midterm exam-audit

8/10/2019 Midterm Exam-Audit

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1.Discuss the three primary requirements for becoming a CPA.

2.Discuss the similarities and differences between financial statement audits, operational audits,and compliance audits. Give an example of each type.


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3.Describe the various staff levels and responsibilities of a typical public accounting firm.

4.Discuss the five elements of quality control?


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5.There are 10 generally accepted auditing standards, divided into three categories. List, by

category, each of these 10 standards.

6.There are five conditions that must be met before an auditor can issue a

standard unqualified report for the audit of a private company. Please discusseach of these five conditions.


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7. There are three conditions requiring a departure from an unqualified audit report. Discuss

each of these three conditions and state the appropriate audit report for each condition.

8.In certain circumstances, an auditor will issue an unqualified report, but the wording will

differ from that of a standard unqualified report. Discuss each of the five circumstances when an

auditor would issue an unqualified report with an explanatory paragraph or modified wording.

9.Discuss the actions an auditor should take when the auditor discovers an illegal act.


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10.Assume you are the partner in charge of the 2005 audit of Franklin Corporation, a private

company. The audit report has not yet been prepared. In each independent situation following

(1-8), indicate the appropriate action (a-g) to be taken. The possible actions are as follows:

a. Issue a standard unqualified report.

b. Qualify both the scope and opinion paragraphs.

c. Qualify the opinion paragraph.

d. Issue an unqualified opinion with an explanatory paragraph.

e. Issue an unqualified opinion with modified wording (no explanatory paragraph).

f. Issue an adverse opinion.

g. Disclaim an opinion.

The situations are as follows:

1. Franklin Corporation carries its property, plant, and equipment accounts at

current market values. Current market values exceed historical cost by a highly

material amount, and the effects are pervasive throughout the financial

statements.

2. Management of Franklin Corporation refuses to allow you to observe, or make,

any counts of inventory. The recorded book value of inventory is highly

material.

3. You were unable to confirm accounts receivable with Franklins customers.

However, because of detailed sales and cash receipts records, you were able to

perform reliable alternative audit procedures.

4. One week before the end of fieldwork, you discover that the audit manager on

the Franklin engagement owns a material amount of Franklins common stock.

5. You relied upon another CPA firm to perform part of the audit of Franklin.

Although you were the principal auditor, the other firm audited a material

portion of the financial statements. You wish to refer to (but not name) the other

firm in your report.

6. You have substantial doubt about Franklins ability to continue as a going

concern.

7. Franklin Corporation changed its method of computing depreciation in 2005.

You concur with the change and the change is properly disclosed in the financialstatement footnotes.

8. Ten days after the balance sheet date, one of Franklins buildings was destroyed

by a fire. Franklin refuses to disclose this information in a footnote to the

financial statements, but you believe disclosure is required to conform with

generally accepted accounting principles. The amount of the uninsured loss was

material, but not highly material.

midterm exam-audit

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