Question and Answer - 58

March 10, 2016.
Namiki is concerned about events and transactions occurring after December

31, 2015, that may affect the 2015 financial
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Reportedly, one member of the hearing panel believed Zane was guilty of the charge filed
against him but voted to acquit him because the adverse consequences Zane faced if the
Upchurch Medal was rescinded far outweighed the severity of the "indiscretion" he had
committed. Was that a reasonable or appropriate justificat
As noted in this case, email messages generally have a "low expectation of privacy." What does
that phrase mean and what implications does it have for business professionals?
Identify the apparent flaws in Le-Nature's corporate governance. Relate those flaws to the five
components of the COSO internal control framework and the "fraud triangle."
Kachelmeier, CPA, is auditing the financial statements of Big Z Wholesaling, Inc., a continuing
audit client, for the year ended January 31, 2015. On January 5, 2015, Kachelmeier observed the
tagging and counting of Big Z's physical inventory and made appropriate test counts. These test
counts have been recorded on a c
The "Accounts Receivable-Confirmation Statistics" working paper shown on the next page was
prepared by an audit assistant for the 2015 audit of Lewis County Water Company, Inc., a
continuing audit client. The engagement supervisor is reviewing the working papers. Required:
Describe the deficiencies in the working pap
Should the SEC/PCAOB provide a complete list of non-audit services that independent auditors
are prohibited from providing to their public company audit clients? Defend your answer.
What elements must a client prove to maintain an action against an auditor for negligence?
In your opinion, how should Madison have reacted to Alanis's temper tantrum? What would you
do in a similar set of circumstances?
Following the Special Committee investigation in late 2003, Le-Nature's dismissed EY and
retained BDO Seidman to serve as its independent audit firm. What safeguards are in place to
mitigate the impact of auditor changes on the credibility and integrity of the independent audit
function?
What risk factors associated with human resource management could pose significant inherent
risks?

The young lady identified as "Glory" in this case was less than enthused with the work role and
work environment of independent auditing. What measures should college students take to
reduce the likelihood of choosing a job or professional role that is unsuitable for them?
Characterize the errors made by William Blackwell and Madison Wells as either "honest
mistakes," negligence, or recklessness. Defend each of your characterizations.
What steps should auditors take when they discover circumstances which were unknown to them
at the audit report date that might have affected the report they issued?
Place yourself in Glory's position. How would you have communicated your decision to resign?
Identify the key differences between a "quarterly review" and an "annual audit" performed by an
organization's independent auditors.
The improper payments made by APC occurred during the time frame that Andrea Jung served
as Avon's CEO. Was she "responsible" for those payments even if she was unaware of them?
Why or why not?
For the year ended December 31, 2014, Friday & Co., CPAs ("Friday"), audited the 18-4, 18-6
financial statements of Kim Company and expressed an unqualified opinion on the balance sheet
only. Friday did not observe the taking of the physical inventory as of December 31, 2013,
because that date was prior to its appointm
If the citizens of certain foreign countries believe that the payment of bribes is an acceptable
business practice, is it appropriate for U.S. companies to challenge that belief when doing
business in those countries? Defend your answer.
A fundamental ethical principle in the AICPA Code of Professional Conduct is "integrity." Did
Tillman Rollins act with integrity in his treatment of Eugene Smith? Defend your answer.
For each of the following cases, indicate why management and the auditors determined that the
control deficiency was a material weakness. Case 1: In our assessment of the effectiveness of
internal control over financial reporting as of December 31, 2015, we identified a material
weakness over the accounting for and di
On September 2, 2010, the Securities & Exchange Commission brought an action against Sujata
Sachdeva, vice president of finance, and Koss senior accountant and subordinate, Julie
Mulvaney, who allegedly helped her cover up the fraudulent scheme. The SEC alleged that
Sachdeva and Mulvaney caused Koss to submit false and
An international news agency discovered the auditor independence infractions committed by EY.
Does this fact suggest that regulatory enforcement within the U.S. financial reporting domain is
lax? Defend your answer.
The long-term debt working paper shown below was prepared by entity personnel and audited by
Andy Fogelman, an audit assistant, during the calendar year 2015audit of American Widgets,
Inc., a continuing audit client. The engagement supervisor is reviewing the working paper
thoroughly. Required: There are a number of
At December 31, 2015, EarthWear has $5,890,000 in a liability account labeled "Reserve for
returns." The footnotes to the financial statements contain the following policy: "At the time of
sale, the company provides a reserve equal to the gross profit on projected merchandise returns,
based on prior returns experience.
Arthur, CPA, is auditing The Home Improvement Store as of December 31, 2016. As with all
audit engagements, Arthur's initial procedures are to analyze the entity's financial data by
reviewing trends in significant ratios and comparing the company's performance with the
industry so that he better understands the busines
List the key personal traits an office managing partner (OMP) should possess. List those traits in
descending order of importance. Be prepared to defend your choices. Would the list you
developed apply equally well to an audit partner? If not, point out how the personal traits an
OMP should possess differ from those th
The second member of the hearing panel who voted to acquit Zane was not convinced the
available evidence demonstrated "beyond a reasonable doubt" that Zane was guilty of the charge
filed against him. Was that an appropriate justification for voting to acquit Zane? Defend your
answer.
What ethical or professional standards should auditors consider when writing email messages
and when communicating on social media networks? What consequences may auditors face if
they violate those standards?
Do you believe that it was appropriate for Juan Suarez to insist that Dani Morgan and Tyler
Christian not be informed of the complete nature of their PHC assignment? Why or why not?
In 2015 Kida Company purchased more than $10 million worth of office equipment under its
"special" ordering system, with individual orders ranging from $5,000 to $30,000. "Special"
orders entail low-volume items that have been included in an authorized user's budget.
Department heads include in their annual budget requ

The auditors for Weston University are conducting their audit for the fiscal year ended December
31, 2015. Specifically, the audit firm is now focusing on the audit of revenue from this season's
home football games. While planning the audit of sales of football tickets, one of their newer
staff people observed that, in
Assess the conduct of Katelyn Light, Dani Morgan, and Tyler Christian. Do you believe they
behaved "professionally" during the PHC assignment? Defend your answer. Did any other
accountants or auditors in this case behave less than professionally? Explain.
Who approves or should approve the non-audit services that SEC registrants purchase from their
independent audit firms?
Brown, CPA, is auditing the financial statements of Big Z Wholesaling, Inc., a continuing audit
client, for the year ended January 31, 2015. On January 5, 2015, Brown observed the tagging and
counting of Big Z's physical inventory and made appropriate test counts. These test counts have
been recorded on a computer file
When Alanis refused to discuss with Madison how Le Prix's debt covenant violations had been
addressed, what alternatives were available to her? Place yourself in her position. Which of those
alternatives would you have chosen?
Identify and describe the corporate governance-related responsibilities of corporate accountants,

independent auditors, and external accountants hired by companies to perform forensic
investigations.
The COSO internal control framework identifies five components of an entity's internal control.
Which, if any, of those five components of Avon's internal control were flawed? Explain. If there
were multiple flaws in Avon's internal control, identify which one you believe was most serious
and defend your choice.
Should accounting firms be permitted to provide lobbying or legislative advisory services to non-
audit clients? Why or why not? Should accounting firms be permitted to lobby rule-making
bodies regarding proposed accounting standards? Again, defend your answer.
The following auditor's report was drafted by a staff accountant of Nathan and Matthew, CPAs,
at the completion of the audit of the comparative financial statements of Monterey Partnership
for the years ended December 31, 2015 and 2014. Monterey is a privately held company that
prepares its financial statements on the
In 2014, your firm issued an unmodified report on Tosi Corporation, a private company. During
2015, Tosi entered its first lease transaction, which you have determined is material but not
pervasive, and meets the criteria for a capitalized lease. Tosi Corporation's management chooses
to treat the transaction as an oper
The SEC observed in AAER No. 3554 that "any loan . . . to or from an audit client" is
"inconsistent" with auditor independence. Despite that statement, are there any circumstances in
which an auditor can have an outstanding loan from an audit client? Explain.
What type of professional service engagement was the assignment completed by the team of
auditors led by Katelyn Light? Defend your answer. Which professional standards are applicable
to such engagements?
Compare the overall goals of the two teams of auditors in this case. In what ways were those
goals similar? How did they differ?
Ken Smith, the partner in charge of the audit of Houghton Enterprises, identified the following
significant deficiencies during the audit of the December 31, 2015, financial statements: 1.
Controls for granting credit to new customers were not adequate. In particular, the credit
department did not adequately check the
Again, assume you were a member of the five-person panel appointed to review the charge of
academic misconduct filed against Zane Corbin. What questions would you have posed to Zane,
Professor Herrick, and Professor Goggans during their testimony before the panel? How, if at all,
might the answers to those questions ha
Le-Nature's was not a SEC registrant. Identify corporate governance safeguards imposed on SEC
registrants that are not imposed on non-SEC registrants.
List in a bullet format the key items that should be documented in an audit engagement letter. Is
an engagement letter a legally binding contract? Explain.
Discuss two control environment factors that have a pervasive effect on the human resource
management process that an auditor should consider.
1. What does this case imply about the supply of and demand for employees and the implications
for businesses? 2. What's the meaning behind the "search for the purple squirrel" in relation to
spotting talent? Is this relevant to non-tech companies, as well? Discuss. 3. Do you think
"mature" tech companies are always
How would you explain "quality" in an orchestral performance? In what ways are the eight
dimensions of quality in Table 15.2 useful in explaining the quality of a concert? In what ways
are they not useful (or at least difficult to apply)?
Classrooms have cultures. Describe your class culture using the seven dimensions of
organizational culture. Does the culture constrain your instructor? How?
1. What type of team(s) do these employee teams appear to be? Explain. 2. As this story
illustrated, sometimes it may take a long time for a team to reach its goal. As a manager, how
would you motivate a team to keep on trying? 3. What role do you think a team leader needs to
play in this type of setting? Explain. 4
The following client-prepared bank reconciliation is being examined by Zachary Kallick, CPA,
during the examination of the financial statements of Simmons Company. Required: Items (a)
through (e) represent items an auditor would ordinarily find on an entity prepared bank
reconciliation. The following list of audit pr
What automobile industry events in 2014 might lead to greater revenue and profit projections for
Chrysler?
Starbucks has some pretty specific goals it wants to achieve (look ahead to Part 4 on p. 215 for
these company goals). Given this, do you think managers would be more likely to make rational
decisions, bounded rationality decisions, or intuitive decisions? Explain.
What role do groups play at Cirque du Soleil?
What is productivity? Identify various levels and forms of productivity.
Recall our discussion, in Chapter 9, locus of control, which we defined as the degree to which an
individual believes that his or her behavior has a direct impact on the consequences of that
behavior. In what ways do the attitudes expressed or implied in the vignette suggest the degree of
locus control possessed by the
Explain the "Orpheus Process" as a system of operations management. In what ways is it

important to the orchestra's productivity, competitiveness, and overall organizational
performance?
Explain a surgical team as a kind of functional group. What features does it share with most
functional groups? What features distinguish it from most functional groups?
What stakeholders do you think Starbucks might be most concerned with? Why? What issue(s)
might each of these stakeholders want Starbucks to address?
How would you classify the uncertainty of the environment in which Starbucks operates?
Explain.
1. Using Porter's framework, describe Netflix's competitive strategy. Explain your choice. 2.
What competitive advantage(s) do you think Netflix has? Have its resources, capabilities, or core
competencies contributed to its competitive advantage(s)? Explain. 3. How will Netflix's
functional strategies have to support
Do you think Howard Schultz views his role more from the omnipotent or from the symbolic
perspective? Explain.
1. Describe the findings of Project Oxygen using the functions approach, Mintzberg's roles
approach, and the skills approach. 2. Are you surprised at what Google found out about "building
a better boss?" Explain your answer. 3. What's the difference between encouraging managers to
be great managers and knowing what
1. What's your reaction to this story? What does it illustrate about decision making? 2. How
could the decision-making process have helped in both the response to the crisis situation and in
preventing it from happening? 3. Could procedures, policies, and rules play any role in future
crisis situations like this one?
1. What topics of individual behavior do you see in this story? Explain. 2. What do you think
about this pairing-up idea? Would you be comfortable with such an arrangement? Why or why
not? 3. What personality traits would be most needed for this type of work arrangement? Why?
4. What types of issues might a Gen Y em
What workforce challenges might Starbucks face in global markets as far as its partners?
What are the major trends in the changing populations of the United States and the world?
1. What role do you think goals would play in planning the change in direction for the company?
List some goals you think might be important. (Make sure these goals have the characteristics of
well-written goals.) 2. What types of plans would be needed in an industry such as this one? (For
instance, long-term or short
What aspects of Dimon's approach to control were important in steering JP Morgan Chase
through the subprime crisis that crippled or toppled other financial institutions?
What are the two generic approaches to leadership? What can managers today learn from these
approaches?
In getting ready for a telephone interview for a new job, what are the three or four things for
which you most want to be prepared? If you are getting ready to interview someone else for a
job, what are the three or four major things that you'd expect that person to be prepared for?
If for some reason Cirque du Soleil decided to move away from team-based decision making,
what difficulties might it encounter?
Studies indicate that good leaders are typically positive and enthusiastic. In what ways do the tips
cited in the vignette suggest the possession of these qualities by the various leaders who offer
them? Based on their suggestions for managing stress and information flow, what other qualities
might you assign, in gener
How might the following management theories/ approaches be useful to Starbucks: scientific
management, organizational behavior, quantitative approach, systems approach?
Starbucks defines diversity on its Web site in the form of an equation: Diversity = Inclusion +
Equity + Accessibility. Explain what you think this means. What do you think of this definition
of diversity?
Howard Schultz is adamant about providing the best "Starbucks experience" to each and every
customer. As a store manager, how would you keep your employees from experiencing high
levels of stress when lines are out the door and customers want their Starbucks now?
How easy or difficult would it be for a traditional organization to adopt the team-based methods
used at Cirque du Soleil?
Give examples of how Howard Schultz might perform the interpersonal roles, the informational
roles, and the decisional roles.
Using information from the case and information you pull from Starbucks' Web site, what global
attitude do you think Starbucks exhibits? Defend your choice.
Go to the company's Web site (www.starbucks.com) and find the list of executives and their
biographies. Pick one of those positions and describe what you think that job might involve. Try
to envision what types of planning, organizing, leading, and controlling this person would have
to do.
What has made Starbucks' culture what it is? How is that culture maintained?
1. In a general sense, what kinds of decisions are made in baseball? Would you characterize
these decisions as structured or unstructured problems? Explain. What type(s) of decision-
making condition would you consider this to be? Explain. 2. Is it appropriate for baseball
managers to use only quantitative, objective c
1. Keeping professionals excited about work that is routine and standardized and chaotic is a
major challenge for Symantec's managers. How could they use technical, human, and conceptual
skills to maintain an environment that encourages innovations and professionalism? 2. What
management roles would operations manage
1. What do you think of UA's approach to innovation? Would you expect to see this type of
innovation in an athletic wear company? Explain. 2. What do you think UA's culture might be
like in regards to innovation? 3. Could design thinking help UA improve its innovation efforts?
Discuss. 4. What's your interpretation
Many companies have a goal of becoming more environmentally sustainable. One of the most
important steps they can take is controlling paper waste. Choose a company-any type, any size.
Imagine that you've been put in charge of creating a program to control paper waste for the
company. Set goals and develop plans. Prepar
1. What do you think about using "volunteers" to do work that other people get paid to do? 2. If
you were in Mark Studness's position, what would you be most concerned about in this
arrangement? How would you "manage" that concern? 3. How do these "volunteers" fit into an
organization's structure? Take each of the si
How do organizations like Cirque du Soleil most likely manage conflict?
Why is the concept of "empowering" employees important in doing business ethically?
1. Describe Ricardo Semler's leadership style. What do you think the advantages and drawbacks
of his style might be? 2. What challenges might a radically "hands-off" leader face? How could
those challenges be addressed? 3. How could future leaders be identified in this organization?
Would leadership training be impo
What other workplace diversity initiatives discussed in Chapter 4 (besides employee resource
groups) might be appropriate for an organization like Starbucks?
Using equity theory as a framework, explain how a person can experience inequity because he or
she is paid too much. What are the potential outcomes of this situation?
Describe some of the specific and general environmental components that are likely to impact
Starbucks.
How might design thinking be important to a company like Starbucks? Do you see any
indication that Starbucks uses design thinking? Explain.
What management skills do you think would be most important for Howard Schultz to have?
Why? What skills do you think would be most important for a Starbucks store manager to have?
Why?
Go to the company's Web site [www.starbucks.com] and find the latest corporate social
responsibility report. Choose one of the key areas in the report (or your professor may assign one
of these areas). Describe and evaluate what the company has done in this key area.
You're responsible for developing a global cultural awareness program for Starbucks' executives
who are leading the company's international expansion efforts. Describe what you think will be
important for these executives to know.
Why do some people resist control? How can managers help overcome this resistance? One
reason that individuals resist control is due to over control-the attempt by the organization to
control too many things. Individuals also resist when the focus of control is inappropriate or
when they fear too much accountability.
Using Skype and similar methods has become quite popular in setting up the complete online
conversation. How would the use of this technology modify a telephone interview? How about
other forms of communication, such as text messaging?
1. How is strategic management illustrated by this case story? 2. How might SWOT analysis be
helpful to Inditex executives? To Zara store managers? 3. What competitive advantage do you
think Zara is pursuing? How is she exploiting that competitive advantage? 4. Do you think Zara's
success is due to external or inter
In what way is Jamie Dimon's approach to management pretty much what you'd expect of a top-
level manager in the financial industry? In what ways is it different from what you'd expect?
Using Exhibit 7-9, describe Starbucks' innovation environment.
Experts suggest that you dress professionally for a telephone interview even though the
interviewer can't see you. Do you agree that this is important? Why or why not?
What early evidence of management practice can you describe?

What might be some early warning signs of: (a) a new competitor coming into your market; (b)
an employee work stoppage; or (c) a new technology that could change demand for your
product?
As planned, the Fiat 500 was launched in the U.S. market in 2014. Read recent reviews and sales
data online and see if the car seems to be performing as well as projected. If not, what control
actions might be necessary?
Again, go to the company's Web site. Find the Standards of Business Conduct document. First,
what's your impression of this document? Then, choose one topic from one of the main areas
covered. Describe what advice is provided to partners.
Organizations typically have limits to how much change they can absorb. As a manager, what
signs would you look for that might suggest that your organization has exceeded its capacity to
change?
How does Starbucks manage diversity? What is Starbucks doing to manage diversity in each of
the four areas: customers, suppliers, partners, and communities?
Review the company's mission and guiding principles (at www.starbucks.com). Explain how
these affect managerial decision making; how they affect change and innovation issues.
Internet file sharing programs are popular among college students. These programs work by
allowing non-organizational users to access any local network where desired files are located.
Because these types of file sharing programs tend to clog bandwidth, local users' ability to access
and use a local network is reduced.
Sergio Marchionne's education and early training was in accounting. In what ways might this
have helped him in turning around first Fiat and then Chrysler?
In what ways does the "Orpheus Process" reflect the basic elements of total quality management,
particularly strategic commitment, employee involvement, and methods?
1. Do you think it's possible for an organization to deliberately create an "antihierarchy" to

encourage employees to engage in acts of creative deviance? What steps might a company take
to encourage creative deviance? 2. What are the drawbacks of an approach that encourages
creative deviance? 3. Why do you think a c
1. What type of control-feedforward, concurrent, or feedback-do you think would be most

important in this situation? Explain your choice. 2. How might immediate corrective action have
been used in this situation? How about basic corrective action? 3. Could British Airways'
controls have been more effective? How? 4.
Would you classify Starbucks' environment as more calm waters or white-water rapids? Explain.
How does the company manage change in this type of environment?
What types of global economic and legal-political issues might Starbucks face as it does business
globally?
Explain a surgical team in terms of its behavioral norms. How might norm variation and norm
conformity contribute to either effective or ineffective communications?
What do you think of Starbucks' goal to recycle all 4 billion cups sold annually by 2015? What
challenges does it face in meeting that goal?
What do you think the company's use of the term partners instead of employees implies? What's
your reaction to this? Do you think it matters what companies call their employees? (For
instance, Wal-Mart calls its employees associates.) Why or why not?
Explain how Dimon has practiced each of the following levels of control at JP Morgan Chase:
(a) financial, (b) structural, and (c) strategic. Then focus on operations control: What steps has
Dimon taken to exercise each form of operations control-preliminary, screening, and postaction?
Why do you think Howard Schultz is uncomfortable with the idea of legislative lobbying? Do
you think his discomfort is appropriate? Why or why not?
1. How can TOMS balance being socially responsible and being focused on profits? 2. Would
you describe TOMS approach as social obligation, social responsiveness, or social
responsibility? Explain. 3. It's time to think like a manager. TOMS' one-for-one approach is a
wonderful idea, but what would be involved with mak
How do various strategies for improving surgical-team communications reflect a desire to

achieve cohesiveness? Is increased cohesiveness always a desirable goal? Why or why not?
Which is more critical to success in organizations continuous improvement or quality control?

Support your position.
Pick one of the countries mentioned as an important target for Starbucks. Make a bulleted list of
economic, political-legal, and cultural characteristics of this country.
Discuss the importance of quality in Orpheus's operations in terms of competition, productivity,

and costs.
1. How might population trends affect a professional services organization like PwC? What
might it have to do to adapt to these trends? 2. What challenges might PwC face in adapting to a
more diverse applicant pool of college graduates? 3. Businesses often face the dilemma of
retaining diverse employees once they're
1. What would it be like to work at Patagonia? What's your assessment of the company's work
environment? 2. Using what you've learned from studying the various motivation theories, what
does Patagonia's situation tell you about employee motivation? 3. What do you think might be
Patagonia's biggest challenge in keepin
What is the role of power in sexual harassment?
Look at Howard Schultz's philosophy of Starbucks. How will this affect the way the company is
managed?
What activities do managers perform? What activities do leaders perform? Do organizations

need both managers and leaders? Why or why not?
Give examples of decisions that Starbucks managers might made under conditions of certainty.
Under conditions of risk. Under conditions of uncertainty. What kind of decision maker does
Howard Schultz appear to be? Explain your answer.
With more than 149,000 partners worldwide, what challenges would Starbucks face in making
sure their diversity values are practiced and adhered to?
Choose three of the current trends and issues facing managers and explain how Starbucks might
be impacted. What might be the implications for first-line managers? Middle managers? Top
managers?
We discussed delegation-the process by which managers assign work to subordinates-in Chapter

6. It is no surprise that effective delegation eases the stress on managers. Judging from their
advice on managing information flow, what sort of tasks do you think these managers delegate to
others? What sort of tasks do they
1. What is your impression of an "employee first" culture? Would this work in other
organizations? Why or why not? What would it take to make it work? 2. How might an
understanding of organizational behavior help CEO Jim Goodnight lead his company? Be
specific. How about first-line company supervisors? Again, be speci
1. Find a list of all 10 of Zappos corporate values. Pick two of the values and explain how you
think those values would influence the way employees do their work. 2. How did Zappos'
corporate culture begin? How is Zappos' corporate culture maintained? 3. The right culture with
the right values will always produce th
Matt Aberham warns against simply trying to "sell yourself" during a phone interview. You
agree, but you also believe that selling yourself is one of the things that you to do as a job seeker.
What sort of strategies do you regard as legitimate and effective in trying to sell yourself to a
phone interviewer (or an in-p
Explain a surgical team in terms of its role structures. What factors might lead to role ambiguity?
To role conflict? To role overload?
1. Using Exhibit 2-2, what external components might be most important for managers in movie
theater chains to know about? Why? 2. According to the case, what external trends do managers
at the movie theater chains have to deal with? 3. How do you think these trends might constrain
decisions made by managers at the
1. What's your reaction to these events? Are you surprised that bribery is illegal? Why do you
think bribery takes place? Why do you think it needs to be outlawed? 2. Research whether other
countries outlaw bribery. 3. We've said it's important for managers to be aware of external
environmental forces, especially in
How might biases and errors affect the decision making done by Starbucks executives? By
Starbucks store managers? By Starbucks partners?
1. What challenges would there be to creating an effective team in an organization staffed by

independent contractors? How could managers deal with these challenges? 2. Why do you think
teamwork is crucial to Lonely Planet's business model? 3. Using Exhibit 14-10, what
characteristics of effective teams would be most
Compare groups and teams.
1. Describe and evaluate what Pfizer is doing with its PfizerWorks. 2. What structural
implications-good and bad-does this approach have? (Think in terms of the six organizational
design elements.) 3. Do you think this arrangement would work for other types of organizations?
Why or why not? 4. What role do you think
In analyzing legal expense for the Boastman Bottle Company, Mary Little, CPA, observes that
the company has paid legal fees to three different law firms during the current year. In
accordance with her CPA firm's normal operating practice, Little requests standard attorney
letters as of the balance sheet date from each
When the auditor fails to obtain a cutoff bank statement, it is common to verify the entire
statement for the month subsequent to the balance sheet date. How is this done and what is its
purpose?
Identify and describe the four presentation and disclosure audit objectives.
Identify two examples of informal leaders. Can a person be a formal and an informal leader at
the same time?
1. What do you think of this? Do you agree that e-mail can be unproductive in the workplace? 2.
Were you surprised at the volume of e-mail an average employee receives daily? What are the
challenges of dealing with this volume of e-mail? How much e-mail would you say you receive
daily? Has your volume of e-mail increa
What is meant by an imprest bank account for a branch operation? Explain the purpose of using
this type of bank account.
Explain why, in verifying bank reconciliations, most auditors emphasize the possibility of a
nonexistent deposit in transit being included in the reconciliation and an outstanding check being
omitted rather than the omission of a deposit in transit and the inclusion of a nonexistent
outstanding check.
Distinguish between the verification of petty cash reimbursements and the verification of the
balance in the fund. Explain how each is done. Which is more important?
Explain the relationships among the initial assessed control risk, tests of controls and substantive
tests of transactions for cash disbursements, and the tests of details of cash balances. Give one
example in which the conclusions reached about internal controls in cash disbursements will
affect the tests of cash bala
How do assurance services differ from audit services? What are the primary drivers of the need
for assurance services? Does a market for assurance services already exist or do auditors need to
develop the market?
Distinguish between subsequent events occurring between the balance sheet date and the date of
the auditor's report, and subsequent discovery of facts existing at the date of the auditor's report.
Give two examples of each and explain the appropriate action by the auditor in each instance.
The following covenants are extracted from the indenture of a bond issue. The indenture
provides that failure to comply with its terms in any respect automatically makes the loan
immediately due (the regular date is 20 years hence). List any audit steps or reporting
requirements you think should be taken or recognized
What major considerations should the auditor take into account in determining how extensive the
review of subsequent events should be?
In what ways does the practice of internal auditing differ from the practice of public accounting?
To whom is the internal auditing function responsible?
You are engaged in the audit of a corporation whose records have not previously been audited by
you. The corporation has both an independent transfer agent and a registrar for its capital stock.
The transfer agent maintains the record of stockholders and the registrar checks that there is no
overissue of stock. Signatu
The following are various potential misstatements due to errors or fraud (1 through 7), and a list
of auditing procedures (a through h) the auditor would consider performing to gather evidence to
determine whether the error or fraud is present. Possible Misstatements Due to Errors or Fraud 1.
The auditor suspects that
How will a company's bank reconciliation reflect an electronic deposit of cash received by the
bank from credit card agencies making payments on behalf of customers purchasing products
from the company's online Web site, but not recorded in the company's records?
The fairness of financial statements and the adequacy of internal controls are judged only by
reference to pre-established criteria. What serves as the criteria to judge the fairness of financial
statements and the adequacy of internal controls? Explain why â€œreference to criteriaâ€ is
important to the audit function
Multiple Choice Questions The following questions concern communications between

management, those charged with governance, and the auditor. Choose the best response. a. A
principal purpose of a letter of representation from management is to (1) Serve as an introduction
to company personnel and an authorization to exa
The following audit procedures are concerned with tests of details of general cash balances: 1.
Obtain a standard bank confirmation from each bank with which the client does business. 2.
Compare the balance on the bank reconciliation obtained from the client with the bank
confirmation. 3. Compare the checks returned al
In what other areas, besides the audit committee, did the Sarbanes-Oxley Act improve corporate
governance?
In connection with an audit you are given the following work sheet: Checks Drawn but Not Paid
by Bank No. Amount 573 ......... $ 267.27 724 ......... 39.92 903 ......... 454.67 907 ......... 291.80
911 ......... 648.29 913 ......... 737.52 914 ......... 529.10 916 ......... 36.00 917 ....
Multiple Choice Questions The following questions deal with discovering fraud in auditing year-
end cash. Choose the best response. a. Which of the following is one of the better auditing
techniques to detect kiting? (1) Review composition of authenticated deposit slips. (2) Review
subsequent bank statements and cancel
Distinguish between an asserted and an unasserted claim. Explain why a client's attorney may
not reveal an unasserted claim.
What types of reports does management of public companies prepare that are subject to audit?
Evaluate the effectiveness and state the shortcomings of the preparation of a bank reconciliation
by the controller in the manner described in the following statement: "When I reconcile the bank
account, the first thing I do is review the sorted list of returned checks and find which numbers
are missing. Next I determi
The following items were discovered during the December 31, 2011 audit of the financial
statements of Westmoreland Corporation: 1. The company's financial statements did not include
an accrual for bonuses earned by senior management in 2011 but payable in March 2012. The
aggregate bonus amount was $125,000. 2. Equipmen
Why is independence important to the auditing profession? Who decides whether an auditor is
independent?
Leslie Morgan, CPA, has prepared a letter of representation for the president and controller to
sign. It contains references to the following items: 1. Inventory is fairly stated at the lower of
cost or market and includes no obsolete items. 2. All actual and contingent liabilities are properly
included in the financia
The field work for the June 30, 2011, audit of Tracy Brewing Company was finished August 19,
2011, and the completed financial statements, accompanied by the signed audit reports, were
mailed September 6, 2011. In each of the highly material independent events (a through i), state
the appropriate action (1 through 4) f
You are auditing general cash for the Pittsburgh Supply Company for the fiscal year ended July
31, 2011. The client has not prepared the July 31 bank reconciliation. After a brief discussion
with the owner, you agree to prepare the reconciliation, with assistance from one of Pittsburgh
Supply's clerks. You obtain the f
What are the six areas identified by the Special Committee on Assurance Services that represent
the largest market potential for providing new assurance services for the next decade? Which
service, in your view, has the greatest appeal as you enter the profession?
Who generally pays for assurance servicesâ€”those receiving the assurance or the party on which
the assurance is given? Why is it important who pays?
In obtaining letters from attorneys, Bill Malano's aim is to receive the letters as early as possible
after the balance sheet date. This provides him with a signed letter from every attorney in time to
properly investigate any exceptions. It also eliminates the problem of a lot of unresolved loose
ends near the end of
Multiple Choice Questions The following questions deal with auditing year-end cash. Choose the
best response. a. A CPA obtains a January 10 cutoff bank statement for a client directly from the
bank. Very few of the outstanding checks listed on the client's December 31 bank reconciliation
cleared during the cutoff perio
Distinguish between a contingent liability and an actual liability and give three examples of each.
In the audit of the James Mobley Company, you are concerned about the possibility of
contingent liabilities resulting from income tax disputes. Discuss the procedures you could use
for an extensive investigation in this area.
As a part of the audit of Ren Gold Manufacturing Company, a nonpublic company, management
requests basic financial statements and separately, the same basic financial statements
accompanied by additional information. Management informs you that the intent is to use the
basic financial statements for bankers, other cred
Identify five audit procedures normally done as a part of the review for subsequent events.
Does an audit always require a report to a third-party user? Explain how an audit differs from an
assurance function in providing reports to third parties.
In a letter to the audit committee of the Cline Wholesale Company, Jerry Schwartz, CPA,
informed them of material weaknesses in the control of inventory. In a separate letter to senior
management, he elaborated on how the material weaknesses could result in a significant
misstatement of inventory by the failure to reco
Items 1 through 6 are common questions found in internal control questionnaires used by
auditors to obtain an understanding of internal control for owners' equity. In using the
questionnaire for a client, a "yes" response indicates a possible internal control, whereas a "no"
indicates a potential deficiency. 1. Does th
Compare and contrast the accumulation of audit evidence and the evaluation of the adequacy of
the disclosures in the financial statements. Give two examples in which adequate disclosure
could depend heavily on the accumulation of evidence and two others in which audit evidence
does not normally significantly affect the
What is an attestation function? What are major factors that create a demand for the performance
of attestation services by the public accounting profession?
In what ways might a public accounting practice of a firm that has no public audit clients differ
from audit firms that audit public companies? In formulating your answer, focus on the nature of
services that can be provided for the audited organization as opposed to focusing on the size of
the firm.
Explain why an auditor is interested in a client's future commitments to purchase raw materials at
a fixed price.
Multiple Choice Questions The following questions deal with contingent liabilities. Choose the
best response. a. The audit step most likely to reveal the existence of contingent liabilities is (1)
A review of vouchers paid during the month following the year-end. (2) An inquiry directed to
legal counsel. (3) Accounts
Describe matters that the auditor must communicate to audit committees of public companies.
The Redford Corporation took out a 20-year mortgage on June 15, 2011, for $2,600,000 and
pledged its only manufacturing building and the land on which the building stands as collateral.
Each month subsequent to the issue of the mortgage, a payment of $20,000 was paid to the
mortgagor. You are in charge of the current y
The following are misstatements that might be found in the client's year-end cash balance
(assume that the balance sheet date is June 30): 1. The outstanding checks on the June 30 bank
reconciliation were underfooted by $2,000. 2. A loan from the bank on June 26 was credited
directly to the client's bank account. The l
What is the â€œspecial functionâ€ that auditors perform? Whom does the public accounting
profession serve in performing this special function?
What is corporate governance and why is it important? Explain how an independent and
competent audit committee improves corporate governance.
Why is the monthly reconciliation of bank accounts by an independent person an important
internal control over cash balances? Which individuals will generally not be considered
independent for this responsibility?
Distinguish between regular audit documentation review and independent review and state the
purpose of each. Give two examples of potential findings in each of these two types of review.
What kind of surprises should an audit be designed to avoid? Why is it important that the audit
function operate to avoid surprises?
It is noted that an auditor can provide (1) Positive assurance, (2) Negative assurance, or (3) No
assurance. Briefly describe these three levels of service and when they might be used.
What is COSO? Why is COSO, as a non-regulatory body, important to the auditing profession?
In your audit of Aviary Industries for calendar year 2011, you found a number of matters that
you believe represent possible adjustments to the company's books. These matters are described
below. Management's attitude is that "once the books are closed, they're closed," and
management does not want to make any adjustme
What is the role of the PCAOB and the AICPA in (a) Setting audit standards, (b) Performing
quality control reviews of member firms, and (c) Setting accounting standards?
What are the four attributes needed to perform assurance services? Briefly describe each attribute
and its importance. Are these attributes also required for audits of a non-public company?
Explain what is meant by information accompanying basic financial statements. Provide two
examples of such information. What levels of assurance may the CPA offer for this information?
You are a CPA engaged in an audit of the financial statements of Pate Corporation for the year
ended December 31, 2011. The financial statements and records of Pate Corporation have not
been audited by a CPA in prior years. The stockholders' equity section of Pate Corporation's
balance sheet at December 31, 2011, follo
What is the major difference between auditing services and assurance services?
Miles Lawson, CPA, believes that the final summarization is the easiest part of the audit if
careful planning is followed throughout the audit. He makes sure that each segment of the audit
is completed before he goes on to the next. When the last segment of the audit is completed, he is
finished with the audit. He beli
The following unrelated events occurred after the balance sheet date but before the audit report
was prepared: 1. The granting of a retroactive pay increase 2. Declaration of a stock dividend 3.
Sale of a fixed asset at a substantial profit 4. Determination by the federal government of
additional income tax due for a p
How does complexity affect (1) The demand for auditing services and (2) The performance of
auditing services?
How does an audit enhance the quality of financial statements and its reports on internal control?
Does an audit ensure a fair presentation of a companyâ€™s financial statements or that internal
control systems are free of material deficiencies? Explain.
How do bank confirmations differ from positive confirmations of accounts receivable?

Distinguish between them in terms of the nature of the information confirmed, the sample size,
and the appropriate action when the confirmation is not returned after the second request.
Explain the rationale for the differences between
During the audit of the Merrill Manufacturing Company, Ralph Pyson, CPA, has become aware
of four lawsuits against the client through discussions with the client, reading corporate minutes,
and reviewing correspondence files. How should Pyson determine the materiality of the lawsuits
and the proper disclosure in the fi
Who is the most important user of an auditorâ€™s report on a companyâ€™s financial

statements: company management, the companyâ€™s shareholders, or the companyâ€™s
creditors? Briefly explain your rationale and indicate how auditors should resolve potential
conflicts in the needs of the three parties.
Audit committees of public companies have many responsibilities in today's financial reporting
environment. Visit the website of Microsoft Corporation (www.microsoft.com) and locate the
Audit Committee's Charter under the "Investor Relations" link to answer the following questions.
Required a. What is the primary purp
The Check Clearing for the 21st Century Act (Check 21 Act) allows recipients of paper checks to
create a digital image of the original check, eliminating the need for further handling of the
actual check. The Federal Reserve Board has created a consumer guide
(www.federalreserve.gov/pubs/check21/consumer_guide.htm). Lo
Distinguish between lapping and kiting. Describe audit procedures that can be used to uncover
each.

What are userâ€™s interests in reports on internal control over financial reporting? Identify the
factors that influenced congress in developing Section 404 of the Sarbanes-Oxley Act that
requires reports on internal control that supplement the annual financial statements.
Distinguish between the two general types of subsequent events and explain how they differ.
Give two examples of each type.
In an audit of the Marco Corporation as of December 31, 2011, the following situations exist. No
entries have been made in the accounting records in relation to these items. 1. During the year
2011, the Marco Corporation was named as a defendant in a suit for damages by the Dalton
Company for breach of contract. An adv
Describe the purpose of a financial statement disclosure checklist and explain how it helps the
auditor determine if there is sufficient appropriate evidence for each of the presentation and
disclosure objectives.
Are small, local CPA firms that serve only small businesses and other local clients subject to the
same auditing and accounting standards as the large international CPA firms? If there are
differences, what is the rationale for the differences?
Multiple Choice Questions The following questions concern information accompanying basic
financial statements. Choose the best response. a. The Form 10-K filed by management of a
public company includes a section on management's discussion and analysis (MD&A) in
addition to the annual financial statements. Which of the
What is meant by reading other financial information in annual reports? Give an example of the
type of information the auditor is examining.
You are doing the first-year audit of Sherman School District and have been assigned
responsibility for doing a four-column proof of cash for the month of October 2011. You obtain
the following information: 6. Interest on a bank loan for the month of October, charged by the
bank but not recorded, was $596. 7. Procee
Distinguish between a client letter of representation and a management letter and state the
primary purpose of each. List some items that might be included in each letter.
The following audit procedures are commonly performed by auditors in the verification of
owners' equity: 1. Review the articles of incorporation and bylaws for provisions about owners'
equity. 2. Analyze all owners' equity accounts for the year and document the nature of any
recorded change in each account. 3. Account

Many public accounting firms are legally formed as networks of accounting firms. Explain what
the term â€œnetwork of accounting firmsâ€ means.
What are the primary factors that create a need for assurance services? Explain how these factors
are important to the public accounting profession.
Many companies aspire to go public and have their shares traded on exchanges such as the New
York Stock Exchange (NYSE) and NASDAQ. Visit the Website of the NYSE (www.nyse.com)
and search for the â€œGuide to the NYSE Marketplaceâ€ to answer the following questions.
Required a. What two U.S. securities exchanges does
Who is primarily responsible for choosing the accounting principles that are used to portray the
companyâ€™s financial position and results? Explain.
What is the role of the SEC in setting accounting and auditing standards?
Multiple Choice Questions The following questions deal with review of subsequent events.
Choose the best response. a. Subsequent events for reporting purposes are defined as events that
occur subsequent to the (1) Balance sheet date. (2) Date of the auditor's report. (3) Balance sheet
date but before the date of the a
Elizabeth Johnson, CPA, has completed the audit of notes payable and other liabilities for Valley
River Electrical Services and now plans to audit contingent liabilities and commitments.
Required a. Distinguish between contingent liabilities and commitments and explain why both
are important in an audit. b. Describe h
Assume that a client with excellent internal controls uses an imprest payroll bank account.
Explain why the verification of the payroll bank reconciliation ordinarily takes less time than the
tests of the general bank account, even if the number of disbursements exceeds those for the
general account.
Describe what is meant by a cutoff bank statement and state its purpose.
E-Antiques, Inc. is an Internet-based market maker for buyers and sellers of antique furniture and
jewelry. The company allows sellers of antique items to list descriptions of those items on the E-
Antiques Web site. Interested buyers review the Web site for antique items and then enter into
negotiations directly with t
Why is there a greater emphasis on the detection of fraud in tests of details of cash balances than
for other balance sheet accounts? Give two specific examples that demonstrate how this
emphasis affects the auditor's evidence accumulation in auditing year-end cash.
In what ways is the auditing profession uniquely qualified to expand into the broader arena of
assurance services?
In the audit of the Regional Transport Company, a large branch that maintains its own bank
account, cash is periodically transferred to the central account in Cedar Rapids. On the branch
account's records, bank transfers are recorded as a debit to the home office clearing account and
a credit to the branch bank account
Explain the relationships among the initial assessed control risk, tests of controls and substantive
tests of transactions for cash receipts, and the tests of details of cash balances.
Explain the purpose of a four-column proof of cash. List two types of misstatements it is meant
to uncover.
Describe the action that an auditor should take if an attorney refuses to provide information that
is within the attorney's jurisdiction and may directly affect the fair presentation of the financial
statements.
Why are auditors usually less concerned about the client's cash receipts cutoff than the cutoff for
sales? Explain the procedure involved in testing for the cutoff for cash receipts.
Explain why the analysis of legal expense is an essential part of every audit.
As a part of your clerical tests of inventory for Martin Manufacturing, you have tested about
20% of the dollar items and have found the following exceptions: 1. Extension errors: 2.
Differences located in comparing last yearâ€™s costs with the current yearâ€™s costs on the
clientâ€™s inventory lists: 3. Test cou
Explain the circumstances under which an auditor should perform audit tests primarily designed
to uncover fraud in the payroll and personnel cycle. List three audit procedures that are primarily
for the detection of fraud and state the type of fraud the procedure is meant to uncover.
Distinguish between the following payroll audit procedures and state the purpose of each: (1)
Trace a random sample of prenumbered time cards to the related payments in the payroll register
and compare the hours worked with the hours paid, (2) Trace a random sample of payments from
the payroll register to the related
Explain the relationship between the audit of owners' equity and the calculations of earnings per
share. What are the main auditing considerations in verifying the earnings per share figure?
What is the GAO? What types of audits does it perform? What is its role in setting standards for
municipal audits?
What are the major internal controls over owners' equity?
During the taking of physical inventory, the controller intention ally withheld several inventory
tags from the employees responsible for the physical count. After the auditor left the client's
premises at the completion of the inventory observation, the controller recorded nonexistent
inventory on the tags and thereby
List four examples of interest-bearing liability accounts commonly found in balance sheets.
What characteristics do these liabilities have in common? How do they differ?
Explain how audit sampling can be used to test the payroll and personnel cycle.
Your client, Edgartown Corporation, prepared the following schedule of land, buildings and
equipment for the audit of financial statements for the year ended December 31, 2011: a. What
type of evidence would you examine to support the beginning balances in the accounts? b. What
types of evidence would you use to sup
Included in the December 31, 2011, inventory of the Wholeridge Supply Company are 2,600
deluxe ring binders in the amount of $5,902. An examination of the most recent acquisitions of
binders showed the following costs: January 26, 2012, 2,300 at $2.42 each; December 6, 2011,
1,900 at $2.28 each; November 26, 2011, 2,40
Why are liability accounts included in the capital acquisition and repayment cycle audited
differently from accounts payable?
Roost and Briley, CPAs, are doing the audit of Leggert Lumber Co., an international wholesale
lumber broker. Because of the nature of their business, payroll and telephone expense are the two
largest expenses. You are the in-charge auditor on the engagement responsible for writing the
audit program for the payroll and
List the supporting documents and records the auditor will examine in a typical payroll audit in
which the primary objective is to detect fraud.
As part of the audit of different audit areas, auditors should be alert for the possibility of
unrecorded liabilities. For each of the following audit areas or accounts, describe a liability that
can be uncovered and the audit procedures that can uncover it: a. Minutes of the board of
directors meetings b. Land and bui
You are assessing internal control in the audit of the payroll and personnel cycle for Rogers
Products Company, a manufacturing company specializing in assembling computer parts. Rogers
employs approximately two hundred hourly and thirty salaried employees in three locations.
Each location has one foreman who is respon
List several analytical procedures for the payroll and personnel cycle and explain the type of
misstatement that might be indicated when there is a significant difference in the comparison of
the current year with previous yearsâ€™ results for each of the tests.
List several audit procedures that the auditor can use to determine whether payroll transactions
are recorded at the proper amounts.
Explain the relationship between the payroll and personnel cycle and inventory valuation.
Multiple Choice Questions The following questions deal with tests of details of balances and
analytical procedures for inventory. Choose the best response. a. Which of the following
procedures is the auditor least likely to perform on the actual date the physical inventory count is
observed? (1) Examine inventory to m
What is the primary purpose of analyzing interest expense? Given this purpose, what primary
considerations should the auditor keep in mind when doing the analysis?
Multiple Choice Questions The following questions concern the audit of accounts in the capital
acquisition and repayment cycle. Choose the best response. a. During an audit of a publicly held
company, the auditor should obtain written confirmation regarding debenture transactions from
the (1) Debenture holders. (2) C
You encountered the following situations during the December 31, 2011, physical inventory of
Latner Shoe Distributor Company: Required a. Latner maintains a large portion of the shoe
merchandise in 10 warehouses through-out the eastern United States. This ensures swift delivery
service for its chain of stores. You are
The following misstatements are included in the inventory and related records of Westbox
Manufacturing Company: 1. An inventory item was priced at $12 each instead of at the correct
cost of $12 per dozen. 2. In taking the physical inventory, the last shipments for the day were
excluded from inventory and were not inclu
Explain what is meant by an imprest payroll account. What is its purpose as a control over
payroll?
Multiple Choice Questions The following questions concern internal controls in the inventory
and warehousing cycle. Choose the best response. a. Which of the following controls will most
likely justify a reduced assessed level of control risk for the occurrence assertion for purchases of
inventory? (1) Receiving repor
Since 1938, when auditors failed to uncover fictitious inventory recorded by the McKesson &
Robbins Company, auditors have been ordinarily required to physically observe the counting of
inventory. It is important to recognize that auditors are not required to actually count the
inventory for inclusion on the balance sh
The following audit procedures were planned by Linda King, CPA, in the audit of the acquisition
and payment cycle for Cooley Products, Inc.: 1. Review the acquisitions journal for large and
unusual transactions. 2. Send letters to several vendors, including a few for which the recorded
accounts payable balance is zero,
Following are some of the tests of controls and substantive tests of transactions procedures often
performed in the payroll and personnel cycle. (Each procedure is to be done on a sample basis.)
1. Reconcile the monthly payroll total for direct manufacturing labor with the labor cost
distribution. 2. Examine the time c
For each of the following misstatements in property, plant, and equipment accounts, state an
internal control that the client can implement to prevent the misstatement from occurring and a
substantive audit procedure that the auditor can use to discover the misstatement: 1. The asset
lives used to depreciate equipment
If a transfer agent disburses dividends for a client, explain how the audit of dividends declared
and paid is affected. What audit procedures are necessary to verify dividends paid when a
transfer agent is used?
What are the primary objectives in the audit of owners' equity accounts?
Your client, Ridgewood Heating and Cooling, specializes in residential air conditioning and
heating installations. The company maintains an inventory of air conditioning units, furnaces,
and air handling ductwork. The client has provided the following selected financial statement
information for the year ending Decembe
Items 1 through 8 are selected questions typically found in internal control questionnaires used
by auditors to obtain an understanding of internal control in the payroll and personnel cycle. In
using the questionnaire for a client, a â€œyesâ€ response to a question indicates a possible
internal control, whereas a â€œ
Multiple Choice Questions The following questions concern testing the client's internal controls
for inventory and warehousing. Choose the best response. a. When an auditor tests a client's cost
accounting records, the auditor's tests are primarily designed to determine that (1) Costs have
been correctly assigned to f
Outsourcing the payroll function can provide many benefits, but there are also risks associated
with outsourcing. The IRS (www.irs.gov) provides information on outsourcing payroll duties for
employers who outsource the payroll function (search for â€œpayroll outsourcingâ€). The IRS
also provides information on employm
The cost accounting records are often an essential area to audit in a manufacturing or
construction company. Required a. Why should the auditor review the cost accounting records
and test their accuracy? b. For the audit of standard cost accounting records in which 35 parts are
manufactured, explain how you would dete
Examine the tests of controls and substantive tests of transactions results, including the sampling
application in Case 18-32, for Ward Publishing Company. Assume that you have already reached
several conclusions. 1. Your tests of details of balances for accounts payable are completed, and
you found no exceptions. 2. A
At the completion of an inventory observation, the controller requested the auditor to give him a
copy of all recorded test counts to facilitate the correction of all discrepancies between the
client's and the auditor's counts. Should the auditor comply with the request? Why?
The following program has been prepared for the audit of accrued real estate taxes of a client that
pays taxes on 25 different pieces of property, some of which have been acquired in the current
year: 1. Obtain a schedule of accrued taxes from the client and tie the total to the general ledger.
2. Compare the charges f
The following types of internal controls are commonly used by organizations for property, plant,
and equipment: 1. A fixed asset master file is maintained with a separate record for each fixed
asset. 2. Written policies exist and are known by accounting personnel to differentiate between
capitalizable additions, freigh
In auditing payroll withholding and payroll tax expense, explain why emphasis should normally
be on evaluating the adequacy of the payroll tax return preparation procedures rather than the
payroll tax liability. If the preparation procedures are inadequate, explain the effect this will have
on the remainder of the audi

Multiple Choice Questions The following questions concern audit testing of the payroll and
personnel cycle. Choose the best response. a. When control risk is assessed as low for assertions
related to payroll, substantive tests of payroll balances most likely would be limited to applying
analytical procedures and (1) Ob
The following are sales, cost of sales, and inventory data for Aladdin Products Supply Company,
a wholesale distributor of cleaning supplies. Dollar amounts are in millions. Required a.
Calculate the following ratios, using an electronic spreadsheet program (instructor's option): (1)
Gross margin as a percentage of
The following are frequently performed audit procedures for the verification of bonds payable
issued in previous years: 1. Analyze the general ledger account for bonds payable, interest
expense, and unamortized bond discount or premium. 2. Obtain a confirmation from the
bondholder. 3. Obtain a copy of the bond indentur
While you are having lunch with a banker friend, you become involved in explaining to him how
your firm conducts a typical audit. Much to your surprise, your friend is interested and is able to
converse intelligently in discussing your philosophy of emphasizing the importance of internal
control, analytical procedures,
In the verification of the amount of the inventory, one of the auditor's concerns is that slow-
moving and obsolete items be identified. List the auditing procedures that can be used to
determine whether slow-moving or obsolete items have been included in inventory.
The following are steps in the methodology for designing tests of controls, substantive tests of
transactions, and tests of details of balances for the payroll and personnel cycle: 1. Design tests
of details of balances for the payroll and personnel cycle. 2. Evaluate risk and materiality for
payroll expense and liabil
Why is it more important to search for unrecorded notes payable than for unrecorded notes
receivable? Suggest audit procedures that the auditor can use to uncover unrecorded notes
payable.
In an annual audit at December 31, 2011, you find the following transactions near the closing
date: 1. Merchandise costing $1,822 was received on January 3, 2012, and the related acquisition
invoice recorded January 5. The invoice showed the shipment was made on December 29, 2011,
FOB destination. 2. Merchandise costin
List five types of authorizations in the payroll and personnel cycle and state the type of
misstatement that is likely to occur when each authorization is lacking.
List two types of restrictions long-term creditors often put on companies when granting them a
loan. How can the auditor find out about these restrictions?
In connection with his audit of the financial statements of Knutson Products Co., an assembler of
home appliances, for the year ended May 31, 2011, Ray Abel, CPA, is reviewing with Knutson's
controller the plans for a physical inventory at the company warehouse on May 31, 2011.
Finished appliances, unassembled parts, a
Explain why it is common to verify total officersâ€™ compensation even when the tests of
controls and substantive tests of transactions results in payroll are excellent. What audit
procedures can be used to verify officersâ€™ compensation?
The ending general ledger balance of $186,000 in notes payable for the Sterling Manufacturing
Company is made up of 20 notes to eight different payees. The notes vary in duration anywhere
from 30 days to 2 years, and in amounts from $1,000 to $10,000. In some cases, the notes were
issued for cash loans; in other cases,
What should be the major emphasis in auditing the retained earnings account? Explain your
answer.
Assuming that the auditor properly documents receiving report numbers as a part of the physical
inventory observation procedures, explain how the proper cutoff of purchases, including tests for
the possibility of raw materials in transit, should be verified later in the audit.
The Frist Corporation has the following internal controls related to inventory: 1. The inventory
purchasing system only allows purchases from pre-approved vendors. 2. The perpetual inventory
system tracks the average number of days each inventory product number has been in the
warehouse. 3. Microchips are embedded in e
Distinguish between (a) Tests of controls and substantive tests of transactions (b) Tests of details
of balances for liability accounts in the capital acquisition and repayment cycle.
You are responsible for the audit of inventory for Honey Best Grocery Wholesales, Inc., a
closely held grocery wholesaler that sells to independent grocery stores. Inventory is by far the
largest account on their balance sheet. Honey Best operates in ten southeastern states with a
central distribution center in Atlanta
Which internal controls should the auditor be most concerned about in the audit of notes
payable? Explain the importance of each.

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March 10, 2016.

Namiki is concerned about events and transactions occurring after December

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Identify and describe the corporate governance-related responsibilities of corporate accountants,

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What role do groups play at Cirque du Soleil?

What is productivity? Identify various levels and forms of productivity.

Explain the "Orpheus Process" as a system of operations management. In what ways is it

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How do organizations like Cirque du Soleil most likely manage conflict?

Why is the concept of "empowering" employees important in doing business ethically?

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Using Exhibit 7-9, describe Starbucks' innovation environment.

What early evidence of management practice can you describe?

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1. Do you think it's possible for an organization to deliberately create an "antihierarchy" to

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1. What type of control-feedforward, concurrent, or feedback-do you think would be most

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How do various strategies for improving surgical-team communications reflect a desire to

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Which is more critical to success in organizations continuous improvement or quality control?

Discuss the importance of quality in Orpheus's operations in terms of competition, productivity,

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What is the role of power in sexual harassment?

What activities do managers perform? What activities do leaders perform? Do organizations

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We discussed delegation-the process by which managers assign work to subordinates-in Chapter

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1. What challenges would there be to creating an effective team in an organization staffed by

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Compare groups and teams.

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Multiple Choice Questions The following questions concern communications between

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