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Solutions to Chapter 4 HW

Solutions to Chapter 4 HW - 4.27 a b c d Incorrect Correct...

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4.27 a. Incorrect Analytical procedures are performed after the engagement letter is obtained. b. Correct This is the "attention-directing" purpose. c. Incorrect All the assertions are always important. d. Incorrect This answer could be good even though it evokes the control risk assessment standard, but restriction to inventory makes it a poor choice. 4.28 a. Incorrect Physical production statistics are not a source of information for "comparison of current account balances with prior periods." b. Correct A client's budgets and forecasts are sources of information for "comparison of current account balances with expected balances." c. Incorrect Published industry ratios are not a source of information for "evaluation of current account balances with relation to predictable historical patterns." d. Incorrect The company's own historical financial statements are not a good source of information for "evaluation of current account balances in relation to nonfinancial information." 4.31 a. True. The successor must take responsibility for obtaining the client's consent for the predecessor to give information about prior audits. b. True. Cooperation from the predecessor is expected. c. True. Cooperation includes obtaining copies of some or all of the predecessor auditor's documentation. d. Correct All of the above are expected. 4.33 a. Incorrect Audit documentation need to document compliance with GAAS. b. Incorrect Extracts of contracts should go in the permanent file. c. Correct Independence is not really a working paper matter. d. Incorrect Materiality judgments will affect the amount of evidence shown in audit documentation. 4.35 a. Incorrect Internal control analysis for the current year would be in the administrative or current file. b. Incorrect The latest engagement letter would be in the administrative or current file. c. Incorrect Memoranda of conference with management would be in the administrative or current file. d. Correct Excerpts of the corporate charter and by-laws would not change often and would be in the permanent file. 4.39 a. Incorrect These are functions of a client's computer system. b. Correct Auditors can use the computer with ease. c. Incorrect Machine operations do not leave "visible" evidence. d. Incorrect Computer auditing is meant to gather good evidence with the least quantity of storage. 4.40 a. Incorrect The ratio of cost/sales does not increase. b. Correct The numerator (cost of goods sold) increases relatively less than the denominator (sales) increases. c. Incorrect The ratio of cost/sales does not remain unchanged.
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4.42 a. Incorrect T he audit report should not mention the fact that Costanza used a specialist, unless the specialist’s findings affect the auditor’s conclusions. b. Correct Costanza should only mention the use of the specialist when the specialist’s findings affect the auditor’s conclusions.
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