SSARS contain several procedures that are required when engaged to perform a
compilation or review engagement. Below are ten statements that may or may not be
relevant to a compilation or review engagement. For each of the ten statements, indicate
What should auditors do if during a review of financial statements they discover that
applicable accounting standards are not being followed?
For review services, if a client fails to follow applicable accounting standards, a
modification of the report is
What steps should auditors take if during a compilation engagement they become aware
that the financial statements are misleading?
For a compilation, the accountant does not have to make inquiries or perform other
procedures to verify information supplied
What is negative assurance? Why is it used in a review engagement report?
A negative assurance states, along with factual statements, that nothing came to the
accountant's attention that would lead the accountant to believe that the financial
What are the major differences between reporting for operational and financial auditing?
Two major differences in operational and financial auditing affect operational auditing
First, in operational audits, the report is usually sent only to mana
Identify the three phases of an operational audit?
The three phases of operational auditing are
Evidence accumulation and evaluation,
Reporting and follow-up.
These phases have equivalents in historical financial statement audits, but each phase
Explain why many people think of internal auditors as the primary group responsible for
conducting operational audits?
Internal auditors are in a unique position to perform operational audits. They spend all of
their time working for the company they are
Distinguish between efficiency and effectiveness in operational audits. State one example
of an operational audit explaining efficiency and another explaining effectiveness?
Effectiveness refers to the accomplishment of objectives whereas efficiency refer
What is the nature of the two categories of standards in the IIA International Standards
for the Professional Practice of Auditing?
The two categories of standards in the IIA International Standards for the Professional
Practice of Auditing are
Explain what is meant by the Single Audit Act. What is its purpose?
The Single Audit Act was created in 1984 to eliminate redundancy in the audits of
governmental agencies. The Single Audit Act provides for a single coordinated audit to
satisfy the audit
Distinguish among the following types of operational audits: functional, organizational,
and special assignment. State an example of each for a not-for-profit hospital?
The following are the distinctions between the three kinds of operational audits and a
Describe what is meant by an operational audit?
An operational audit is the review of any part of an organization's operating procedures
and methods for the purpose of evaluating efficiency and effectiveness. At the completion
of an operational audit, man
Weston Corporation has an internal audit department operating out of the corporate
headquarters. Various types of audit assignments are performed by the department for the
eight divisions of the company. The following findings resulted from recent audits
Identify the key required reports of the Single Audit Act and OMB Circular A-133?
The revised OMB Circular A-133 greatly simplified reporting under the Single Audit Act.
The following reports are required:
An opinion on whether the financial statements
In what ways is the Yellow Book consistent with generally accepted auditing standards,
and what are some additions and modifications?
The auditing standards of the Yellow Book are consistent with the ten generally accepted
auditing standards of the AICPA.
The following questions deal with operational auditing.
Choose the best response.
a. Which of the following best describes the operational audit?
(1) It requires constant review by internal auditors of the administrative controls as they relate to
Explain the role of internal auditors for financial auditing. How is it similar to and
different from the role of external auditors?
Internal auditors who perform financial auditing are responsible for evaluating whether
their company's internal controls
Explain the difference between the independence of internal auditors and external
auditors in the audit of historical financial statements. How can internal auditors best
External auditors are considered more independent than interna
Lajod Company has an internal audit department consisting of a manager and three staff
auditors. The manager of internal audits, in turn, reports to the corporate controller.
Copies of audit reports are routinely sent to the audit committee of the board o
Jones, CPA, has completed the audit of Sarack Lumber Supply Co. and has issued a
standard unqualified report. In addition to a report on the overall financial statements, the
company needs a special audited report on three specific accounts: sales, net fi
Explain how governmental financial auditing is similar to and different from audits of
commercial companies. Who does governmental auditing?
Governmental financial audits are similar to audits of commercial companies in that both
types of audits require t
Identify the three major differences between financial and operational auditing?
The three major differences between financial and operational auditing are:
Purpose of the audit. Financial auditing emphasizes whether historical information was
What is meant by the term level of assurance? How does the level of assurance differ for
an audit of historical financial statements, a review, and a compilation?
Levels of assurance represent the degree of certainty the practitioner has attained, and
The following questions deal with independence of auditors. Choose the best response.
a. The operational auditor's independence is most likely to be compromised when the
internal audit department is responsible directly to the
(1) Vice president of financ
Carl Monson, the owner of Major Products Manufacturing Company, a small, successful,
longtime audit client of your firm, has requested you to work with his company in
preparing 3-year forecasted information for the year ending December 31, 2012, and two
Haskin Company was founded 40 years ago and now has several manufacturing plants in
the Northeast and Midwest. The evaluation of proposed capital expenditures became
increasingly difficult for management as the company became geographically dispersed
Superior Co. manufactures automobile parts for sale to the major U.S. automakers. Superior's
internal audit staff is to review the internal controls over machinery and equipment and make
recommendations for improvements when appropriate. The internal audi
The following questions deal with internal auditing. Choose the best response.
a. Which of the following is generally considered to be a major reason for establishing an
internal auditing function?
(1) To relieve overburdened management of the responsibil
Explain what is meant by the criteria for evaluating efficiency and effectiveness. Provide
five possible specific criteria for evaluating effectiveness of an IT system for payroll?
Criteria for evaluating efficiency and effectiveness in operational auditi
An audit client has engaged a third party service organization to host its payroll software
package on servers located at the service organization. What options do you have to
obtain assurance about the controls embedded in the payroll application?