Accounting and Financial Control Department Auditing

W 2019
Tutorial (2): Chapter (1) The Auditing Profession

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Question 1: Case

Youssef , the owner of a small company, asked Omar, a CPA, to conduct an audit of the
company’s records. Youssef told Omar that an audit was to be completed in time to
submit audited financial statements to a bank as part of a loan application. Omar
immediately accepted the engagement and agreed to provide an auditor’s report within
three weeks. Youssef agreed to pay Omar a fixed fee plus a bonus if the loan was
granted.
Omar hired two accounting students to conduct the audit and spent several hours telling
them exactly what to do. Omar told the students not to spend time reviewing the controls
but instead to concentrate on proving the mathematical accuracy of the ledger accounts
and summarizing the date in the accounting records that support Youssef ’s financial
statements.

Indicate in the table below how the action of Omar and his Assistants resulted in a failure
to comply with each standard.
Holmes’ Actions resulting in failure to
Brief Description of the GAAS
comply with GAAS

General Standards

1.Adequate training and proficiency Two accounting students had done the audit

2.Independent Mental attitude
Youssef ’s fees were paid based the result of
his work. This means that Youssef shouldn’t
have been objective and was biased during
performing his job because he had financial
interest.

3. Due professional care There was no audit documentation.

The audit was to be done quickly in only 1

week.

Standards of Fieldwork

1.Adequate planning and Supervision Omar did not plan the audit and did not select
the appropriate staff members to perform the
work

2.Assessment the strength of Internal Omar told the two accountants not to spend
Controls time in assessing the strength of the ICs

3. Accumulate of sufficient evidence The two accountants just concentrated on

checking the mathematical accuracy of the

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ledger. This is not an audit evidence type.

Question 2 : Multiple choice Questions

1) Which of the following is not a similarity between external and internal auditors?

A) Both must be independent of the company.

B) Both must be competent.
C) Both follow a similar methodology in performing their audits.
D) None of the above .
Answer: A

2) Internal auditors are responsible to:

A) Creditors.
B) Management.
C) Investors
D) both A and B.
Answer: B

3) An audit designed to provide reasonable assurance of detecting material misstatements

resulting from noncompliance with provisions of contracts agreements

A) Performance audit.
B) Management audit.
C) Operational audit.
D) Compliance audit.
Answer: D

4) A typical objective of an operational audit is to determine whether an entity's:

A) Internal control is adequately operating as designed.

B) Financial statements present fairly the results of operations.
C) Specific operating units are functioning efficiently and effectively.
D) Operational information is in accordance with generally accepted government auditing
standards.
Answer: C

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Question 3: For the below examples, state the most likely type of auditor (CPA, GAO,
IRS, and IA) and the type of audit (Financial Statements Audit, Operational Audit,
Compliance Audit).
In the normal course of performing their responsibilities, auditors often conduct audits of the
following:
Type of Type of
Information
Auditor Audit
GAO Operational
1. Disbursements made by a branch of the federal government for a
special research project to determine whether it would have been possible
to accomplish the same results at a lower cost to the taxpayers.
CPA Operational
2. Computer operations of a corporation by external auditor to evaluate
whether the computer center is being operated as efficiently as possible.
Internal Financial
3. Assessing annual statements for the use of management. Auditor

GAO Operational
4. Operations of the Internal Revenue Service Agency to determine
whether the internal revenue agents are using their time efficiently in
conducting audits.

IRS Compliance
5. Examining income tax returns of a corporation to determine whether
the tax laws have been followed.