ACC 491 rewriting work
re.bertyh.elpsfuben.t
ACC491Week1TextbookProblem.docx
|
Running head: WEEK 1 TEXTBOOK PROBLEMS |
1
|
|
7
|
1-20 (Objective 1-7) Five college seniors with majors in accounting are discussing alternative career plans. The first senior plans to become an internal revenue agent because his primary interest is income taxes. He believes the background in tax auditing will provide him with better exposure to income taxes than will any other available career choice. The second senior has decided to go to work for a CPA firm for at least 5 years, possibly as a permanent career. She believes the variety of experience in auditing and related fields offers a better alternative than any other available choice. The third senior has decided on a career in internal auditing with a large industrial company because of the many different aspects of the organization with which internal auditors become involved. The fourth senior plans to become an auditor for the GAO because she believes that this career will provide excellent experience in computer risk assessment techniques. The fifth senior would like to ultimately become a certified fraud examiner but is not sure where the best place is to begin his career so that he can achieve this long-term goal.
a. What are the major advantages and disadvantages of each of the four types of auditing careers?
Certified Public Accounting Firms – Major advantages of CPA Firms are ample
experience in various types of auditing scenarios and the growth opportunities within the
CPA firm. Disadvantages include extensive education requirements and limited
experience with operational auditing.
Government Accountability Office Auditors – Advantages include extensive work in
operational auditing. Disadvantages include limitations to variety of work due to
extensive work for the Federal Government.
Internal Revenue Agents – Advantages are extensive experience in tax auditing, while
disadvantages are learning tax laws and limitations to the variety of audits performed.
Internal Auditors – Advantages to Internal Auditors are the ability to work in various
parts of business and focus in one business industry. Disadvantages include limited
industry exposure and very little tax auditing exposure.
Certified Public Accounting Firms – Major advantages of CPA Firms are ample
experience in various types of auditing scenarios and the growth opportunities within the
CPA firm. Disadvantages include extensive education requirements and limited
experience with operational auditing.
Government Accountability Office Auditors – Advantages include extensive work in
operational auditing. Disadvantages include limitations to variety of work due to
extensive work for the Federal Government.
Internal Revenue Agents – Advantages are extensive experience in tax auditing, while
disadvantages are learning tax laws and limitations to the variety of audits performed.
Internal Auditors – Advantages to Internal Auditors are the ability to work in various
parts of business and focus in one business industry. Disadvantages include limited
industry exposure and very little tax auditing exposure.
Certified Public Accounting Firms – Major advantages of CPA Firms are ample
experience in various types of auditing scenarios and the growth opportunities within the
CPA firm. Disadvantages include extensive education requirements and limited
experience with operational auditing.
Government Accountability Office Auditors – Advantages include extensive work in
operational auditing. Disadvantages include limitations to variety of work due to
extensive work for the Federal Government.
Internal Revenue Agents – Advantages are extensive experience in tax auditing, while
disadvantages are learning tax laws and limitations to the variety of audits performed.
Internal Auditors – Advantages to Internal Auditors are the ability to work in various
parts of business and focus in one business industry. Disadvantages include limited
industry exposure and very little tax auditing exposure.
IRS Agent - Advantages: In-depth training in individual, corporate, gift, and other taxes. Disadvantages: Limited experiences related to taxes and no experience of financial statements.
CPA – Advantages: In-depth training in financial statement and operational auditing.. Disadvantages: Limited experience related to business as compared to an internal auditor.
GAO – Advantages: Opportunity to work in the area of operational auditing. Disadvantages: Limited experience related to different business including financials and taxes.
Internal Auditor – Advantages: Opportunity to work in all areas of the business. Disadvantages: Limited experience in taxation.
b. What do you think is the best early career choice for the senior interested in ultimately becoming a certified fraud examiner?
· For the senior interested in becoming a certied fraud examiner, I would
· suggest to become an internal auditor. As an internal auditor, the senior would
· learn various types of audits while focusing specically on one type of industry.
· From there, the senior could pursue a career in fraud examining, knowing the
· industry of which they want to examine
The best early career choice for the senior interested in ultimately becoming a certified fraud examiner is to start working as an internal auditor.
c. What other types of auditing careers are available to those who are qualified?
Other types of auditing careers are available to those who are qualified include forensic auditors, government auditors, and external auditors.
1-21 (Objectives 1-6, 1-7) In the normal course of performing their responsibilities, auditors often conduct audits or reviews of the following:
1) IRS- Compliance Audit
2) GAO- Operational Audit
3) Internal Auditor & CPA- Operational Audit
4) CPA & Internal Auditor- Financial Statement Audit
5) GAO- Operational Audit
6) CPA- Financial Statement Audit
7) GAO- Financial Statement Audit
8) IRS- Compliance Audit
9) CPA- Financial Statement Audit
10) Internal Auditor & CPA- Compliance Audit
11) Internal Audit & CPA- Financial Statement
12) GAO- Compliance, Operational Audit
Required
· a. For these 12 examples, state the most likely type of auditor (CPA, GAO, IRS, or internal) to perform each.
· b. In each example, state the type of audit (financial statement audit, operational audit, or compliance audit).
2-18 (Objective 2-6) Sarah O’Hann enjoyed taking her first auditing course as part of her undergraduate accounting program. While at home during her semester break, she and her father discussed the class and it was clear that he didn’t really understand the nature of the audit process as he asked the following questions:
a.
What is the main objective of the audit of an entity’s financial statements?
The main objective of the audit of an entity’s financial statements is to ensure accuracy in
the information presented and to ensure all information included was supported by proper
documentation
The main objective of the audit of an entity’s financial statements is to ensure accuracy in the information presented.
b.
The audit represents the CPA firm’s guarantee about the accuracy of the financial statements, right?
The audit is not necessarily a guarantee, but rather an assurance that the financial statements are properly conducted, and all information is represented properly.
c.
Isn’t the auditor’s primary responsibility to detect all kinds of fraud at the client?
An auditor’s primary responsibility to ensure materials being audited are not falsified or objectified
d.
Given the CPA firm is auditing financial statements, why would they need to understand anything about the client’s business?
Having a general understanding of the client’s business will help make necessary judgement calls that are required of auditor’s.
e.
What does the auditor do in an audit other than verify the mathematical accuracy of the numbers in the financial statements?
Other than verify the mathematical accuracy of the numbers in the financial statements, auditors ensure proper notation is applied when required and presentation of the financial statements meet the standards set forth by the GAAP for the information they are presenting.
Required
If you were Sarah, how would you respond to each question?
2-21 (Objective 2-6) Ray, the owner of a small company, asked Holmes, a CPA, to conduct an audit of the company’s records. Ray told Holmes that an audit was to be completed in time to submit audited financial statements to a bank as part of a loan application. Holmes immediately accepted the engagement and agreed to provide an auditor’s report within 3 weeks. Ray agreed to pay Holmes a fixed fee plus a bonus if the loan was granted.
Holmes hired two accounting students to conduct the audit and spent several hours telling them exactly what to do. Holmes told the students not to spend time reviewing internal controls but instead to concentrate on proving the mathematical accuracy of the ledger accounts and summarizing the data in the accounting records that support Ray’s financial statements. The students followed Holmes’s instructions and after 2 weeks gave Holmes the financial statements, which did not include footnotes. Holmes reviewed the statements and prepared an unqualified auditor’s report. The report did not refer to generally accepted accounting principles or to the consistent application of such principles.
Required
Briefly describe each of the principles underlying AICPA auditing standards and indicate how the action(s) of Holmes resulted in a failure to comply with each principle. Organize your answer as follows: *
The first AICPA auditing principle is purpose of an audit, which is to present an opinion
about the financial statements. Since Holmes failed to be hands on with the auditing
process, his opinion of the audit was inaccurate and a guess at best
The second AICPA auditing principle is responsibilities. Auditors have the responsibility to be competent and capable of performing the audit, comply with ethical standards, and practice professional judgement. Holmes failed to comply with the responsibility because he accepted a bonus for deliverance of the loan which creates biased results and presents and ethical issue.
The third AICPA auditing principle is performance. Performance includes obtaining assurance, obtaining support documentation, and overseeing assistants. Holmes failed to meet the standards of performance because he told the students what to do and then let them be.
The last AICPA auditing principle is reporting. Reporting includes expressing an opinion of the financial statements and to see that the statements were presented in accordance with GAAP. Holmes presented an unqualified auditor’s report and the report did not refer to GAAP.
References
Arens, A. A., Elder, R. J., & Beasley, M. S. (2014). Auditing and assurance services: An integrated approach (15th ed.). Boston: Pears
