AUDITING – ACC5604 – SEMESTER 1, 2014
SEMINAR 2 - PROBLEM QUESTIONS
Your text identifies three of the early approaches to auditing, namely the Balance Sheet, Transaction Cycle and Financial Risk Analysis approach.
(a) Provide a brief description of each approach.
(b) Define the term “Transaction Cycle” and provide two examples of common transaction cycles, together with the account balances arising from the identified cycles.
(c) If an auditor adopts a risk-based approach to auditing, does this mean they do not consider the Balance Sheet or Transactions cycles?
Tom Smith has recently been employed by a small accounting practice and is working on his first audit. During Tom’s testing he has found a number of large errors that he has brought to the attention of the audit manager. Tom believes some of the errors are so large that a qualified opinion will be necessary. Towards the end of the audit Tom is told that the Audit Manager has scheduled a meeting with the client in order to discuss audit adjustments and the type of audit opinion that is likely to be given.
After the meeting Tom is told an unqualified audit opinion will be issued. Tom is quite shocked as he thought that an auditor reported the results of the audit directly to shareholders. Instead, he has found that results are discussed with management before communication to external users.
Explain to Tom why the auditor would normally meet with the client prior to releasing the audit report.
Identify and describe the mechanisms in place to ensure auditors fulfil their duties to shareholders.
Corporate scandals and audit failures in the early 2000’s made users and preparers sceptical of the auditing profession.
(a) What has been the response of auditors, audit committees and regulators to redress this perception and restore user and preparer confidence in the...
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