheld Income Taxes and Other Deductions
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
18 - 5
Learning Objective 2
Describe the business functions and the related documents and records in the payroll and personnel cycle.
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
18 - 2
Accounts in the Payroll and Personnel Cycle
Accrued Wages, Salaries, Bonuses, and Commissions
Begins Ends
Hiring of personnel Payments
©2008 Prentice Hall Business Publishing, Auditing 12/e, Arens/Beasley/Elder
18 - 7
Personnel and Employment
➢ Personnel records ➢ Deduction authorization form ➢ Rate authorization form