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Unformatted text preview: Chapter 2 Multiple Choice 2-1. B 2-2. C 2-3. A 2-4. C 2-5. C 2-6. D 2-7. B 2-8. C 2-9. D 2-10. A 2-11. A 2-12. C 2-13. B 2-14. A 2-15. C 2-16. A 2-17. C 2-18. A 2-19. B 2-20. C Discussion Questions 2-21. [LO 3,4] What is the value of auditors going through a formal process of linking management assertions to audit procedures to collect evidence? How does this process improve the audit? The linkage is as follows: Management makes assertions regarding the financial statements. Specific risks exist that may threaten the appropriateness of those assertions. The auditor addresses the possibility that those risks have actually caused the assertions to be invalid by using various audit procedures, and those audit procedures result in the auditor collecting evidence. This formal linking clarifies the purpose of each audit step conducted and increases the likelihood that the auditor collects sufficient, appropriate evidence to determine whether managements assertions are valid. 2-22. [LO 1] Why does the auditor have to issue two opinions, one on internal control and one on the financial statements? SEC registrants are required to file audited financial statements and management reports on internal control over financial reporting because SOX requires that both are examined through a single audit engagement (known as an integrated audit). 1 2-23. [LO 1, 3] Why does the auditor begin planning the financial statement audit phase before completing the tests of operating effectiveness of ICFR? Why not after the internal control audit is completed? Planning continues throughout the audit as new information causes the audit team to revisit and revise the audit plan. If the ICFR is not well designed then there is more risk that the financial statements will be based on inaccurate information or will inappropriately represent the companys activities and financial position. Whether internal control is effectively designed impacts planning for the rest of the audit and is therefore examined before completing the test of operating effectiveness of ICFR. 2-24. [LO 4] Explain why auditors need to consider both existence and occurrence, and completeness when auditing an account balance? In terms of the transactions posted, how much audit comfort does investigating these two assertions provide? Attaining a state of audit comfort involves being provided with evidence that sufficient audit risks have been alleviated. Regarding an account balance, if transactions really occurred in the accounting period in which they are shown (existence or occurrence) and all transactions are recorded (completeness), then the recorded amount must be accurate. 2-25. [LO 4] Is it possible that an auditor can make a professional judgment error and still be behaving with due professional care? Explain....
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- Spring '11