Arens - answers to review questions- chapters 1 and 20

Arens - answers to review questions- chapters 1 and 20 -...

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Unformatted text preview: 1-1You will be looking at his accounting records (evidence) and evaluating and collecting information about those records. Your evaluation process will be done using relatively standard audit procedures (part of GAAS – generally accepted auditing standards). Your objective is to compare the evidence (his accounting records) to the financial statements that he has prepared (which will become information available to others, such as the Canada Revenue Agency). To help you evaluate his records (the evidence) you will use criteria (GAAP – generally accepted accounting principles). You are able to add value to the financial statements because you are an independent professional qualified accountant.1-2To do an audit, there must be information in a verifiable form and some standards (criteria) by which the auditor can evaluate the information. Examples of established criteria include generally accepted accounting principles, and the Income Tax Act. Determining the degree of correspondence between information and established criteria is determining whether a given set of information is in accordance with the established criteria using audit procedures that conform with GAAS – generally accepted auditing standards. The information for Glickle Ltd.’s tax return is the corporate tax returns filed by the company. The criteria are the Income Tax Act and all interpretations. For the audit of Glickle Ltd.’s financial statements, the information is the financial statements being audited and the established criteria are generally accepted accounting principles and generally accepted auditing standards.1-3The primary evidence the Canada Revenue Agency auditor will use in the audit of Glickle Ltd.’s tax return includes all available documentation and other information available in Glickle’s office or from other sources. For example, when the auditor examines taxable income, a major source of information will be bank statements, the cash receipts journal, and deposit slips. The auditor is likely to emphasize unrecorded receipts and revenues. For expenses, major sources of evidence are likely to be cancelled cheques, vendors’ invoices, and other supporting documentation.1-4This apparent paradox arises from the distinction between the function of auditing and the function of accounting. The accounting function is the process of recording, classifying, and summarizing economic events to provide relevant information to decision makers. The rules of accounting are the criteria used by the auditor for evaluating the presentation of economic events for financial statements and he or she must therefore have an understanding of generally accepted accounting principles (GAAP), as well as generally accepted auditing standards (GAAS)....
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This note was uploaded on 02/19/2012 for the course ACCT Audit taught by Professor Niki during the Spring '12 term at Saint Mary's University Texas.

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Arens - answers to review questions- chapters 1 and 20 -...

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