From Cases Flashcards
What are the 3 advantages of having guidelines for CPAs in consulting?
- Increased public trust
- Provides a minimal quality of service
- Reasonable guidance for consultants
What is the main disadvantage of having guidelines for CPAs in consulting?
The would compete against non-CPAs for which the guidelines would not apply, putting them at a disadvantage.
Under provincial common law, what are the bases for shareholders and creditors lawsuits against the auditors?
- Breach of contract
- Negligence
- Fraud (actual –> deceive) or (constructive –> deficiencies or lapses in professional work such as gross negligence)
What are the fraud risk factors for misappropriation of assets?
- Incentives/Pressures
- Opportunities
- Attitudes/Rationalization to justify the fraud
Fraud risk factors for misappropriation of assets:
Examples of incentives/pressures
- Personal financial obligations
- Adverse relationship between employee and entity
Fraud risk factors for misappropriation of assets:
Examples of opportunities
- Inadequate internal controls over assets (e.g., segregation of duties, oversight of employees, etc)
- Certain circumstances (lots of cash on hand)
Fraud risk factors for misappropriation of assets:
Examples of attitudes/rationalization
- Disregard for need to monitor or reduce risk
- Disregard for internal controls (failing to audit them to know the deficiencies)
- Change in behaviour or lifestyle may indicate an asset has been misappropriated
Regarding the Dixon corporation case (embezzlement), what are some examples of lack of internal controls?
- Lack of segregation of duty
- Lack of monitoring/oversight
- Ability to deposit without authorization/review
- Lack of review/bank reconciliation
Extra
- - It does not appear that the city had a mandatory vacation policy where someone performed Crundwell’s job
What are the 10 audit procedures?
Confirmation
Recalculation
Reperformance
Inquiry
Inspection (assets and docs)
Scanning
Vouching
Tracing
Analytical Procedures
Observation
What are some factors that can influence the time spent on an engagement, as well as the total evidence gathered. (from one engagement to another) (9 factors)
- Client’s integrity
- Internal controls
- Materiality of account balances
- Size of population
- Characteristics of population (nature)
- Repeat or new engagement
- Result of current and previous audits
- Existence of unusual transactions
- Motivation of client to misstate the statements
What are the CAS examination standards?
1.The work should be adequately planned and properly executed using sufficient knowledge of the entity’s business as a basis. If assistants as employed they should be properly supervised
- A sufficient understanding of internal control should be obtained to plan the audit. When control risk is assessed below maximum, sufficient appropriate audit evidence should be obtained through tests of controls to support the assessment.
- Sufficient appropriate audit evidence should be obtained, by such means as inspection, observation, enquiry, confirmation, computation, and analysis, to afford a reasonable basis to support the content of the report.
What are the reasons for understanding the internal control system?
- Helps determine the nature, timing, and extent of substantive procedure
- Helps identify any weakness in the system that should be brought to management or BoD
- Helps identify area at risk of material misstatements
What audit work is required for an auditor to be able to assess control risk below maximum?
- Test of the controls to see how effective control policies and procedures are
- Documentation of the results of the tests
- Documentation of the control risk assessment
Identify key audit steps that you would perform for the accounts receivable and allowance for doubtful accounts.
- Obtain an A/R aged trial balance to determine if done properly
- Look out for more than 90 days to deem collectibility risks of slow payers
- Look out for old items outstanding
- Perform subsequent cash receipt testing over A/R
- Confirm high value, key items and random A/R
