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Audit and Independence Challenges: Evaluating Risk, Ethics, and Strategies in Client Engagement

This paper evaluates risks and ethical challenges in auditing practices, focusing on client engagement.

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    Audit and Independence Challenges: Evaluating Risk, Ethics, and Strategies in Client Engagement Assignment 1 — Session 3 ( spring ) (This assignment is based on Modules 1 and 2) If this is your first time using the Online Learning Environment, check out the Course Orientation and the quick tutorials in the Support Centre. General assignment FAQs can be found in your Assignment Submission/Group Work area. Prepare your answers to these assignment questions in Word and save them as one Word document on your hard drive. For the recommended format and filename, see the Assignment Submission/Group Work/FAQ area. If this assignment Word file requires you to paste Excel.xls sections, or other files, you are strongly advised to refer to the pages How To/Use Software/Excel, Word, or both, to ensure you successfully submit your complete assignment. When your file is complete and you are ready to submit it for marking, select your Assignment Submission/Group Work area. For help, refer to the quick tutorial, “Submit assignments”. Question 1 (15 marks) (Multiple choice) (1½ marks each) Note : For multiple - choice questions, select the best answer. Answer each item by giving the number of your choice. Incorrect answers will be marked as zero. Multiple - choice questions must be completed in your Assignment Submission section. This portion of the assignment will be automatically graded. Do not include your answers in your Word document as they will not be graded. a. Which of the following has historically represented the key driver in the demand for audits? 1. Regulators’ requirements 2. Lenders’ preferences 3. Clients’ demand 4. Investors’ information risk

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    b. An auditor found $5,000 in errors from a representative sample of $50,000 in accounts receivable balances. The population of the total accounts receivable is $200,000. The client corrected $3,000 of the errors. What would be the projected misstatement? 1. $2,000 2. $5,000 3. $17,000 ( $ 5000*4 – $ 3000) 4. $20,000 c. Which of the following elements of the audit risk model is most likely to incorporate the lowest numerical value? 1. Audit risk 2. Inherent risk 3. Control risk 4. Detection risk d. Which of the following is not a likely consequence of audit team members under - recording hours worked on audit engagements? 1. The audit firm will likely quote a lower fee for the following year’s audit. 2. The audit team for the following year’s audit will have trouble meeting the time budget. 3. Audit members will increase their respect for the integrity of their employer. 4. Audit team members will benefit in their performance evaluation for that audit engagement. e. In general, there are two dimensions to audit evidence: sufficiency (quantity) and competency (quality and reliability). When considering the best approach to gather evidence, which of the following factors would most likely not directly affect financial data reliability? 1. Client economic risk 2. Management integrity 3. Persuasiveness of alternative forms of evidence 4. Client’s control structure

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    f. Katy, a CGA, is in the process of reassessing control risk. Which of the following is most likely to cause Katy to lower the level of control risk? 1. Inherent risk is higher than expected. 2. Tests of control show high sample error rates. 3. A substantive approach is used. 4. Tests of control show low sample error rates. g. Meetings are an important component of the audit process. Meetings may be held prior to the commencement of field work, during the audit, and at the conclusion of the audit with management or the audit committee. Which of the following items would most lik ely be on the agenda of a meeting that is held during the audit? 1. Schedules to be prepared by the client 2. Arrangements for using computer - assisted audit techniques (CAATs) on the audit 3. Other services that might be provided by your firm (such as tax services) 4. Arrangements for plant tours h. Which of the following best describes financial statement risk? 1. The risk that the auditor will form the wrong opinion on the financial statements 2. The risk that the auditor will not detect a material misstatement 3. The business risk faced by the auditor 4. The risk of material misstatement i. Bruno, a CGA, is auditing the financial statements of a small business client. Which type of risk is Bruno most likely to encounter when applying the audit risk model? 1. High engagement risk 2. High control risk 3. High detection risk 4. High risk of material misstatement j. To assist the auditor in evaluating the effect of misstatements accumulated during the audit, auditing standards require the auditor to distinguish between factual misstatements, judgmental misstatements, and projected misstatements. Which of the following statements would most likely be associated with projected misstatements? 1. The auditor requests management to record an adjustment for such misstatements.

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