4551 winter 2012 solutions to practice questions Midterm #2 Winter 2010

4551 winter 2012 solutions to practice questions Midterm #2 Winter 2010

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Question 1: ( 1 mark for each valid point/max of 10 marks) Generally accepted auditing standard Assessment of audit engagement General standard: technical training and proficiency Steve Leonard did not provide supervision/direction to the assistants ( 1 mark) and therefore it is possible that there was inadequate competence or lack of proficiency in audit. ( 1 mark) General standard: objective state of mind Lack of independence (1 mark) as Steve Leonard left HOF as controller in May 2009 yet he is auditing HOF records for 2009 ( self review threat) ( 1 mark) Reduction in audit fee appears to be inappropriate (Fee should not based on client’s financial position instead on hours required to do a proper audit/planning) – could be an advocacy or self-interest threat – suggests may be problem with independence ( 1 mark) Due Care As noted above and below no supervision of the assistants Reviewing work at the end of the audit does not constitute adequate supervision. Supervsion of assistants is necessary at all phases.( 1 mark) As noted below there is lack of sufficient appropriate audit evidence ( 1 mark) JS does not not adequately safeguard working paper files from previous years. (1 mark) These examples are a lack of due care ( 1 mark) Examination standard: Adequate Planning and reducing audit risk using planning There is limited evidence of planning/identifying issues arising in current year being addressed in the file ( 1 mark). Specifically the assistants did not perform risk assessments (1 mark) nor did they acquire a knowledge of the business and assess business risks (1 mark). No mention of assessment of risk assessment to incorporate new facts – drop in sales due to recall of organic spinach- financial condition deteriorating, ( 1 mark) Staff simply followed the prior year’s audit approach. ( 1 mark) Also using the same materiality as previous years is not correct. Should re-evaluate materiality every year and adjust based upon new events (eg. users of f/s. results of risk assessment, risks, significant drop in sales) ( 1 mark) Materiality must be determined by the auditor and should not rely on
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the client representations. (1 mark) Supervision of engagement team The assistants were not supervised ( 1 mark ) as the in charge auditor provided no direction to them. ( 1 mark) Examination standard:
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This note was uploaded on 03/24/2012 for the course ADMS 4551 taught by Professor Iacobelli during the Winter '11 term at York University.

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4551 winter 2012 solutions to practice questions Midterm #2 Winter 2010

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