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Jones, CPA, is auditing the financial statements of XYZ Retailing, Inc. What assurance does Jones provide that direct effect illegal acts that are material to XYZ's financial statements, and illegal acts that have a material, but indirect effect on the financial statements will be detected?
An accountant's standard report on a compilation of a projection should not include a statement that:
Choice 'b' is correct. An accountant's standard report on a compilation of a projection does not include a statement that the hypothetical assumptions used in the projection are reasonable in the circumstances.
Choice 'a' is incorrect. An accountant's standard report on a compilation of a projection does state that there will usually be differences between the forecasted and actual results.
Choice 'c' is incorrect. An accountant's standard report on a compilation of a projection does state that the accountant has no responsibility to update the report for future events and circumstances.
Choice 'd' is incorrect. An accountant's standard report on a compilation of a projection does state that the compilation of a projection is limited in scope ('A compilation is limited to presenting in the form of a projection information that is the representation of management and does not include evaluation of the support for the assumptions underlying the projection.')
In performing tests of controls over authorization of cash disbursements, which of the following statistical sampling methods would be most appropriate?
Choice 'd' is correct. Attributes sampling is the statistical sampling method used when testing controls.
Choice 'a' is incorrect. Variables sampling is used in substantive testing, not in tests of controls.
Choice 'b' is incorrect. Stratified sampling is used in conjunction with variables sampling, and is therefore used in substantive testing, not in tests of controls.
Choice 'c' is incorrect. Ratio estimation is used in conjunction with variables sampling, and is therefore used in substantive testing, not in tests of controls.
Which of the following procedures would an auditor most likely perform to obtain evidence about the occurrence of subsequent events?
Choice 'c' is correct. The auditor would most likely inquire of the entity's legal counsel concerning litigation, claims and assessments arising after year-end in order to obtain evidence about the occurrence of subsequent events. Claims arising after year-end might well impact the year-end financial statements.
Choice 'a' is incorrect. Recomputing a sample of large-dollar transactions occurring after year-end for arithmetic accuracy would not provide evidence about year-end amounts.
Choice 'b' is incorrect. The auditor would inquire about changes in stockholders' equity occurring after year-end, but would not generally perform an investigation of such items.
Choice 'd' is incorrect. Confirming bank accounts established after year-end is generally not done (only those in existence at year-end are confirmed). Accounts established after year-end generally would not be relevant to year-end amounts.
In the auditor's report, the principal auditor decides not to make reference to another CPA who audited a client's subsidiary. The principal auditor could justify this decision if, among other requirements, the principal auditor:
Choice 'd' is correct. If, among other requirements, the principal auditor is satisfied as to the independence and the professional reputation of the other auditor, the principal auditor may express an opinion on the financial statements taken as a whole without making reference to the audit of the other auditor.
Choice 'a' is incorrect. Whether or not an unqualified opinion is issued is not the determining factor as to whether the principal auditor must make reference to another CPA.
Choice 'b' is incorrect. Whether or not an unqualified opinion is issued on the subsidiary's financial statements is not the determining factor as to whether the principal auditor must make reference to another CPA.
Choice 'c' is incorrect. If the principal auditor is unable to review the audit programs and audit documentation of the other CPA, he or she is likely to divide responsibility by making reference to the other CPA in the auditor's report.
