course material

1. Describe how the nature of evidence used to evaluate the
REVIEW QUESTIONSWhat is the auditor’s responsibility for obtaining an under- standing of
internal control? How does that responsibility differ for audits of public and nonpublic
companies?Jeanne Maier, CPA, believes that it is appropriate to obtain an under- standing of
internal control about halfway through the audit, after she is familiar with the client’s
operations and the way the system actually works. She has found through experience that
filling out internal control questionnaires and flowcharts early in the engagement is not
beneficial because the system rarely functions the way it is supposed to. Later in the
engagement, the auditor can prepare flowcharts and questionnaires with relative ease
because of the knowledge already obtained on the audit. Evaluate her approach.What is a
walk through of internal control? What is its purpose?Describe how the nature of evidence
used to evaluate the control environment differs from the nature of evidence used to
evaluate control activities.Distinguish a significant deficiency in internal control from a
material weakness in internal control. How will the presence of one significant deficiency
affect an auditor’s report on internal control under PCAOB standards? How will the
presence of one material weakness affect an auditor’s report on internal control under
PCAOB standards?Distinguish the auditor’s responsibility for testing controls in an
integrated audit of a public company from the responsibility to test controls in an audit of a
nonpublic company.During the prior-year audits of McKimmon, Inc., a private company, the
auditor did tests of controls for all relevant financial statement assertions. Some of the
related controls are manual while others are automated. Describe the extent to which the
auditor can rely on tests of controls performed in prior years.The auditor’s risk assessment
procedures identified several risks that the auditor deems to be significant risks. Several
internal controls exist that are de- signed to mitigate the risks identified. Describe the
auditor’s responsibilities for considering those controls in the current audit.Your client has
outsourced the majority of the accounting information system to a third-party data center.
What impact does that have on your audit of the financial statements?How does the auditor
use information obtained from the control risk assessment and testing of controls to plan
audit procedures?If the auditor assesses control risk as high for a transaction-relatedaudit
objective, what does that imply for detection risk and the level of substantive testing?What
two conditions must be present for the auditor to issue an unqualified opinion on internal
control over financial reporting? What type of condition will cause the auditor to issue a
qualified or disclaimer of opinion on internal control over financial reporting?Explain how
control risk assessment differs for an integrated audit versus a financial statement-only

2. audit.Explain what is meant by auditing through the computer, and describe the challenges
and benefits of this approach in an audit of a client that uses IT extensively to process
accounting information.Explain what is meant by the test data approach. What are the
major difficulties with using this approach? Define parallel simulation with audit software
and provide an example of how it can be used to test a client’s payroll system