Solutions for The Audit Process, 8th Edition by Gray (All Chapters included)
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Course
Auditing
Institution
York College
Complete Solutions Manual for The Audit Process, 8th Edition by Iain Gray, Stuart Manson, Louise Crawford, Lynn Bradley, Lynn Currie ; ISBN13: 9781473786929....(Full Chapters included Chapter 1 to 21)...1. Why are auditors needed?
2. An overview of the postulates and concepts of auditing
3. Audit...
Complete Chapter Solutions Manual
are included (Ch 1 to 21)
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** All Chapters included
,Table of Contents are given below
1. Why are auditors needed?
2. An overview of the postulates and concepts of auditing
3. Auditor independence
4. Audit regulation
5. An introduction to corporate governance
6. Risk
7. Evidence
8. Systems work basic ideas
9. Testing and evaluation of systems
10. Substantive testing, CAAT and audit programmes
11. Sampling and materiality
12. Final work: general principles and analytical review of financial statements, and
management assertions on financial statement heading
13. Final work: non-current assets, trade receivables and financial assets
14. Final work: specific problems relating to inventories, construction contracts, trade
payables and financial liabilities
15. Final review: post balance sheet period, provisions, contingencies, letter of rep.
16. Assurance engagements and internal audit
17. The Audit Report, including reporting on corporate governance
18. Fraud and going concern
19. The audit expectations gap and audit quality
20. The auditor and liability under the law
21. Disruptive technologies
, Solutions to Tutor Self-Assessment Questions
Chapter 1
Why are auditors needed?
Questions
1.5
Why do you think that the auditors would need a letter from management saying
that they have provided them with all the books and records of the company? Try to
think of a scenario where management might try to understate cash receipts for
their own benefit.
1.6
We have not discussed this at length yet, but can you at this stage suggest what
benefits society should derive from a competent, independent and effective audit
function?
1.7
Suggest why auditors might be in a good position to provide a service giving
assurance on the effectiveness of the company’s information and control system.
Refer back to Table 1.1 while you are considering this matter.
1.8
WorldCom tried to maintain profit levels by treating revenue costs (over $3.8 billion)
as capital expenditure. Explain what the impact would be if revenue costs (such as
repairs to plant and machinery) were to be treated as capital assets. What do you
think the auditor should have done to discover such malpractice?
Solutions
1.5
The management of the company comprises individuals who know intimately the
way that the company is run and the books and records that it keeps. You could
imagine a situation where a management of low integrity in a small organization
might try and fool the auditor by keeping (say) a separate bank account for
undeclared cash income. One example might be where purchases are recorded on
the basis of invoices received from suppliers, but quantity rebates received at the
end of the year are placed in a separate bank account (not declared to the auditor)
and used to pay tax-free bonuses to management.
We are not suggesting that such practices are prevalent, but the auditor does need
management to confirm that they have been informed of all books and records kept.
You might argue that a management of low integrity would sign a Letter of
Representation telling less than the truth without a qualm. Maybe this is true, but a
formal Letter of Representation does remind management of the statements that
, they have made to the auditor. You will find later that a letter like this becomes
important evidence for holding in the audit files.
1.6
If you have been reading about some of the scandals and the financial crisis that
started in 2007/2008 and briefly mentioned in Chapter 1, and you will be aware that
many people have been querying the morals and competence of top management
and have asked in addition why the auditors of financial institutions had failed to
warn that those institutions were in a parlous state. Indeed, many commentators
have suggested that the auditors were lacking in independence, competence and
effectiveness.
This is a matter of considerable concern to governments, regulators and everyone
who has an interest in a sound economic and financial system. It should be
remembered that trust in the soundness of banks and other financial institutions is
of overriding importance as is too the trust in the reliability of financial statements
prepared by directors and reported on by auditors. We shall discuss these issues
later in this book, but you should note now that the main benefit that society in
general should derive from independent, competent and effective audit is
confidence that people can rely on published figures for the purpose of their
decision-making.
1.7
If you look closely at Table 1.1 you will notice that auditors have to obtain a great
deal of information about the company for audit purposes. They get good insights
into how management runs the company, including management objectives and
how they are achieved. You will have noted too that auditors examine systems in
detail and carry out detailed analytical reviews of figures appearing in the company's
books, records and accounts. As they become (have to become) well acquainted
with the company, they may very well be the first people that management
approach for assurance services, including that mentioned above - assurance on the
effectiveness of the company's information and control system. We will see later in
the book, however, that this kind of work may alter outsiders' perception of auditor
independence.
1.8
Well, clearly, transferring revenue expenditure to the Statement of Financial Position
(formerly known as the Balance Sheet) rather than the Income Account (formerly
known as the Profit and Loss account) means that charges against profit will be
spread over time in the form of depreciation or amortization, rather than as an
immediate charge. We shall discuss later in the book what procedures the auditor
should adopt, but at this stage note that the decision as to whether a cost is capital
or revenue will lead the auditor to consider the nature of each transaction. A starting
point would be to find out from management the plans that they have for increasing
their tangible fixed assets and why they have decided to do so. The auditor would
then have a benchmark of expected expenditure and any major departure from
expectation would lead the auditor to question the nature of transactions appearing
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