Contrary to the exuberant economic forecast described in problem 11, suppose a bank’s

economics department is forecasting a significant recession in economic activity. Output and

employment are projected to decline significantly over the next 18 months. What are the
implications of this forecast for an investment por

What are clearing balances? Of what benefit can clearing balances be to a depository that uses
the Federal Reserve System’s check-clearing network?

What is the available funds gap?

Where do Eurodollars come from?

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The investments officer for Sillistine Savings is concerned about interest rate risk lowering the
value of the institution’s bonds. A check of the bond portfolio reveals an average duration of
4.5 years. How could this bond portfolio be altered in order to minimize interest rate risk within
the next year?

Queen Savings is attempting to determine its liquidity requirements today (the last day in
August) for the month of September. September is usually a month of heavy loan demand due to
the beginning of the school term and the buildup of business inventories of goods and services
for the fall season and winter. This thri

How has the composition of deposits changed in recent years?

Describe the essential differences between the following deposit pricing methods in use today:
cost-plus pricing, conditional pricing, and relationship pricing.

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To price deposits successfully, service providers must know their costs. How are these costs
determined using the historical average cost approach? The marginal cost of funds approach?
What are the advantages and disadvantages of each approach?

What factors must the manager of a financial institution weigh in choosing among the various
nondeposit sources of funding available today?

Robertson State Bank decides to loan a portion of its reserves in the amount of $70 million held
at the Federal Reserve Bank to Tenison National Security Bank for 24 hours. For its part,
Tenison plans to make a 24-hour loan to a security dealer before it must return the funds to
Robertson State Bank. Please show the pr

A U.S. savings bank has a daily average reserve balance at the Federal Reserve bank in its
district of $25 million during the latest reserve maintenance period. Its vault cash holdings
averaged $1 million and the savings bank's total transaction deposits (net of interbank deposits
and cash items in collection) averaged

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Suppose Abigail Savings Bank's liquidity manager estimates that the bank will experience a
$375 million liquidity deficit next month with a probability of 15 percent, a $200 million
liquidity deficit with a probability of 35 percent, a $100 million liquidity surplus with a
probability of 35 percent, and a $250 million

What is lifeline banking? What pressures does it impose on the managers of banks and other
financial institutions?

What impact has recent financial reform legislation had on raising short-term cash?

Current market yields on U.S. government securities are distributed by maturity as follows:
Draw a yield curve for these securities. What shape does the curve have? What significance
might this yield curve have for an investing institution with 75 percent of its investment portfolio
in 7-year to 30-year U.S. Treasu

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Suppose that a thrift institution’s liquidity division estimates that it holds $19 million in hot
money deposits and other IOUs against which it will hold an 80 percent liquidity reserve, $54
million in vulnerable funds against which it plans to hold a 25 percent liquidity reserve, and $112
million in stable or core

What advantages and risks does the pursuit of liability management bring to a borrowing
institution?

Which institutions are allowed to borrow from the Federal Home Loan Banks? Why is this
source so popular for many institutions?

When is a financial institution adequately liquid?

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Why were negotiable CDs developed?

Should lifeline banking be offered to low-income customers? Why or why not?

What guidelines should management keep in mind when it manages a financial firm’s
liquidity position?

Frost Street National Bank currently holds $750 million in transaction deposits subject to reserve
requirements but has managed to enter into sweep account arrangements with its transaction
deposit customers affecting $150 million of their deposits. Given the current legal reserve
requirements applying to transaction d

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The liquidity manager for the Bank of Your Dreams needs cash to meet some unanticipated loan
demand. The loan officer has $600 million in loans that he wants to make. Use the simplified
balance sheet provided in the previous problem to answer the following questions: a. If asset
conversion is used and securities are so

Suppose a customer purchases a $1 million 90-day CD, carrying a promised 6 percent annualized
yield. How much in interest income will the customer earn when this 90-day instrument
matures? What total volume of funds will be available to the depositor at the end of 90 days?

What is the liquidity indicator approach to liquidity management?

Elton Harbor Bank has a cumulative legal reserve deficit of $44 million as of the close of
business this Tuesday. The bank must cover this deficit by the close of business tomorrow
(Wednesday). Charles Tilby, the bank's money desk supervisor, examines the current distribution
of money market and long-term interest rat

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What long-term nondeposit funds sources do banks and some of their closest competitors draw
upon today? How do these interest costs differ from those costs associated with most money
market borrowings?

What does the 1991 Truth in Savings Act require financial firms selling deposits inside the
United States to tell their customers?

The Bank of Your Dreams has a simple balance sheet. The figures are in millions of dollars as
follows: Although the balance sheet is simple, the bank’s manager encounters a liquidity
challenge when depositors withdraw $500 million. a. If the asset conversion method is used and
securities are sold to cover the depo

First National Bank finds that its net transaction deposits average $140 million over the latest
reserve computation period. Using the reserve requirement ratios imposed by the Federal
Reserve as given in the textbook, what is the bank's total required legal reserve?

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Using the following financial information for Wilson National Bank, calculate as many of the
liquidity indicators discussed in this chapter for Wilson as you can. Do you detect any significant
liquidity trends? Which trends should managementinvestigate?
What are the principal sources from which the supply of liquidity comes?

What factors should a money position manager consider in meeting a deficit in a depository
institution’s legal reserve account?

A corporate bond being seriously considered for purchase by Old Dominion Financial will
mature 20 years from today and promises a 7 percent interest payment once a year. Recent
inflation in the economy has driven the yield to maturity on this bond to 10 percent, and it carries
a face value of $1,000. Calculate this bon

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What is the principal goal of money position management?

A municipal bond has a $1,000 face (par) value. Its yield to maturity is 5 percent, and the bond
promises its holders $60 per year in interest (paid annually) for the next 10 years before it
matures. What is the bond’s duration?

The National Bank of Mayville quotes an APY of 2.75 percent on a one-year money market CD
sold to one of the small businesses in town. The firm posted a balance of $2,500 for the first 90
days of the year, $3,000 over the next 180 days, and $3,700 for the remainder of the year. How
much in total interest earnings did t

What are the principal sources of liquidity demand for a financial firm?

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What are the principal differences among asset liquidity management, liability management, and
balanced liquidity management?

What factors do household depositors rank most highly in choosing a financial firm for their
checking account? Their savings account? What about business firms?

Suppose a bank maintains an average clearing balance of $5 million during a period in which the
Federal funds rate averages 6 percent. How much would this bank have available in credits at the
Federal Reserve Bank in its district to help offset the charges assessed against the bank for using
Federal Reserve services?

A bank’s economics department has just forecast accelerated growth in the economy, with
GDP expected to grow at a 4.5 percent annual growth rate for at least the next two years. What
are the implications of this economic forecast for an investments officer? What types of
securities should the officer think most serio

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How does the sources and uses of funds approach help a manager estimate a financial
institution’s need for liquidity?

What are the major types of deposit plans that depository institutions offer today?

Mountain Top Savings is projecting a net liquidity deficit of $10 million next week partially as a
result of expected quality loan demand of $32 million, necessary repayments of previous
borrowings of $15 million, planned stockholder dividend payments of $10 million, expected
deposit inflows of $26 million, revenues fr

Gwynn’s Island Building and Loan Association estimates the following information
regarding this institution’s reserve position at the Federal Reserve for the reserve
maintenance period that begins today (Thursday): Calculated required daily average legal reserve
balance.............. = $760 million A loan received

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Posner State Bank borrows $10 million in primary credit from the Federal Reserve Bank of
Cleveland. Can you show the correct entries for granting and repaying this loan?

What is the customer relationship doctrine, and what are its implications for fund-raising by
lending institutions?

Use the APY formula required by the Truth in Savings Act for the following calculation.
Suppose that a customer holds a savings deposit in a savings bank for a year. The balance in the
account stood at $2,000 for 180 days and $100 for the remaining days in the year. If the Savings
bank paid this depositor $8.50 in inte

How does a bank gain access to funds from the Eurocurrency markets?

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What factors affect a financial-service institution’s decision regarding the different maturities
of securities it should hold?

Hillside Savings Association has an excess balance of $35 million in a deposit at its principal
correspondent, Sterling City Bank, and instructs the latter institution to loan the funds today to
another institution, returning them to its correspondent deposit the next business day. Sterling
loans the $35 million to Im

What are the consequences for the management and performance of depository institutions
resulting from recent changes in deposit composition?

A bond possesses a duration of 8.89 years. Suppose that market interest rates on comparable
bonds were 7.5 percent this morning, but have now shifted downward to 7.25 percent. What
percentage change in the bond’s value occurred when interest rates decreased by 25 basis
points?

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How is a discount window loan from the Federal Reserve secured? Is collateral really necessary
for these kinds of loans?

Kalewood Savings Bank has experienced recent changes in the composition of its deposit. What
changes have recently occurred in Kalewood’s deposit mix? Do these changes suggest
possible problems for management in trying to increase profitability and stabilizeearnings?

What are core deposits, and why are they so important today?

Why do financial firms face significant liquidity management problems?

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What are the principal advantages to the borrower of funds under an RP agreement?

Suppose that a bank faces the following cash inflows and outflows during the coming week: (a)
Deposit withdrawals are expected to total $33 million, (b) Customer loan repayments are
expected to amount to $108 million, (c) Operating expenses demanding cash payment will
probably approach $51 million, (d) Acceptable n

What are sweep accounts? Why have they led to a significant decline in the total legal reserves
held at the Federal Reserve banks by depository institutions operating in the United States?

Lucy Lane maintains a savings deposit with Monarch Credit Union. This past year Lucy received
$10.75 in interest earnings from her savings account. Her savings deposit had the following
average balance eachmonth:

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A 20-year U.S. Treasury bond with a par value of $1,000 is currently selling for $1,025 from
various securities dealers. The bond carries a 6 percent coupon rate with payments made
annually. If purchased today and held to maturity, what is its expected yield to maturity?

Suppose that a bank estimates its total deposits for the next six months in millions of dollars to
be, respectively, $112, $132, $121, $147, $151, and $139, while its loans (also in millions of
dollars) will total an estimated $87, $95, $102, $113, $101, and $124, respectively, over the same
six months. Under the sourc

A bank determines from an analysis of its cost-accounting figures that for each $500 minimum-
balance checking account it sells, account processing and other operating costs will average
$4.87 per month and overhead expenses will run an average of $1.21 per month. The bank hopes
to achieve a profit margin over these par

Calculate the yield to maturity of a 20-year U.S. government bond that is selling for $975 in
today’s market and carries a 5 percent coupon rate with interest paid semiannually.

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Suppose that JP Morgan Chase Bank in New York elects to borrow $250 million from Barclays
Bank in London and loans the borrowed funds for a week to a security dealer, and then returns
the borrowed funds. Can you trace through the resulting accounting entries?

What is money position management?

First Metrocentre Bank posts the following schedule of fees for its household and small-business
transaction accounts: (For average monthly account balances over $1,500, there is no monthly
maintenance fee and no charge per check or other draft. (For average monthly account balances
of $1,000 to $1,500, a $2 monthly ma

Which deposits are the least costly for depository institutions? The most costly?

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What are the advantages and disadvantages of CDs as a funding source?

Identify the eight phases of the audit. What is the relationship of the eight phases to the objective
of the audit of financial statements?

First Savings of Rainbow, Iowa, reported transaction deposits of $75 million (the daily average
for the latest two-week reserve computation period). Its nonpersonal time deposits over the most
recent reserve computation period averaged $37 million daily, while vault cash averaged $5
million. Assuming that reserve requi

How can the discipline of the marketplace be used as a guide for making liquidity management
decisions?

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Exactly how is a depository institution’s legal reserve requirement determined?

R&R Savings Bank finds that its basic transaction account, which requires a $1,000 minimum
balance, costs this savings bank an average of $3.25 per month in servicing costs (including
labor and computer time) and $1.25 per month in overhead expenses. The savings bank also tries
to build in a $0.50 per month profit marg
Your comparison of the gross margin percent for Jones Drugs for the years 2012 through 2015
indicates a significant decline. This is shown by the following information: A discussion with
Nandini Sharma, the controller, brings to light two possible explanations. She informs you that
the industry gross profit percent in

Statements of earnings and financial position for Prairie Stores Corporation are shown.
REQUIRED a. Use professional judgment in determining overall materiality based on revenue,
net income before taxes, total assets, and shareholders' equity. Your conclusions should be stated
in terms of percentages and dollars. b.

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Identify the management assertion and presentation and disclosure-related audit objective for the
specific presentation and disclosure-related audit objective: Read the fixed asset footnote
disclosure to determine that the types of fixed assets, depreciation methods, and useful lives are
clearly disclosed.

Describe the risk of material misstatement using parts of the audit risk model.

What consulting or non-audit services are prohibited for auditors of public companies? Explain
why it is generally agreed that prohibitions on consulting and non-audit services will improve
auditors' professional judgment and professional skepticism.

What are the accounting information and communication controls? How are they distinct from
business process controls?

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You are auditing payroll for the Morehead Technologies company for the year ended October
31, 2015. Included next are amounts from the client's trial balance, along with comparative
audited information for the prior year. You have obtained the following information to help you
perform preliminary analytical procedures

The Canadian Securities Administrators (CSA) regularly perform reviews of the quality of
interim and annual information filed with the provincial securities regulators. Part of this review
includes the quality of financial statements presentation and disclosure. In their July 2014
review, the CSA highlighted that there

Assessing Risk at Niko Resources Refer to Auditing in Action 6-3 . a. Based upon the facts
presented related to Niko, explain how they impact the risk of material misstatement. Explain if
it has an overall impact on financial reporting risk and identify the related account balances
and/or disclosure. In addition, iden

How do presentation and disclosure-related objectives differ from transaction-related and

balance-related audit objectives?
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In Chapter 2, we discussed various audit quality initiatives. An example of an audit quality

initiative is the Standards Working Group of the Global Policy Committee (comprising BDO,
Deloitte Touche Tomatsu, Ernst & Young, Grant Thornton, KPMG, and
PricewaterhouseCoopers). The Global Policy Committee is a committee of

The following are situations that may violate the general rules of conduct of professional
accountants. Assume in each case that the PA is a partner. a. Simone Able, a PA, owns a
substantial limited partnership interest in an apartment building. Juan Rodriquez is a 100 percent
owner in Rodriquez Marine Ltd. Juan also

Distinguish between the terms "errors" and "fraud and other irregularities." What is the auditor's
responsibility for finding each?

The following information was obtained from several accounting and auditing enforcement
releases issued by the Securities and Exchange Commission (SEC) after its investigation of
fraudulent financial reporting involving Just for Feet, Inc.: • Just for Feet, Inc., was a national
retailer of athletic and outdoor footw

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Bohrer, CPA, is considering the following factors in assessing audit risk at the fi nancial
statement level in planning the audit of Waste Remediation Services (WRS), Inc.'s fi nancial
statements for the year ended December 31, 2015. WRS is a privately held company that
contracts with municipal governments to close lan

Why do auditors use specific performance materiality?

The following general ledger accounts are included in the trial balance for an audit client, Jones
Wholesale Stationery Store. Accounts receivable Accrued sales salaries Accumulated
amortization of furniture and equipment Advertising expense Allowance for doubtful accounts
Amortization expense-furniture and equip

Kent, CPA, is the engagement partner on the financial statement audit of Super Computer
Services Co. (SCS) for the year ended April 30, 2015. On May 6, 2015, Smith, the senior auditor
assigned to the engagement, had the following conversation with Kent concerning the planning
phase of the audit: * Kent: Do you have al

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What are entity-level controls and why are they so important?

Why is professional skepticism considered essential to the proper exercise of professional

judgment?
Explain why inherent risk is estimated for specifi c accounts rather than for the overall audit.
What is the effect on the amount of evidence the auditor must accumulate when inherent risk is
increased from medium to high for a segment?

You are evaluating audit results for current assets in the audit of Quicky Plumbing Co. You set
the specifi c performance materiality for current assets at $12 500 for overstatements and at $20
000 for understatements. The estimated and actual misstatement ranges are shown below.
REQUIRED a. Justify a lower materiali

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In the opening vignette and Auditing in Action 7-1 , we referred to the Financial Reporting
Council ("FRC"), the United Kingdom's independent regulator responsible for promoting high-
quality corporate governance and reporting to foster investment. The council sets standards for
corporate reporting, audit, and actuarial

Explain the relationship between audit risk and the legal liability of auditors.

Using the audit risk model, holding all factors equal, what happens to detection risk if control
risk goes down? Why?

INTRODUCTION This case study focuses on the risk assessment stage of the audit. Each of the
four parts deals largely with the material in the chapter to which that part relates. However, the
parts are connected in such a way that in completing all four, you will gain a better
understanding of how a risk assessment is

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Some countries, such as the United Kingdom,require that the auditor's report include a statement
of materiality level and risk of material misstatement. Some accountants suggest that the audit
risk that the auditor used in conducting the audit should also be disclosed. REQUIRED a. The
proponents of such disclosure be

How is management's risk assessment relevant to the audit?

Why is duty of care so important for third party lawsuits but not client lawsuits?

Refer to the opening vignette regarding the Livent case. REQUIRED a. Explain how this case
illustrates the importance of framing the issue. b. The ICAO disciplinary committee argues that
professional judgment requires a correct conclusion. How do you reconcile this view with the
common view that auditing and account

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How would the complexity of information systems affect inherent risk?

The minutes of the board of directors of the Tetonic Metals Company for the year ended
December 31, 2014, were provided to you. MEETING OF MARCH 5, 2015 The meeting of the
board of directors of Tetonic Metals was called to order by James Cook, the chair of the board, at
8:30 a.m. The following directors were in atten

What are the legal tests for auditor negligence?

Each of the following situations involves possible violations of the rules of conduct that apply to
professional accountants. a. Martha Painter, PA, was appointed as the trustee of the So family
trust. The So family trust owned the shares of the So Manufacturing Company, which is audited
by another partner in Martha's

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Is it possible for the auditor to conduct the audit without reliance on management? Why or why
not?

In confirming accounts receivable on December 31, 2014, the auditor found 15 discrepancies
between the customer's records and the recorded amounts in the subsidiary ledger. A copy of all
confirmations that had exceptions was turned over to the company controller to investigate the
reason for the difference. He, in turn

You are the senior auditor in charge of the December 31, 2015, year-end audit for Cleo Patrick
Cosmetics Inc. (CPCI). CPCI is a large, privately held Canadian company that was founded in
1996 by one of Canada's best known hair stylists, Cleo Patrick. Cleo Patrick is a famous
celebrity hair stylist who has appeared on a

Planning is one of the most demanding and important aspects of an audit. A carefully planned
audit increases auditor efficiency and provides greater assurance that the audit team addresses
the critical issues. Auditors prepare audit planning documents that summarize client and industry
background information and discus

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The internet has dramatically increased global ecommerce activities. Both traditional "bricks and
mortar" businesses and new dot-com businesses use the internet to meet business objectives.
However, in order to continue to succeed, dot-com businesses are pressured to change their
business models. For example, eBay star

In this chapter, we discussed the major sources of an auditor's legal liability as well as the five
defences that auditors can use when faced with a lawsuit. Now, it's time for you to find out how
these concepts are applied to real-life situations. In 2009, the Honourable Daniel W. Payette of
the Superior Court of Queb
In the opening vignette of Chapter 2 , the national assurance service line leader at Grant
Thornton, Jeremy Jagt, commenting on the deficiencies the CPAB found in audits of companies
in emerging markets, suggested that issues around cultural difference could account for
differences in professional judgment. Below is a

Explain the need for a code of professional ethics for PAs.

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How can auditors defend themselves against such suits?

What are entity-wide controls and what is their significance to the audit process?

What are the three different types of audit objectives? Provide an example of each for the
completeness audit objective.

Helmut & Co., a public accounting firm, was the new auditor of Mountain Ltd., a private
company in the farm equipment and supply business. In early February 2015, Helmut & Co.
began the audit for the year ended December 31, 2014. The audit was to be run by Frost, a senior
who had just joined Helmut from another firm.

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How do indirect-effect illegal acts affect the financial statements?

The following situations involve the provision of non-audit services. a. Providing bookkeeping
services to a listed entity. The services were preapproved by the audit committee of the
company. b. Providing internal audit services to a listed entity that is not an audit client. c.
Designing and implementing a financi

How does brainstorming regarding fraud risk improve auditors' professional judgment? Explain
how it helps to mitigate potential judgment traps.

Arthur Andersen partner Michael Jones, in his documentation of the critical meeting attended by
key Andersen partners to discuss their client continuance decision, recorded the following: We
discussed Enron's dependence on transaction execution to meet financial objectives, the fact that
Enron often is creating industr

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The public accounting firm of André, Mathieu, & Paquette (AMP) was expanding very
rapidly. Consequently, it hired several junior accountants, including Small. The partners of the
firm eventually became dissatisfied with Small's production and warned him that they would be
forced to terminate him unless his output incr

What is meant by acceptable audit risk ? What is its relevance to evidence accumulation?
Access a copy of the CPAB's 2013 Annual Inspection Report at www.cpab-
ccrc.ca/Documents/Topics/Public%20 Reports/2013_Public_Report_EN.pdf . Refer to Appendix
D of the report, which summarizes the most common inspections findings and groups them by
category. REQUIRED 1. Read the examples provided for risk assessment

Donna, a PA, is approached by the owner of one of her clients, for whom she normally compiles
monthly and annual financial statements, to perform an audit of the company's inventories. The
client, Fantastic Fashions Ltd., is a chain of retail clothing stores that operates in several local
shopping malls. The owner exp

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Jane was the audit supervisor in charge of the audit of an advertising agency. Unfortunately, two
other audit supervisors in the office resigned and moved on to other positions. Rather than hiring
or promoting another supervisor, the firm reallocated clients. Jane was asked to take on some of
the other audit clients an

Distinguish between the existence and completeness balance-related audit objectives. State the
effect on the financial statements (overstatement or understatement) of a violation of each in the
audit of accounts payable.

An auditor performs various procedures during audit planning. For each procedure, indicate
which of the first four parts of audit planning the procedure primarily relates to: (1) accept the
client and perform initial audit planning; (2) understand the client's business and industry; (3)
assess the client's business ris

Each of the following scenarios involves a possible violation of the rules of conduct. a. John
Brown is a PA, but not a partner, with three years of professional experience with Lyle and Lyle,
Public Accountants, a one-office public accounting firm. He owns 25 shares of stock in an audit
client of the firm, but he doe

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Describe an ethical dilemma. How can you apply the ethical reasoning framework to an ethical
dilemma?

How does communication with the predecessor auditor improve audit quality?

How can general rule of thumbs and past experience with the client create judgment traps for
auditors' risk assessments? Provide an example for inherent risk and control risk assessments.

During the planning phase of every audit, Roger Morris, CPA, calculates a large number of ratios
and trends for comparison with industry averages and prior-year calculations. He believes the
calculations are worth the relatively small cost of doing them because they provide him with an
excellent overview of the client'
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How does the auditor use management assertions during the financial statement audit?

Barbara Whitley had great expectations about her future as she sat at her graduation ceremony in
May 2015. She was about to receive her Master of Accountancy degree, and the following week
she would begin her career on the audit staff of Green, Thresher & Co., a public accounting firm.
Things looked a little different

Joanne Whitehead is planning the audit of a newly obtained client, Henderson Energy
Corporation, for the year ended December 31, 2015. Henderson Energy is regulated by the
provincial utility commission and, because it is a publicly traded company, the audited fi nancial
statements must be fi led with the Ontario Securi

Bryan Longview's ethical dilemma involves a situation in which he is asked to work without
regarding the time, which is sometimes called kitchen-tabling or eating time. One of the concerns
with eating time is that it can lead to a more severe problem known as premature signoff, in
which a staff person signs off as havi

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Explain why documentation can improve auditors' professional and/or ethical judgment.

What are the four steps of the professional judgment framework and how is a useful tool? What
are some common judgment traps?

What are the responsibilities of those in charge of governance regarding fraud and illegal acts?

Aqua Inc. was a privately owned company that operated a marina business from two lakefront
properties in northern Ontario. The company was started by two brothers. The company provided
boat docking, sold gasoline and boating supplies, and was very successful. Aqua's accountant,
John Purd, was a PA who operated an accou

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Define materiality as it is used in accounting and auditing. What is the relationship between
materiality and the phrase "obtain reasonable assurance" used in the auditor's report?

Winston Black was an audit partner at Maharajah, Davis, LLP. He was in the process of
reviewing the audit files for the audit of a new client, McMullan Resourcing. McMullan was in
the business of heavy construction. Winston was conducting his first review after the field work
had been substantially completed. Normally,

What is meant by the statement, "The rules of professional conduct of a professional accounting
organization should be regarded as a minimum standard?"
Explain why some experts argue that the best defense against legal liability is careful client
acceptance and continuance processes?

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Why is an auditor's independence so essential? How can judgment traps affect auditors'
independence?

What are general controls? Explain how they are similar to entity-level controls.

List three categories of safeguards to independence. Provide an example of each.

Jan Sharpe recently joined the public accounting firm of Spark, Watts, and Wilcox. On her third
audit for the firm, Sharpe examined the underlying documentation of 200 disbursements as a test
of purchasing, receiving, vouchers payable, and cash disbursement procedures. In the process,
she found 12 disbursements for the

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Explain the impact on the audit if the client relies upon outsourced systems that process material
transactions.

Identify four types of information in the client's minutes of the board of directors' meetings that
are likely to be relevant to the auditor. Explain why it is important to read the minutes early in
the engagement.

Why does the audit process use cycle?

What is the difference between overall materiality and performance materiality? How does the
use of performance materiality affect the audit process?

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Many of Canada's larger public companies are listed on American stock exchanges. Auditors
who conduct these audits are required to follow PCAOB auditing standards. In that type of audit,
in addition to issuing an opinion on the financial statements, the auditors also issue an opinion on
internal controls over financial

What are control activities? Explain their role in the financial reporting process.

Following are six situations that involve the audit risk model as it is used for planning audit
evidence requirements in the audit of inventory. REQUIRED a. Explain what low , medium , and
high mean for each of the four risks and planned evidence. b. Fill in the blanks for planned
detection risk and planned evidence
Diane Harris, a PA, is the auditor of Fine Deal Furniture, Inc. In the course of her audit for the
year ended December 31, 2015, she discovered that Fine Deal had serious going-concern
problems. Henri Fine, the owner of Fine Deal, asked Diane to delay completing her audit. Diane
is also the auditor of Master Furniture

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Pamela Albright is the manager of the audit of Stanton Enterprises, a public company that
manufactures formed steel subassemblies for other manufacturers. Albright is planning the 2015
audit and is considering an appropriate amount for overall financial statement materiality, what
performance materiality should be set

Zaspa Inc. is a public company that manufactures and sells tennis racquets. The company has
expanded internationally and its auditors have resigned due to the fact that they have insufficient
staff to meet the needs of the expanding business. In light of this fact, Zaspa has approached your
firm, EA LLP, to take on the

Explain why existence is a relevant assertion for fixed assets. How does identifying relevant
assertions affect audit objectives and evidence accumulation?

Why should the auditor consider client business risk when determining audit risk?

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How does engagement risk affect the audit process?

Why are ethical decisions so difficult? Consider the role of rationalizations and ethical blind
spots.

What is the relationship between risk assessment and risk response during the financial statement
audit?

Renée Ritter opened a small grocery and related products convenience store in 1993 with the
money she had saved working as a Loblaws store manager. She named it Ritter Dairy and Fruits.
Because of the excellent location and her fine management skills, Ritter Dairy and Fruits grew to
three locations by 1998. By that ti

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What are the five threats to independence? Describe each and provide an example.

For the audit of Radline Manufacturing Company, the audit partner asks you to carefully read the
new mortgage documents from Green Bank and extract all pertinent information. List the
information in a mortgage that is likely to be relevant to the auditor.
When is quality control conducted during the audit? How does this affect risk assessment?

What are management assertions about financial information?

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Explain how "framing the problem" can help overcome judgment traps when auditing subjective
areas such as fair value estimates.

How can the European retailer utilize relationship retailing for its chocolate products?

Describe how customer data from one 1-800 Flowers.com division can be shared across
divisions using the single platform.

What are the dangers of frequent small orders and the use of emergency shipments as a means of
reducing inventory requirements?

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Discuss the pros and cons of Amazon's Mom membership program from a consumer's
perspective.

What additional cost savings opportunities exist for Key Choice Collision members that have not
been discussed in this case?

What factors are behind the shift to an increased role of retailers in the development and
promotion of private labels?

Under what conditions should a large box store retailer like a Best Buy pursue a small-store
strategy?

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How should a retailer motivate younger workers to become better engaged?

Explain the location-based disadvantages of being a first mover into Tier 1 and Tier 2 cites.

What are the pros and cons of 1-800 Flowers.com's outsourcing software development, training,
and implementation?

Evaluate the pros and cons of Amazon's Mom membership program from Amazon's perspective.

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Discuss the pros and cons of quantity discount-based promotions from a manufacturer's
perspective.
Why do so few franchise companies tie royalties to sales, not profits? Are sales easier to monitor
through a retail information system than profits? Why or why not?

Discuss the potential cost savings in inventory management arising from a single integrated
system.

The chapter states that effective managers need technical, interpersonal, and conceptual skills.
Do all managers need these in the same mix? In other words, would some managers need more
of one than of another? Why? Describe the managerial skills you think you need to work on the
most and suggest how this might be

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With what types of stores would Perfumania have an affinity? Explain your answer.

Devise a brief survey to show how much interest that people have in shopping with retailers that
are environmentally-conscious.

Comment on this statement: "A majority of Chico's customers first go online to evaluate
available styles and then visit the store to shop."

Describe how Perfumania could seek to renegotiate a lease with an above-market rent with a
major mall.

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Explain how small-store formats could be a means of capitalizing on trading areas where a large-
format retailer is under stored.

Comment on the statement that Forever 21 "began to order only small quantities of each style
offered for sale. They figured that they could quickly reorder fast selling clothing and drop styles
that did not sell well to minimize their inventory risk."

How could Rue 21 reduce the risks associated with its real-estate strategy?

Think about two different managerial-type jobs you have personally observed (within your
family, as a worker, as a customer, etc.). Compare them using Stewart's concept of job
dimensions. Considering each job's content as analyzed by the three dimensions, which one
would you choose? Why?

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How can a full-line discount store do better in competing against a variety store like Family
Dollar?

Discuss the value of labor scheduling for a retailer such as Chico's.

What factors explain the relatively low percent of retailers capable of handling an E-commerce
transaction?

Develop a checklist to judge the effectiveness of the single integrated system versus the previous
14 separate systems.