Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual

Page 1 of 16

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 1 preview image

SOLUTIONS MANUALAuditingThe Art and Science of Assurance EngagementsFourteenth Canadian EditionAlvin A. ArensFormer PricewaterhouseCoopers Emeritus Professor, Michigan State UniversityRandal J. ElderSyracuse UniversityMark S. BeasleyNorth Carolina State University, Deloitte Professor of Enterprise Risk ManagementChris E. HoganMichigan State UniversityJoanne C. JonesYork University

Page 2 of 16

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 2 preview image

Page 3 of 16

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 3 preview image

ContentsChapters1The demand for audit and other assurance services .............................1-12The public accounting profession and audit quality ................................2-13Professional ethics and legal liability.........................................................3-14Audit responsibilities and objectives..........................................................4-15Audit evidence...............................................................................................5-16Client acceptance, planning, and materiality ...........................................6-17Assessing the risk of material misstatement ............................................7-18Internal control and COSO framework ......................................................8-19Assessing control risk and designing tests of controls ...........................9-110Develop risk response: Audit strategy and audit program ...................10-111Audit sampling concepts ...........................................................................11-112Audit of the revenue cycle .........................................................................12-113Audit of the acquisition and payment cycle ............................................13-114Audit of the inventory and distribution cycle ...........................................14-115Audit of the human resources and payroll cycle....................................15-116Audit of the capital acquisition and repayment cycle ............................16-117Audit of cash balances...............................................................................17-118Completing the audit ..................................................................................18-119Audit reports on financial statements ......................................................19-120Other assurance and nonassurance services .......................................20-1

Page 4 of 16

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 4 preview image

1-1Chapter 1The Demand for Audit and Other AssuranceServicesConcept ChecksC1-1What is meant by determining the degree of correspondence between information andestablished criteria? What is the criteria for the audit of a company’s financial statements?To do an audit, there must be information in averifiable formand some standards (criteria) bywhich the auditor can evaluate the information. Determining the degree of correspondencebetween information and established criteria is determining whether a given set of informationis in accordance with the established criteria. For an audit of a company’s financial statementsthe criteria are International Financial Reporting Standards, Accounting Standards for PrivateEnterprises, Accounting Standards for Not-for-Profits.C1-2What are the major causes of information risk. How can information risk be reduced?Information risk reflects the possibility that the information upon which the business riskdecision was made was inaccurate. The major causes of information risk are: remoteness ofinformation, biases and motives of the provider, voluminous data, and complex exchangetransactions. Users can reduce information risk by examining the information directly, sharingthe risk with the information preparer, or requesting some assurance over the information (eitheran audit or a review engagement).C1-3Explain how and why the auditor makes information trustworthy and credible.External users value the auditor’s assurance because of the auditor’s integrity, independence,expertise, and knowledge of the subject matter. This makes the information credible andtrustworthy.C1-4Describe and explain the differences and similarities between financial statement,compliance, and operational audits.Differences—are based upon the information and criteria being audited: a financial statementaudit (e.g., historical financial statements) assesses evidence with respect to potential materialmisstatements; a compliance audit (e.g., compliance with environmental legislation) assesses theorganization’s ability to comply with legislation; and an operational audit (e.g., effective factoryproduction) helps to provide good quality control and manage costs.Similarities—The auditor is acting with due care, meaning that he/she is following some type ofsystematicprocessgovernedbyauditingstandards(financialstatements:CPACanadaHandbook(GAAS); compliance:CPA Canada Handbookor IIA standards, depending uponwhether a public accountant is conducting the audit; and operational: most likely IIA standards).The auditor is also independent and competent (although the degree of independence will varyaccording to who is conducting the audit).

Page 5 of 16

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 5 preview image

Instructor’s Solutions Manual forAuditing, Fourteenth Canadian Edition1-2C1-5Describe and explain the difference and similarities among the various types of auditors.AuditorTypes of Engagements and EmployersType of TrainingInternal AuditorTend to perform compliance, financial,and operational audits (although caninclude fraud audits). Work for large for-profit and not-for-profit organizations(e.g., hospitals, universities).Although there is no requirementfor a designation, internal auditorsoften have a CPA or a CIAdesignation. Internal auditorsreceive extensive training on howto conduct operational audits.Government AuditorPerforms value-for-money audits,financial statement audits, and operationalaudits. Increasing opportunity forexperience in operational auditing.Employed by provincial or federalgovernment.Government auditors generallyhave a CPA designation (ifemployed by the auditor general),although some have a CIAdesignation.CRA AuditorPerforms compliance audits related topersonal, corporate, and value-addedtaxes (GST/HST). Works for the CanadaRevenue Agency.Many CRA auditors have a CPAdesignation (although notrequired).Fraud and forensicauditorsPerforms forensic and fraud audits. Manyforensic accountants and fraud auditorswork for public accounting firms (or firmsthat specialize in forensic accountingservices). Some also work in industry,government, and large not-for-profits (aspart of internal audit).Many forensic accountants andfraud auditors have a CPAdesignation (although notrequired). Some have a CIAdesignation or one of the fraudspecialist designations.Public AccountantThe main engagements are related toassurance of financial information for awide range of enterprises and industries –particularly financial statement audits.However, can also perform complianceand operational audits. Opportunity forexperience in auditing, tax consulting, andmanagement consulting practices.Public accountants have a CPAdesignation as well as a publicaccountant’s license.Review Questions1-1You will be looking at his accounting records (evidence) and evaluating and collectinginformation about those records. Your evaluation process will be done using relatively standardaudit procedures (part of GAAS – generally accepted auditing standards). Your objective is tocompare the evidence (his accounting records) to the financial statements that he has prepared(which will become information available to others, such as the Canada Revenue Agency). Tohelp you evaluate his records (the evidence) you will use criteria (likely ASPE – AccountingStandards for Private Enterprises). You are able to add value to the financial statements becauseyou are an independent professional qualified accountant.

Page 6 of 16

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 6 preview image

Chapter 1: The Demand for Audit and Other Assurance Services1-31-2This apparent paradox arises from the distinction between the function of auditing andthefunctionofaccounting.Theaccountingfunctionistherecording,classifying,andsummarizing of economic events to provide relevant information to decision makers. The rulesof accounting are the criteria used by the auditor for evaluating the presentation of economicevents for financial statements and he or she must therefore have an understanding of accountingstandards, as well as auditing standards. The accountant need not, and frequently does not,understand what auditors do, unless he or she is involved in doing audits, or has been trained asan auditor.1-3Auditor independence is fundamental to the conduct of the audit and the auditor’s role inprotecting the public interest. In the case of the financial statement audit, when independence isimpaired, the credibility of the financial statements, the auditor, and the auditor’s report becomesquestionable.This famous quote from Chief Justice Warren Burger, of the US Supreme Court, highlights theauditors’ responsibility:The independent auditor assumes a public responsibility transcending any employmentrelationship with the client. The independent public accountant performing this specialfunction owes ultimate allegiance to the company’s creditors and stockholders, as well as to[the] investing public. This ‘public watchdog’ function demands that the accountantmaintain total independence from the client at all times and requires complete fidelity to thepublic trust.1-4Auditors’ lack independence can negatively influence professional skepticism in manyways. If auditors are not independent, then they may not critically examine the evidence orquestion management’s explanations when following up on unusual findings. For instance, if theauditor has audited the company for several years and find management to be honest andforthcoming, that past experience (which is referred to as a familiarity threat to independence)mayleadtheauditorstoreadilyacceptanswerswithoutattemptingtocorroboratetheexplanations (in other words not perform a critical examination).1-5To do an audit, there must be information in a verifiable form and some standards(criteria) by which the auditor can evaluate the information. Examples of established criteriainclude International Financial Reporting Standards (IFRS) or Accounting Standards for PrivateEnterprises (ASPE), and theIncome Tax Act. Determining the degree of correspondence betweeninformation and established criteria is determining whether a given set of information is inaccordance with the established criteria using audit procedures that conform with GAAS –generally accepted auditing standards. The information for Glickle Ltd.’s tax return is thecorporate tax returns filed by the company. The criteria are theIncome Tax Actand allinterpretations. For the audit of Glickle Ltd.’s financial statements, the information is thefinancial statements being audited and the established criteria are ASPE or IFRS and generallyaccepted auditing standards.

Page 7 of 16

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 7 preview image

Instructor’s Solutions Manual forAuditing, Fourteenth Canadian Edition1-41-6The auditor will use risk assessment skills for several purposes:To assess the quality and effectiveness of the client’s risk assessment processesTo assess the likelihood of fraud, error, or other misstatements in the client’s financialstatementsTo select the type of audit evidence that will need to be accumulated to mitigate the risks offraud, error or misstatement in the client’s financial statementsFor other assurance engagements (i.e. non-financial statements), the auditor will similarlyneed to assess potential risks of error or fraud and design or select audit procedures inresponse to those risks1-7The auditor must assess risks to select the appropriate evidence to be collected. If theauditor does not know the risks, then the wrong evidence might be collected, or the wrongquality or amount of evidence might be collected.1-8Assuming a bank is deciding to make a loan to a business, the bank will charge a rate ofinterest determined primarily by the following three factors:Risk-free interest rate. This is approximately the rate the bank could earn by investing inCanadian treasury bills for the same length of time as the business loan.Business risk. This risk reflects the possibility that the business will not be able to repay itsloan because of economic or business conditions such as a recession, poor managementdecisions, or unexpected competition in the industry.Information risk. This risk reflects the possibility that the information upon which thebusiness risk decision was made was inaccurate. A likely cause of the information risk is thepossibility of inaccurate financial statements.Auditing has no effect on either the risk-free interest rate or business risk. However, auditing cansignificantly reduce information risk.1-9Information risk is the risk that information upon which a business decision is made isinaccurate. Fair value accounting is often based on estimates and requires judgment. Fair valuecan be estimated using multiple methods with some estimates being more subjective than others.Fair value estimates are made at a point in time, but can also change rapidly, depending onmarket conditions. All of these factors increase information risk.1-10The major differences in the scope of audit responsibilities are:Public accountants perform audits in accordance with generally accepted auditing standardsof published financial statements prepared in accordance with an acceptable financialreporting frameworkGovernment auditors from the auditors general (federal or provincial) perform compliance oroperational (value-for-money) audits in order to assure the Parliament that the expenditure ofpublic funds is in accordance with its directives and the law and is done with efficiency,economy and effectiveness. They also do financial statement audits of Crown Corporations,or sub-contract this work to external public accountants.Canada Revenue Agency auditors perform compliance audits to enforce the federal tax lawsas defined by Parliament, interpreted by the courts, and regulated by theIncome Tax Act.

Page 8 of 16

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 8 preview image

Chapter 1: The Demand for Audit and Other Assurance Services1-5Internal auditors perform compliance or operational audits in order to assure management orthe board of directors that controls and policies are properly and consistently developed,applied and evaluated.1-11Some Potential Engagements Include:Financial InformationNon Financial InformationInternal AuditorAudit of credit card expendituresand accounts payable expenses todetermine if well-supported andfor legitimate business purposeBusiness Continuity Audit to test ifsystems can continue in the event ofunforeseen incidencesGovernment AuditorCosts associated with a capitalproject funded by government.A variety of value for money audits– such as a direct report onmanagement and use of surgicalfacilitiesForensic AuditorFraud investigation intomisappropriation of funds atcommunity clinicsAttestation report on internalcontrols over payrollPublic AccountantFinancial statements and otherfinancial informationAttestation Report on InternalControl over Financial ReportingWebTrust or SysTrust report couldbe prepared for transactions madevia the hospital’s secure web site orwith respect to the quality ofinformation systems used to processprescription medicationCompliance with AgreementsNote: These are examples, and the list can be endless, depending upon the Hospital’s needs.1-12Audits of FinancialStatementsComplianceAuditsOperational AuditsObjectiveTo determine whether thefinancial statements arepresented in accordancewith an acceptablefinancial reportingframeworkTo determinewhether the client isfollowing specificprocedures set byhigher authorityTo evaluate whetheroperating proceduresare efficient andeffectiveUsers of AuditReportDifferent groups fordifferent purposesmainlyoutside entitiesAuthority settingdown procedures,internal or externalManagement oforganization

Page 9 of 16

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 9 preview image

Instructor’s Solutions Manual forAuditing, Fourteenth Canadian Edition1-6NatureHighly standardizedNot standardized,very specific, oftenvery subjective, butusually objectiveHighly non-standardizedPerformed By:Public AccountantAlmost universallyOccasionallyFrequentlyGovernmentAuditorsOccasionallyFrequentlyFrequentlyCanada RevenueAgency AuditorsNeverUniversallyNeverInternal AuditorsNever, although they mightreview them formanagementFrequentlyFrequently1-13Five specific examples of operational audits that could be conducted by an internalauditor in a manufacturing company are:Examination of employee time cards and personnel records to determine if sufficientinformation is available to maximize the effective use of personnel.Review the processing of sales invoices to determine if it could be done more efficiently.Review the acquisitions of goods, including costs to determine if they are being purchased atthe lowest possible cost considering the quality needed.Review and evaluate the efficiency of the manufacturing process.Review the processing of cash receipts to determine if they are deposited as quickly aspossible.Other examples are possible.1-14The higher the level of assurance provided, the greater the confidence the individual canplace in the matter being assured. Reasonable assurance means a high but not absolute level ofassurance. In order to provide reasonable assurance, the auditor must conduct an in-depth andrigorous assessment of the matter being audited.A limited assurance engagement provides a moderate level of assurance; therefore, the level oftesting is lower and consequently it implies a lower level of confidence.1-15Whenauditinghistoricalfinancialstatements,anauditormusthaveathoroughunderstanding of the client and its environment. This knowledge should include the client’sregulatory and operating environment, business strategies and processes, and measurementindicators.Thisstrategicunderstandingisalsousefulinotherassuranceorconsultingengagements. For example, an auditor who is performing an assurance service on informationtechnology would need to understand the client’s business strategies and processes related toinformation technology,includingsuchthingsaspurchasesandsalesviatheInternet.Similarly, a practitioner performing a consulting engagement to evaluate the efficiency andeffectiveness of a client’s manufacturing process would likely start with an analysis of variousmeasurement indicators, including ratio analysis and benchmarking against key competitors.

Page 10 of 16

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 10 preview image

Chapter 1: The Demand for Audit and Other Assurance Services1-71-16The type of auditor would vary according to the subject matter and the company’sassurance needs. A public accountant, internal auditor, or a forensic auditor could all potentiallyprovide assurance and nonassurance services. For example, a public accountant would audit thecompany’s financial statements and could provide a variety of other assurance services, such asattestingtheinternalcontrolsoverfinancialreportingorprovidingassuranceoverthemanufacturing process, its sustainability practices, or compliance with certain human rightslegislation. It could also provide nonassurance services such as preparation of tax returns. Withthe exception of the audit of the financial statements, an internal auditor could provide similarassurance services. It could also provide operational audits or consulting services. Similarly aforensic or fraud auditor could perform a fraud audit or could provide a consulting engagementto help develop fraud prevention controls, etc.Multiple Choice Questions1-17a.(3)b.(2)c.(2)d.(1)1-18a(4)b.(2)Discussion Problems1-19a.The following parts of the definition of auditing are related to the narrative:(1) Virms is being asked to issue a report about qualitative and quantitative informationrelating to trucks. The trucks are therefore the quantifiable information with which theauditor is concerned.(2) There are three criteria which must be evaluated and reported by Virms: Existence of thetrucks on the night of June 30, physical condition of each truck, and fair market value ofeach truck.(3) Susan Virms willaccumulateandevaluatefour basic types ofevidence:Count the trucksto determine their existence.Use registration documentsheld by Charon for comparison to the serial number oneach truck to determine ownership.Examine the trucksto determine each truck’s physical condition.Examine the current blue bookto determine the fair market value of each truck.(4)Susan Virms, public accountant, appears qualified as acompetent, independent person.She is a public accountant, and she spends most of her time auditing used automobile andtruck dealerships and has extensive specialized knowledge about used trucks that isconsistent with the nature of the engagement.(5) Thereport resultsare to include:which of the 20 trucks are parked in Regional’s parking lot the night of June 30the condition of each truck, using established guidelinesthe fair market value of each truck using the current blue book for trucksb.The only parts of the audit which will be difficult for Virms are:

Page 11 of 16

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 11 preview image

Instructor’s Solutions Manual forAuditing, Fourteenth Canadian Edition1-8Evaluating the condition, using the guidelines of poor, good, and excellent. It is highlysubjective to do so. If she uses a different criterion than the blue book, the fair marketvalue will not be meaningful. Her experience will be essential in using this guideline.Determining the fair market value, unless it is clearly defined in the blue book for eachcondition.1-20a.The services provided by Consumers Union are very similar to assurance servicesprovided by CPA firms. The services provided by Consumers Union and assurance servicesprovided by CPA firms are designed to improve the quality of information for decision makers.CPAs are valued for their independence, and the reports provided by Consumers Union arevalued because Consumers Union is independent of the products tested.b.Independent – seen as independent of automotive manufacturers.Competent – able to perform proper assessments and collect reliable and unbiased dataTrustworthy(competenceandcharacter(honesty,self-control,courage,independence,objectivity, sense of public interest)These characteristics are similar to what is expecting of a reliable auditor.c.Incentives and Pressures for Consumers’ UnionEconomic – Costs to provide service may be too great, accept advertising from automanufacturers in its magazineSocial – pressure from automotive companies to provide favorable reviewsImpact on performance responsibilities - May cause Consumers to “cut corners” or ifaccede to pressure then reporting quality will decrease (self-interest versus responsibilityto the public)d.Incentives and pressures for financial statement auditorEconomic – Client fees, maintain good cost recoverySocial – pressure from client or audit partners to adjust the reported opinionImpact on performance responsibilities – Issue incorrect report.e.The concepts of information risk for the buyer of an automobile and for the user of financialstatements are essentially the same. They are both concerned with the problem of unreliableinformation being provided. In the case of the auditor, the user is concerned about unreliableinformation being provided in the financial statements. The buyer of an automobile is likelyto be concerned about the manufacturer or dealer providing unreliable information.f.The four causes of information risk are essentially the same for a buyer of an automobile anda user of financial statements:(1)Remoteness of informationIt is difficult for a user to obtain much information abouteither an automobile manufacturer or the automobile itself without incurring considerablecost. The automobile buyer does have the advantage of possibly knowing other users whoare satisfied or dissatisfied with a similar automobile.

Page 12 of 16

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 12 preview image

Chapter 1: The Demand for Audit and Other Assurance Services1-9(2)Biases and motives of providerThere is a conflict between the automobile buyer and themanufacturer. The buyer wants to buy a high quality product at minimum cost whereasthe seller wants to maximize the selling price and quantity sold.(3)Voluminous dataThere is a large amount of available information about automobiles thatusers might like to have in order to evaluate an automobile. Either that information is notavailable or too costly to obtain.(4)Complex exchange transactionsThe acquisition of an automobile is expensive andcertainly a complex decision because of all the components that go into making a goodautomobile and choosing between a large number of alternatives.g.The three ways users of financial statements and buyers of automobiles reduce informationrisk are also similar:i.User verifies information himself or herselfThat can be obtained by driving differentautomobiles, examining the specifications of the automobiles, talking to other users anddoing research in various magazines.ii.User shares information risk with managementThe manufacturer of a product has aresponsibility to meet its warranties and to provide a reasonable product. The buyer of anautomobile can return the automobile for correction of defects. In some cases a refundmay be obtained.iii.Examine the information prepared by Consumer ReportsThis is similar to an audit in thesense that independent information is provided by an independent party. The informationprovided byConsumer Reportsis comparable to that provided by a CPA firm that auditedfinancial statements.1-21a.The interest rate for the loan that requires a review report is lower than the loan that did notrequire a review because of lower information risk. A review report provides moderateassurance to financial statement users, which lowers information risk. An audit reportprovides further assurance and lower information risk. As a result of reduced informationrisk, the interest rate is lowest for the loan with the audit report.b.Given these circumstances, Vial-tek should select the loan from Second National Bank thatrequires an annual audit. In this situation, the additional cost of the audit is less than thereduction in interest due to lower information risk. The following is the calculation of totalcosts for each loan:LENDERPASERVICECOST OF PASERVICESANNUALINTERESTANNUALLOAN COSTExisting loanNone0$ 142,500$ 142,500First National BankReview$ 12,000$ 127,500$ 139,500Second National BankAudit$ 20,000$ 112,500$ 132,500c.Vial-tek should select the loan from First National Bank due to the higher cost of the auditand the reduced interest rate for the loan from First National Bank. The following is thecalculation of total costs for each loan:

Page 13 of 16

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 13 preview image

Instructor’s Solutions Manual forAuditing, Fourteenth Canadian Edition1-10LENDERPASERVICECOST OF PASERVICESANNUALINTERESTANNUALLOAN COSTExisting loanNone0$ 142,500$ 142,500First National BankReview$ 12,000$ 120,000$ 132,000Second National BankAudit$ 25,000$ 112,500$ 137,500d.Vial-tek may desire to have an audit because of the many other positive benefits that an auditprovides.Theauditwillprovide Vial-tek’s managementwith assurance about annualfinancial information used for decision-making purposes. The audit may detect errors orfraud, and provide management with information about the effectiveness of controls. Inaddition,theauditmayresultinrecommendationstomanagementthatwillimproveefficiency or effectiveness.e.Since an audit engagement requires persuasive evidence, which requires a greater effort onthe part of the auditor in terms of the nature and extent of evidence to be gathered as well asthe type of procedures performed, it would be much more costly than a review. An audit alsorequires that the auditor develop a thorough understanding of controls, which is not requiredfor a review engagement.f.The auditor must have a thorough understanding of the client and its environment, includingtheclient’se-commercetechnologies,industry,regulatoryandoperatingenvironment,suppliers, customers, creditors, and business strategies and processes. This thorough analysishelps the auditor identify risks associated with the client’s strategies that may affect whetherthe financial statements are fairly stated. This strategic knowledge of the client’s businessoften helps the auditor identify ways to help the client improve business operations, therebyproviding added value to the audit function.1-22a.Financial statement audits reduce information risk, which lowers borrowing costs. An auditalsoprovidesassurancestomanagementaboutinformationusedfordecision-makingpurposes, and may also provide recommendations to improve efficiency or effectiveness ofoperations.b.Hogan and Czarnecki likely provide tax services, accounting services, and managementadvisory services. They may also provide additional assurance services other than audits offinancial statements.c.Student answers will vary. They may identify new types of information that requireassurance, such as environmental or corporate responsibility reporting. Students may alsoidentify opportunities for consulting or management advisory services, such as assistancewith the adoption of International Financial Reporting Standards.

Page 14 of 16

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 14 preview image

Chapter 1: The Demand for Audit and Other Assurance Services1-111-23ThemajoradvantagesanddisadvantagesofacareerasanCRA auditor,publicaccountant, internal auditor, or provincial auditor are:EMPLOYMENTADVANTAGESDISADVANTAGESCRA Auditor1.Extensive training in individual,corporate, gift, trust, and other taxesis available with concentration inarea chosen.2.Hands-on experience withsophisticated selection techniques.1.Experience limited to taxes.2.No experience with operational orfinancial statement auditing.3.Training is not extensive with anybusiness enterprise.Public Accountant1.Extensive training in audit offinancial statements, complianceauditing and operational auditing.2.Opportunity for experience inauditing, tax consulting, andmanagement consulting practices.3.Experience in a diversity ofenterprises and industries with theopportunity to specialize in aspecific industry.1.Exposure to taxes and to thebusiness enterprise may not be asin-depth as the internal revenueagent or the internal auditor.2.Likely to be less exposed tooperational auditing than is likelyfor internal auditors.Internal Auditor1.Extensive exposure to all segmentsof the enterprise with whichemployed.2.Constant exposure to one industrypresenting opportunity for expertisein that industry.3.Likely to have exposure tocompliance, financial, andoperational auditing.1.Little exposure to taxation and theaudit of taxes.2.Experience is limited to oneenterprise, usually within one or alimited number of industries.Provincial Auditor1.Increasing opportunity forexperience in operational auditing.2.Exposure to value-for-moneyauditing2.Exposure to highly sophisticatedstatistical sampling and computerauditing techniques.1.Limited to government entities(although can be wide variety ofentities).2.Bureaucracy of provincialgovernment.b.The two best choices for the senior interested in becoming a certified fraud examiner wouldbe starting out as either a CPA or an internal auditor. A CPA gains experience with internalcontrols and has an understanding of incentives and opportunities to commit fraud. Aninternal auditor gains experience with internal controls and has an in-depth understanding ofoperations and the many facets of a business. CRA auditors and provincial auditors would bein demand for fraud examinations relating specifically to tax fraud or fraud at governmentalentities (as was highlighted in the opening vignette).

Page 15 of 16

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 15 preview image

Instructor’s Solutions Manual forAuditing, Fourteenth Canadian Edition1-12c.Other auditing careers that are available are:Auditors within many of the branches of the federal government and the Auditor Generalof Canada.Auditors for municipal governments (as highlighted in the chapter).Internal auditors with large non-profit organizations, including hospitals and universities.Fraudauditorsandforensicaccountants(thesecouldbewithlargeorganizations,specialized practices, or public accounting firms).1-24a.The vision of the Global Reporting Initiative (GRI) is a sustainable globaleconomy where organizations manage their economic, environmental, social and governanceperformanceandimpactsresponsibly,andreporttransparently.Itsmissionistomakesustainability reporting standard practice by providing guidance and support to organizations.b.According to the GRI “A sustainability report is a report published by a company ororganization about the economic, environmental, and social impacts caused by its everydayactivities. A sustainability report also presents the organization's values and governance model,and demonstrates the link between its strategy and its commitment to a sustainable globaleconomy.”In an integrated report, sustainability information is included along with financial information.Thesereportsemphasizethelinksbetweenfinancialandnon-financialperformance.Anintegrated report also presents the risks and opportunities the company faces, integrated withdisclosure of environmental, social, and governance issues.c.GRI offers two “in accordance” reporting options, Core and Comprehensive. The Corereport provides the essential elements of a sustainability report. The Comprehensive reportincludes additional disclosures of the organization’s strategy and analysis, governance, andethics and integrity. The GRI recommends external assurance, but it is not required for eithertype of “in accordance” report.1-25Instructors should direct students to their provincial CPA association to refer to theeducational requirements for the CPA Certification. The CPA education program is a nationalprogram which is administered by each provincial body. Educational requirements are consistentfrom province to province and students.a.The educational requirements for the CPA certification program are:Post-secondary degree (120 credit hours or 90 credit hours) with appropriate subjectcoverage. If the student’s degree is less than 120 hours or does not have the appropriatesubject coverage, students may get that coverage through the CPA preparatory courses(formerly CPA PREP).Completion of the CPA professional educational program (PEP). Students enrolledaccredited university graduate programs may be exempt from some of the CPA PEPmodules.Common Final Exam (CFE). This is a three-day national exam that all CPA studentsmust pass.

Page 16 of 16

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 16 preview image

Chapter 1: The Demand for Audit and Other Assurance Services1-13b.Students may enroll in the CPA certification program without having work experience;however, in order to obtain their designation, they must complete certain work requirements.There are six competencies in which students need to develop proficiency in any threemanagementand/orfinancialaccountingcompetenciesandmustbehaveanin-depthproficiency in two competencies (depending upon their career aspirations). Students havetwo options regarding completion of work experience – employment at pre-approved trainingoffice or experience verification (which requires more documentation and certification bysupervisor). Both routes require 30 months of progressive experience and students must havea mentor.c.Students who wish to obtain a public accountants license, must choose assurance and tax astheir electives in the PEP program and must work in an approved training office (which willallow students to develop the required depth for assurance and taxation).d.To remain a member in good standing, CPAs must adhere to the CPA Code of ProfessionalConduct. In addition members must pay their annual membership fees and complete a 120hours of continuing professional development (CPD) every three years.NOTE:Each province requires a CPA designation for a public accountant’s license and theprovincial accounting body is responsible for issuing the license. However, the regulations foreachprovinceareslightlydifferent.InOntario,thereisanadditionalbody,thePublicAccountants Council of Ontario (PAC), that is responsible for regulating the Public Accountantslicense. It develops the standards for the PA license and ensures that CPA Ontario meets thosestandards. The PAC can also fine accountants who practice public accounting without a license.Professional Judgment Problems and Cases1-26The PA firm for the internet company described in this problem could address thesecustomer concerns by performing an assurance service that could attest to the website’s site'sbusiness practices and controls. This could include:Processing integrity for: Accuracy of product descriptions and adherence to stated returnpoliciesOnline privacy and security for: credit card and other personal informationOnline privacy and security for: selling information to other companiesAvailability: The system is available for operation and use as committed or agreed1-27a.The operational efficiency of the sales department could be assessed by a qualified accountant(which could include a PA, internal auditor, or other qualified accountant), while the otherdepartments could be assessed by qualified accountants together with a qualified researcherand manufacturing consultant. Skills present should be familiarity with best business practicesin the industry and functional area under audit, as well as skills in information technology,research and development, and production development and management.

Preview Mode

This document has 409 pages. Sign in to access the full document!

Report

Learning Tools

Writing Tools

Browse Resources

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Solution Manual - Page 1

Study Now!

Document Details

Related Documents

Auditing: The Art And Science Of Assurance Engagements, Fourteenth Canadian Edition Class Notes

The Audit Report and Internal Control Evaluation

Audit Procedures and Internal Control Evaluation for Smackey Dog Foods, Inc.

Auditing Inventories; Cost of Goods Sold; And Property, Plant, and Equipment

Test Bank For Auditing And Assurance Services, 5th Edition

Test Bank for Auditing and Assurance Services, 17th Edition

Auditing and Assurance Services 6th Edition Solution Manual

Solution Manual for Assurance Practice Set for Comprehensive Assurance & Systems Tool (CAST), 4th Edition

Principles of Fraud Examination 4th Edition Solution Manual

Auditing : A Practical Approach, Canadian Edition Solution Manual

Company

Explore

Study Tools