Auditing: The Art and Science of Assurance Engagements 15th Canadian Edition by Alvin A Arens Test b

A) legislation in the Auditor General's jurisdiction.
B) the financial statement auditors of the client.
C) the Auditor General and his/her staff.
D) audit partner planning and audit program development.
Answer: A
45) To operate effectively, an internal auditor must be independent of the
A) outsourcing organizations used.
B) entity that is being audited.
C) employer- employee relationship that exists for other employees in the organization.
D) line functions of the organization.
Answer: D
46) The internal audit group typically reports directly to the
A) audit committee. B) board of directors.
C) external auditor. D) management of the company.
Answer: A
47) An example of a forensic accounting assignment might be
A) ensuring compliance with specific legislation.
B) evaluating the effectiveness of an internal process.
C) estimating the value of inventory lost in a warehouse theft.
D) determining whether overall financial statements are stated in conformity with IFRS.
Answer: C
48) In operational auditing, the auditor studies business operations and makes recommendations about all of the
following except
A) effective achievement of business objectives. B) compliance with company policies.
C) economic and efficient use of resources. D) the fairness of the financial statements.
Answer: D
ESSAY. Write your answer in the space provided or on a separate sheet of paper.
49) We discuss four types of auditors: public accountants, government auditors, Canada Revenue Agency auditors,
and internal auditors. Briefly describe the work and responsibilities of each type of auditor.
Answer: Public Accountants: Primary function is the audit of financial statements of publicly traded companies
and of other organizations requiring audits. The type of audit normally performed is known as an
attestation engagement because they attest to the fair presentation of the financial statements. To conduct
the audit of financial statements, the auditor must be a licensed public accountant.
Government Auditors: Primary function is the audit of ministries, departments, and agencies that report
to the government. A government auditor performs the audit function for the government.
Canada Revenue Agency Auditors: Primary responsibility is the enforcement of federal tax laws. The
Canada Revenue Agency auditors audit the returns of taxpayers to determine whether they have
complied with the tax laws. They only perform compliance audits.
Internal Auditors: Internal auditors are normally members of the IIA and work for individual companies
to audit for management. The internal auditor's responsibilities can vary considerably but often include
operations auditing and reporting their findings directly to the board of directors and audit committee.
The internal auditor must be independent from the line function in the organization he/she is auditing.
50) To do an audit, it is necessary to have information in a verifiable form and some criteria by which the auditor
can evaluate the information.
Required:
A. What information and criteria would a public accounting firm use when auditing a company's financial
statements?
B. What information and criteria would a Canada Revenue Agency auditor use when auditing that same
company's tax return?
C. What information and criteria would an internal auditor use when performing an operational audit to
evaluate whether the company's computerized payroll processing system is operating efficiently and
effectively?
Answer: A. The information used by a public accounting firm in a financial statement audit is the financial
information in the company's financial statements. The criteria used are a relevant accounting
framework such as IFRS or ASPE.
B. The information used by a Canada Revenue Agency auditor is the financial information in the
auditee's federal tax return. The criteria are the Income Tax Act and interpretations.
C. The information used by an internal auditor when performing an operational audit of the payroll
system could include various items such as the number of errors made, costs incurred by the payroll
department, and number of payroll records processed each month. The criteria would consist of
company standards for departmental efficiency and effectiveness.
51) Mega Manufacturing Company (Mega) is thinking about acquiring Localized Small Producer Inc. (LSP), a small
manufacturing company that produces related products. Mega has examined the financial statements of LSP,
which show only a small profit in the last five years. Management of LSP has taken reasonable salaries, and the
cost of goods sold is higher than the industry average for LSP. Mega believes that it will be able to introduce