SOLUTIONS MANUAL to accompany MODERN AUDITING & ASSURANCE SERVICES

Topics: Auditing, Audit, Financial audit Pages: 20 (4898 words) Published: September 21, 2013
SOLUTIONS MANUAL

to accompany

MODERN AUDITING

&

ASSURANCE SERVICES

3rd edition

Prepared by

Philomena Leung, Paul Coram and Barry Cooper

© John Wiley & Sons Australia, Ltd 2007

Chapter 1
Auditing, assurance and the public accounting profession

Review questions

1.1 How does an expanded role of professional accountants affect the accounting profession?

The expanded role of professional accountants has affected the accounting profession, in that new opportunities have been created for the profession to extend the range of services it offers to business organisations and the public. With the enhancements of technology, global transactions and competition between accountancy firms, professional accountants now provide various consultancy engagements to maintain their competitive advantage. The expanded role of professional accountants has resulted in accountants carrying out tasks which may include risks, management, personnel, consulting, investment, controls and investigation.

Following recent significant corporate collapses and their relationship to auditors and accountants discharging their responsibilities, there have been spate of regulatory and profession reforms that are designed to restore confidence to both the public and the profession. The concept of audit independence is being examined critically in respect of its relevance and contribution to the public interest. The impact of the expanded role include:

Increased public scrutiny of the fees payable to and the independence of auditors; Increased opportunities for auditors and accountants to be involved in the management of businesses, with the increasing risks to independence. Increased government regulations and professional regulations regarding the tasks performed, quality control and scope of auditors’ work. Increased acceptance of the importance of auditor independence.

1.2 What role does ASIC have in the regulation of auditors?

ASIC has a significant role in the regulation of auditors. ASIC is the statutory administrative body for the enforcement of the Corporations Act 2001. Government regulation is exercised through ASIC’s surveillance program which involves the scrutiny of all aspects of the financial statements of listed and some non-listed Australian public companies. The objective of this surveillance program is supplemented by an auditors’ review program and a liquidators’ review program. ASIC has the following powers and influence over the regulation of auditors:

Registration by individuals, firms and companies as auditors; The audit inspection program enforced by the ASIC which covers the auditor rotation program, the policies and work practices of auditors; and Audit independence issues.

This statutory body also has the power to impose a penalty on registered auditor or liquidator if he/she is found to be guilty of failing to discharge duties properly. If the auditor is deemed to be not a fit and proper person, his/her registration can be cancelled or suspended, such as bankruptcy.

1.3 What are the different types of audit activities that an auditor may perform? Discuss.

Audits are generally classified into different types of activities — financial statement, compliance, performance, comprehensive and environmental audits. Auditors may also be performing internal audit as an assurance engagement.

The objective of a financial statement audit is to enable the auditor to express an opinion as to whether the financial statements are prepared, in all material respects, in accordance with an identified financial reporting framework. The financial statement audit involves obtaining and evaluating evidence about an entity’s financial affairs so as to establish the degree of correspondence between the management’s assertions and the established criteria, such as legal requirements and accounting standards. This type of audit is performed by independent...
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