Discuss how each of the following influences the persuasivenessof evidence.
1. Relevance
2. Independence of provider
3. Effectiveness of clientâs internal controls
4. Auditorâs direct knowledge
5. Degree of objectivity
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4. An audit program is designed to generate appropriate evidence on which the auditor can base an opinion. How does the auditor know when sufficient evidence has been accumulated? 5. What is the quality of the evidence that is gathered by analytical procedures? More specifically, how competent is evidence provided by analytical procedures compared with other types of evidence? 6. In performing analytical procedures, how extensive should an auditorâs knowledge of a clientâs industry be and how does the auditor go about getting this type of information? 7. Assume that price competition with other CPA firms was an important factor in securing this audit engagement. What are the potential problems for a CPA firm that can arise from acquiring clients through price competition?
Refer to the Columbia Sportswear Annual Report in Appendix A.You will need to find and then read the following reports:⢠Managementâs Report on the Consolidated Financial Statements(Item 8)⢠Report of Independent Registered Public Accounting Firm onConsolidated Financial Statements (Item 8)⢠Managementâs Report on Internal Control Over Financial Reporting(Item 9A)⢠Report of Independent Registered Public Accounting Firm onInternal Control over Financial Reporting (Item 9A)Requirements1. Who is responsible for the information in the annual report? Whois responsible for recommending the independent accountants to theboard of directors?2. Who were the independent auditors? Under what standards did theyconduct their audit? What was their opinion of the auditedfinancial statements?3. Who is responsible for establishing and maintaining adequateinternal control over financial reporting? Is the effectiveness ofthe internal controls ever reviewed? Do you think that internalcontrol procedures are necessary? Why?4. Do the auditors have any responsibility with respect to theinternal controls? What was the auditorâs opinion regarding themanagement assessment of internal con- trol effectiveness?NOTE: Go beyond the textbook and search for articles on TheSarbanes Oxley (Section 404). Include what youâve learned from yourresearch in your response to the above questions.
1â28. Multiple Choice Questions Select the best answer for each of the following items and give reasons for your choice. a. Which of the following best describes the relationship between assurance services and attest services? (1) While attest services involve fi nancial data, assurance services involve nonfi nancial data. (2) While attest services require objectivity, assurance services do not require objectivity. (3) Both attest and assurance services require independence. (4) Attest and assurance services are different terms referring to the same types of services. b. Which of the following has primary responsibility for the fairness of the representations made in fi nancial statements? (1) Clientâs management. (2) Independent auditor. (3) Audit committee. (4) AICPA. c. The most important benefi t of having an annual audit by a public accounting fi rm is to: (1) Provide assurance to investors and other outsiders that the fi nancial statements are reliable. (2) Enable offi cers and directors to avoid personal responsibility for any misstatements in the fi nancial statements. (3) Meet the requirements of government agencies. (4) Provide assurance that illegal acts, if any exist, will be brought to light. d. The Sarbanes-Oxley Act created the Public Company Accounting Oversight Board (PCAOB). Which of the following is not one of the responsibilities of that board? (1) Establish independence standards for auditors of public companies. (2) Review fi nancial reports fi led with the SEC. (3) Establish auditing standards for audits of public companies. (4) Sanction registered audit fi rms. e. Which of these organizations has the responsibility to perform inspections of auditors of public companies? (1) American Institute of Certifi ed Public Accountants. (2) Securities and Exchange Commission. (3) Financial Accounting Standards Board. (4) Public Company Accounting Oversight Board. f. Governmental auditing, in addition to including audits of fi nancial statements, often includes audits of effi ciency, effectiveness, and: (1) Adequacy. (2) Evaluation. (3) Accuracy. (4) Compliance. g. In general, internal auditorsâ independence will be greatest when they report directly to the: (1) Financial vice president. (2) Corporate controller. (3) Audit committee of the board of directors. (4) Chief executive offi cer. h. Which of the following did not precipitate the passage of the Sarbanes-Oxley Act of 2002 to regulate public accounting fi rms: (1) Disclosures related to accounting irregularities at Enron and WorldCom. (2) Restatements of fi nancial statements by a number of public companies.
(3) Conviction of the accounting fi rm of Arthur Andersen LLP. (4) Ethical scandals at the AICPA. i. Which of the following organizations establishes accounting standards for U.S. government agencies? (1) The Financial Accounting Standards Board. (2) The Governmental Accounting Standards Board. (3) The Federal Accounting Standards Advisory Board. (4) The Public Company Accounting Oversight Board. j. Which of the following is correct about forensic audits? (1) All audit engagements are forensic in nature. (2) Forensic audits are performed by law fi rms; they are not performed by CPA fi rms. (3) Forensic audits are equivalent to compliance audits. (4) Forensic audits are usually performed in situations in which fraud has been found or is suspected. k. What best describes the purpose of the auditorsâ consideration of internal control in a fi nancial statement audit for a nonpublic company? (1) To determine the nature, timing, and extent of audit testing. (2) To make recommendations to the client regarding improvements in internal control. (3) To train new auditors on accounting and control systems. (4) To identify opportunities for fraud within the clientâs operations. l. Which of the following is an example of a compliance audit? (1) An audit of fi nancial statements. (2) An audit of a companyâs policies and procedures for adhering to environmental laws and regulations. (3) An audit of a companyâs internal control over fi nancial reporting. (4) An audit of the effi ciency and effectiveness of a companyâs legal department.
