Auditing Hw Solutions

Topics: Auditing, Financial audit, Audit Pages: 35 (9853 words) Published: October 22, 2012
Chapter 1 SOLUTIONS FOR EXERCISES AND PROBLEMS 1.47 Audit, Attestation, and Assurance Services

Students may encounter some difficulty with this matching question because the Special Committee on Assurance Services (SCAS) listed many things that heretofore have been considered “attestation services” (long before assurance services were invented). As a result, we believe that this question is a good vehicle for discussing the considerable overlap between attestation and assurance services.

             

Real estate demand studies: Assurance service

Ballot for awards show: Assurance service

Utility rates applications: Assurance service

Newspaper circulation audits: Assurance service

Third-party reimbursement maximization: Assurance service

Annual financial report to stockholders: Audit service

Rental property operations review: Assurance service

Examination of financial forecasts and projections: Attestation service

Customer satisfaction surveys: Assurance service

Compliance with contractual requirements: Attestation service

Benchmarking/best practices: Assurance service

Evaluation of investment management policies: Assurance service

Information systems security reviews: Assurance service

Productivity statistics: Assurance service

 

Internal audit strategic review: Assurance service Financial statements submitted to a bank loan officer: Audit service


Controller as Auditor

When Hughes Corporation hired the CPA, she or he can no longer be considered independent with respect to the annual audit and, as a result, can no longer perform an independent audit of the financial statements. It is true that the in-house CPA can perform all procedural analyses that would be required of an independent audit; however, it is extremely unlikely that the CPA could inspire the confidence of users of financial statements outside the company. Because she or he is no longer independent of the company, the CPA cannot modify the perception of potential conflict of interest that creates demand for the independent audit. As a matter of ethics rules, this CPA would be prohibited from signing the standard unqualified attest opinion. Moreover, if Hughes were a public company, under Sarbanes-Oxley, it would be restricted from hiring one of its auditors into a senior accounting position for a full year under Section 206 of the law. 1.49 ASB Assertions

PCAOB Assertion

Corresponding ASB assertion

Nature of assertion

Existence or Occurrence

Existence Occurrence

Balance Transactions Disclosures

Rights and Obligations

Rights and Obligations

Balances Disclosures



Transactions Balances Disclosures

Cutoff Valuation and Allocation Accuracy

Transactions Transactions Disclosures


Balances Disclosures

Presentation and Disclosure


Transactions Disclosures




Auditor as Guarantor. Loot Starkin appears to be uninformed on the following points: Inform your neighbor that Dodge management is primarily responsible for preparing the financial statements and deciding upon the appropriate accounting principles.

The auditors did not prepare the Dodge Corporation financial statement.

An unqualified opinion does not mean that an investment is safe. Rather, it merely means that the financial statements are free of material misstatement.

Tell your neighbor that the financial statements are a historical record of the business’ performance. The value of Loot’s investment depends on future events, including the many factors that affect market prices. Thus, the financial statements are just one piece of information that should be analyzed. Tell Loot that the unqualified opinion means only that the statements conform to the appropriate reporting framework (e.g., GAAP) and that the financial statements are free of material misstatement.

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