1-10 Five examples of specific operational audits that could be conducted by an internal auditor in a manufacturing company are:
Examine employee time records and personnel records to determine if sufficient information 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 at the 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 as possible.
1-11 When auditing historical financial statements, an auditor must have a thorough understanding of the client and its environment, including knowledge about the client’s regulatory and operating environment, business strategies and processes, and measurement indicators. This strategic understanding is also useful in other assurance or consulting engagements. For example, an auditor performing an assurance service on information technology would need to understand the client’s business strategies and processes related to information technology, including such things as purchases and sales via the Internet. Similarly, a practitioner performing a consulting engagement to evaluate the efficiency and effectiveness of a client’s manufacturing process would likely start with an analysis of various measurement indicators, including ratio analysis and benchmarking against key competitors.
1-12 The four parts of the Uniform CPA Examination are: Auditing and Attestation, Financial Accounting and Reporting, Regulation, and Business Environment and Concepts.
Multiple Choice Questions From CPA Examinations
1-13 a. (1) b. (4) c. (1)
1-14 a. (3) b. (4) c. (1)
Multiple Choice Questions From Becker CPA Exam Review
1-15 a. (4) b. (3) c. (3)
Discussion Questions And Problems
1-16 a. Audit services are a form of attestation service, and attestation services are a form of assurance service. In a diagram, audit services are located within the attestation service area, and attestation services are located within the assurance service area.
1. (2) An attestation service other than an audit service
(2) An attestation service other than an audit service
(1) An audit of historical financial statements
(3) An assurance or nonassurance service that is not an
attestation service
(2) An attestation service other than an audit service
(2) An attestation service other than an audit service
(2) An attestation service other than an audit service
(Review services are a form of attestation, but are performed according to Statements on Standards for Accounting and Review Services.)
(2) An attestation service other than an audit service
(2) An attestation service other than an audit service
11-16 (continued)
(2) An attestation service other than an audit service
(3) An assurance or nonassurance service that is not an
attestation service
1-17 a. The interest rate for the loan that requires a review report is lower than the loan that did not require a review because of lower information risk. A review report provides moderate assurance to financial statement users, which lowers information risk. An audit report provides further assurance and lower information risk. As a result of reduced information risk, the interest rate is lowest for the loan with the audit report.
Given these circumstances, Monterrey should select the loan from First City Bank that requires an annual audit. In this situation, the additional cost of the audit is less than the reduction in interest due to lower information risk. The following is the calculation of total costs for each loan:
LENDER
CPA SERVICE
COST OF CPA SERVICES
ANNUAL INTEREST