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2 Mar 2018

1. Explain what âinternal controlsâ are and how they relate to the audit. What effect do internal controls have on the job of the independentauditor?Your answer should discuss the relationship between internal controls and the financial statements. In answering your questions, consider whether good internal controls contribute to the accuracy of financial statements. On the other hand, explore the possibility that financial statements can be accurate even if internal controls are poor. You may give an example of an internal control procedure.

2. Commonly misunderstood facts about a corporate audit of financial statements:

Terrible internal controls will result in a bad audit opinion.

A client that violates the law will result in a bad audit opinion.

A client that has a terrible business will result in a bad audit opinion.

In one or two sentences, explain why each of the following statements areuntrue.

Terrible internal controls will result in a bad audit opinion.

A client that violates the law will result in a bad audit opinion.

A client that has a terrible business will result in a bad audit opinion.

In addition to the textbook, you may want to take the multiple-choice quiz first. After you submit your answers I will provide you with the answer key. Then read the explanations to the answers, particularly on internal controls, to gain further insight.

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Nestor RutherfordLv2

4 Mar 2018

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Related questions

Chapter 15

1. Consider the following statements:

I. For the last several years, both the FinancialAccounting Standards Board (FASB) and the

International Auditing and Assurance Standards Board (IAASB)have been considering possible

changes to the standard unqualified audit report.

II. The audit report is modified to five paragraphs as a resultof another audit firm performing part of

the financial statement audit (Refer to Shared Reporttopic).

a. I is true; II is true

b. I is true; II is false

c. I is false; II is true

d. I is false; II is false

2. Consider the following statements:

I. Inconsistent application of accounting principles is a GAAPviolation and would result in a

qualified or adverse audit opinion.

II. For a change in accounting principles thatmanagement does justify to the auditor, the

auditor will likely choose between a qualified or an adverseopinion.

a. I is true; II is true

b. I is true; II is false

c. I is false; II is true

d. I is false; II is false

3. Consider the following statements:

I. The failure of a client to include a Statement of Cash Flowswill result in the issuance of a

disclaimer of opinion by the auditor.

II. The auditor will issue an unqualified opinionon Internal Controls over Financial Reporting (ICFR)

if the auditor has identified only one material weakness inICFR.

a. I is true; II is true

b. I is true; II is false

c. I is false; II is true

d. I is false; II is false

4. In which of the following instances would an auditor mostlikely issue a standard unqualified opinion

WITH an explanatory paragraph?

a. Management disclosures are missing or inadequate.

b. There is substantial doubt about the entityâs ability tocontinue as a going-concern.

c. There is a significant limitation on the scope of theengagement.

d. There is an immaterial deviation from GAAP related tocapitalizing repairs.

5. Which one of the following is an example of the contents ofan opinion paragraph found in an audit

report?

a. âWe have audited â¦â

b. âNothing came to our attentionâ¦â

c. âThe financial statements referred to above present fairlyâ¦â

d. âAn audit includes examining, on a test basis â¦â

6. A client company has a history of negative cash flow trendsand continuing losses. What would this

seem to involve?

a. GAAP problem

b. Going concern.

c. Lack of consistency.

d. Lack of independence.

7. An audit of the Flagler Company, a diamond mining company,brings to light the fact that its

equipment has been marked up to the ownersâ expectation ofmarket values. Such a situation will

most likely result in which type of report?

a. Disclaimer.

b. Review.

c. Adverse.

d. Unqualified, with explanatory paragraph.

8. In which of the following instances would an auditor issue adisclaimer of opinion?

a. Lack of consistency.

b. GAAP problem.

c. There is a significant limitation on the scope of theengagement.

d. The principle auditor decides to make reference to anotherauditor who has issued an unqualified

audit report.

9. When might an auditor modify the introductory paragraph andreplace the scope paragraph with an

explanatory paragraph? The ANSWER is A.

a. When a pervasive scope limitation exists.

b. When there is substantial doubt about going-concern.

c. When the auditor lacks independence.

d. When there is an emphasis of a matter.

aquamarineeagle546

Question 1

Identify the item below that is not one of the four different types of data processing activities.

		deleting
		reading
		creating
		using

Question 2

All of the following are advantages of an ERP system except

		ERPs permit manufacturing plants to receive new orders in real time.
		in an ERP, data input is captured or keyed once.
		it takes considerable experience and training to use an ERP system effectively.
		ERPs permit management to gain greater visibility into every area of the enterprise.

Question 3

Sam Jones has been the controller of Downtown Tires for 25 years. Ownership of the firm recently changed hands and the new owners are conducting an audit of the financial records. The audit has been unable to reproduce financial reports that were prepared by Sam. While there is no evidence of wrongdoing, the auditors are concerned that the discrepancies might contribute to poor decisions. Which of the following characteristics of useful information is absent in the situation described above?

		relevant
		reliable
		complete
		timely
		understandable
		verifiable
		accessible

Question 4

An ERP system might facilitate the purchase of direct materials by all of the following except

		preparing a purchase order when inventory falls to reorder point.
		routing a purchase order to a purchasing agent for approval.
		communicating a purchase order to a supplier.
		selecting the best supplier by comparing bids.

Question 5

Antia Carmie is the largest collector and retailer of Japanese fans in the St. Louis area. Antia uses computer technology to provide superior customer service. The store's database system was designed to make detailed information about each Japanese fan easily accessible to her customers. Accordingly, the fan price and condition are provided for each fan, along with many pictures of each fan. In Antia's database, the price of the Japanese fans is a(n)

		entity.
		attribute.
		field.
		record.

Question 6

Which of the following is not considered a source document?

		A copy of the company's shipping document.
		A copy of the company's ledger.
		A copy of the company's sales journal.
		A copy of the company's financial statements.

Question 7

In an ERP system, the module used to record data about transactions in the disbursement cycle is called

		financial.
		order to cash.
		customer relationship management.
		purchase to pay.

Question 8

Baggins Incorporated identifies new product development and product improvement as the top corporate goals. An employee developed an innovation that will correct a shortcoming in one of the company's products. Although Baggins current Return on Investment (ROI) is 12%, the product innovation is expected to generate ROI of only 10%. As a result, awarding bonuses to employees based on ROI resulted in

		goal conflict.
		information overload.
		decreased value of information.
		goal congruence.

Question 9

________ are examples of activities that constitute inbound logistics.

		Activities that transform inputs into final products or services
		Activities that provide post-sale support to customers
		Activities that consist of receiving, storing, and distributing the materials used as inputs by the organization to create goods and/or services it sells
		Activities that help customers to buy the organization's products or services

Question 10

In which transaction cycle would information for inventory purchases be most likely to pass between internal and external accounting information systems?

		the revenue cycle
		the expenditure cycle
		the human resources / payroll cycle
		the financing cycle

Question 11

The collection of customer payment is part of which transaction cycle?

		the human resources cycle
		the production cycle
		the revenue cycle
		the expenditure cycle

Question 12

Which of the following is an example of source data automation?

		POS (point-of-sale) scanners in retail stores
		a bill of lading
		a subsidiary ledger
		a utility bill

Question 13

All of the following are guidelines for developing a good coding system except

		be as sophisticated as possible to promote usage.
		be consistent with its intended use.
		be flexible to allow for growth.
		be consistent with the company's organization structure.

Question 14

What is a key decision that needs to be made with regards to borrowing money from lenders?

		the location
		pro forma income statement
		how much capital to acquire
		job descriptions

Question 15

Identify the false statement below.

		A service company does not have an inventory system.
		Retail stores do not have a production cycle.
		Financial institutions have installment-loan cycles.
		Every organization should implement every transaction cycle module.

Question 16

The chart of accounts of a fast-food restaurant would probably include

		a list of customers.
		a list of financial statement accounts.
		a list of vendors.
		a list of employees.

Question 17

Which statement below regarding the AIS is false?

		Traditionally, most AIS have been designed so that both financial and operational data are stored in a manner that facilitates their integration in reports.
		The AIS must be able to provide managers with detailed and operational information about the organization's performance.
		Both traditional financial measures and operational data are required for proper and complete evaluation of performance.
		The AIS was often just one of the information systems used by an organization to collect and process financial and nonfinancial data.

Question 18

In Petaluma, California, electric power is provided to consumers by Pacific Power. Each month Pacific Power mails bills to 186,000 households and then processes payments as they are received. What is the best way for this business to ensure that payment data entry is efficient and accurate?

		well-designed paper forms
		turnaround documents
		source data automation
		sequentially numbered bills

Question 19

Data must be converted into information to be considered useful and meaningful for decision making. There are seven characteristics that make information both useful and meaningful. If the same information can be reproduced by two independent and knowledgeable people, it is representative of the characteristic of