A.02 Chapter 14 (14-29)

14 – 29
A.	SER= Number of exception / sample size
Column	Planned Audit				SER	TER(5%) – SER
	ARACR	Population Size	Sample Size	Number of Exeption	(%)
1	10	5000	200	4	2	3
2	5	5000	200	4	2	3
3	5	5000	50	1	2	3
4	5	50000	200	4	2	3
5	5	500	100	2	2	3
6	5	900	100	10	10	0
7	5	5000	100	0	0	5
8	5	500	25	0	0	5
B.
Column	Planned Audit				CUER
	ARACR	Population Size	Sample Size	Number of Exeption
1	10	5000	200	4	4
2	5	5000	200	4	4,6
3	5	5000	50	1	9,2
4	5	50000	200	4	4,6
5	5	500	100	2	6,2
6	5	900	100	10	16,4
7	5	5000	100	0	3
8	5	500	25	0	11,3
C.	1. Decrease in ARACR                      = CUER Increase
	2. Decrease in Population size             = CUER Increase
	3. Decrease in sample size                 = CUER Increase
	4. Decrease in number of exception   = CUER Increase
D.	Sample size and Number of exception have the greatest effects on the CUER, population size has the least effect on the CUER.
E.	It is necessary to compare the CUER with the TER because the auditor need to analyze  the individual exception to find the weakness of internal control.
For complete document, click Chapter14 (14 – 29)

A.02 Chapter 14 (14-28)

14 – 28
A. By using judgement
Column	Planned Audit				Initial Sample
	ARACR	TER	EPER	Population Size
1	10	6	2	1000	90
2	5	6	2	100000	135
3	5	5	2	6000	150
4	5	6	2	1000	100
5	10	20	8	500	55
6	10	20	2	500	45
7	5	2	0	1000000	190
B. By using attributes sampling from the appropriate part of Table 14-8
Column	Planned Audit				Initial Sample
	ARACR	TER	EPER	Population Size
1	10	6	2	1000	88
2	5	6	2	100000	127
3	5	5	2	6000	181
4	5	6	2	1000	127
5	10	20	8	500	25
6	10	20	2	500	18
7	5	2	0	1000000	149
C.	Increase in ARACR          = Sample Decrease
	Increase in TER                = Sample Decrease
	Increase in EPER              = Sample Increase
	Incrase in population size   = Sample Increase
D.	because there are differences in ARACR and TER percentage and also there is a huge differences in population size.
E.	ARACR and TER have the greatest effect on the initial sample size and population size has the least effect on the initial sample size.
F.	It called the initial sample size, because the exceptions in the actual sample must be evaluated before it is possible to know whether the sample is sufficiently large to achieve the objectives of the test.
For complete document,,click Chapter 14 (14 – 28).

A.01 Internet Problem (Worksheet 12)

Shelly Huzaynah 21207019

SMAK01-7

Auditing 2

Question :

1. How does IT governance fit into an organization’s overall governance?

Answer :

IT governance fit into an organization’s overall governance, it because of these three reason :

1. IT contributes directly to market value.
2. IT is essential for the achievement of business goals.
3. IT involves large investments and business risks.

A.01 Internet Problem (Worksheet 11)

Shelly Huzaynah 21207019

SMAK01-7

Auditing 2

Question :

1. What are three common pitfalls that should be avoided during brainstorming sessions? How can these problems be avoided?

Answer :

There is three common pitfalls that should  be avoided during brainstorming sessions, because it can hinder an audit team’s brainstorming effectiveness :

1. Group domination, is one of the most corrosive problems. If the participant dominating the process can quickly squelch the creative energies of the group as a whole, which can reducing the likelihood the team will identify any actual fraud risks.
2. Social loafing, also called free-riding. It occurs when participants disengage from the process, expecting that other team members will pick up the slack.
3. Groupthink, is another pitfall to avoid. This phenomenon occurs when team members become so concerned with reaching consensus that they fail to realistically evaluate all ideas or suggestions.

A.01 Internet Problem (Worksheet 10)

Shelly Huzaynah 21207019

SMAK01-7

Auditing 2

Question :

1. Use EDGAR to search for Tri-Valley Corporation (TVC) and Monarch Staffing Inc. Find TVC’s 10-K and Monarch’s 10-KSB for the year ended 12-31-06.

Answer :

Tri – Valley Corporation (TVC), 10-K Report, Year ended 12/31/2006.

http://www.sec.gov/Archives/edgar/data/22551/000002255107000009/tvc123106-10k.htm

Monarch Staffing Inc. 10-KBS Report, Year ended 12/31/2006.

http://www.sec.gov/Archives/edgar/data/1177326/000114037707000054/0001140377-07-000054-index.htm

A.01 Internet Problem (Worksheet 9)

Shelly Huzaynah 21207019

SMAK01-7

Auditing 2

Question :

Internet Problem 9-1 (Materiality and Tolerable Misstatement)

Establishing materiality for the audit of a client’s financial statement requires considerable judgment. The allocation of the auditor’s preliminary judgment about materiality to the client’s accounts requires substantial judgment as well. For this reason, decisions about materiality are made by more experienced auditors. The following problem affords you an opportunity to apply the concept of materiality to an actual set of financial statements.

1. Imagine that you are employed as an auditor in a CPA firm that performs the audit of Microsoft. Your firm’s materiality guidelines indicate that overall engagement materiality should be set at an amount between five and ten percent of income before taxes.
   1. Apply your firm’s guidelines to Microsoft’s 2003 financial statements. What percentage of income before taxes do you believe is appropriate? Why? What do you.
   2. Given Microsoft’s 2003 balance sheet, what asset line items would be allocated the highest amount of tolerable misstatement? Why?

Answer :

A.01 Internet Problem (Worksheet 8)

Shelly Huzaynah 21207019

SMAK01-7

Auditing 2

Question :

The vignette at the beginning of Chapter 6 in the text contains a brief description of the ZZZZ Best fraud. One area where the auditors were particularly criticized in that audit had to do with the auditors’ lack of industry knowledge. With hindsight it appeared that the fraud should have been easily detected because ZZZZ Bests’ large restoration contracts were in excess of $7 million while the largest restoration jobs on record in the insurance restoration industry were less than $3 million.

You have been approached by On the Sunny Side, a team sports uniform designer and manufacturer for women, about performing the company’s financial statement audit. The company began operations eight years ago and has experienced strong growth in the last several years. Teri Kloth, the chief executive officer, has told you that her company expects production in 2004 to be 450,000 units. She also provided summary historical financial and operating data regarding unit sales. In   2002 and 2003, the company reported sales of 365,000 and 402,000 units, respectively.

Are On the Sunny Side’s 2002 and 2003 unit sales reasonable? Why or why not? (Hint: Visit the U.S. Census Bureau’s web site. Once you are at the site, go to the “Business” section and then to the “Manufacturing” sector-specific data section. Once you are there, locate the Current Industrial Reports. Next search the CIRs by Subject Title for Apparel. Data about women’s team sports uniforms can be found by search for “Apparel.” Use the most current annual report for your analysis.

Answer :

A.01 Internet Problem (Worksheet 7)

Shelly Huzaynah 21207019

SMAK01-7

Auditing 2

Question :

1. Read about ACL’s solution for data quality and fraud detection. How might an auditor use ACL’s data analytics software for these two purposes?

Answer :

Auditors use ACL’s data analytics software for data quality and fraud detection. ACL technology helps auditors/organizations detect and prevent fraud by allowing auditors/organizations to:

A.01 Internet Problem (Worksheet 6)

Shelly Huzaynah 21207019

SMAK01-7

Auditing 2

Question :

1. Read the statements issued by the PCAOB and SEC on May 16, 2005 and briefly describe the apparent underlying cause(s) for auditors’ failure in applying the concept of reasonable assurance. Hint: Read the portion of the PCAOB’s policy statement entitled “The Importance of Professional Judgment.”

Answer :

Some auditors failure in applying the concept of reasonable assurance in their first year. Based on Auditing Standard No. 2 is for the auditor to obtain evidence that a company’s control system reasonably assures that its financial statements do not contain material misstatements. To accomplish this, the auditor must not only exercise judgment to determine how to apply the standard to audit clients in different industries and of different sizes, but also exercise judgment to focus their work on areas that pose higher risks of misstatement, due either to errors or fraud. Reliance on standardized checklists that lead to a focus on controls in low-risk areas obviously fails to meet this objective.

A.01 Internet Problem (Worksheet 5)

Shelly Huzaynah 21207019

SMAK01-7

Auditing 2

Question :

1.  What allegedly occurred according to the complaint underlying LR No. 18487?

Answer :

The Securities and Exchange Commission announced today that on November 24, 2003, the Honorable George B. Daniels of the United States District Court for the Southern District of New York permanently enjoined defendant Billy Blackwelder (“Blackwelder”) from violating the antifraud, anti-touting and other provisions of the federal securities laws, barred him from participating in an offer of penny stock, and ordered him to disgorge his illicit profits.