ACC 550 Final Exam Solution Manual Already Passed

ACC 550 Final Exam Solution Manual Already Passed Per auditing standards, what are the 6 categories of laws and regulations? - Answers 1) Direct 2) Do not have direct effect 3) Low impact 4) High impact 5) Direct & do not have direct effect 6) Low & high Two categories of laws and regulations with regards to the financial statements? - Answers 1) Direct effect on financial statements 2) Do not have direct effect on financial statements Explain the direct effect on financial statements and examples? - Answers 1) Tax laws affecting accruals 2) Revenue recognition under gov't contracts 3) Pension laws affecting recognition 4) Industry specific reporting requirements 5) Statutorily-mandated requirements 6) Foreign Corrupt Practices Act (re: AAER 2160) Explain the do NOT direct effect on financial statements and examples? - Answers 1) Operating license 2) Environmental regulations 4) Employment regulations 5) Occupational safety regulations 6) Regulatory solvency What is auditor's responsibility to detect noncompliance? - Answers The auditor should obtain sufficient appropriate audit evidence regarding material amounts and disclosures in the financial statements that are determined by the provisions of those laws and regulations generally recognized to have a direct effect on the their determination a. Inquiring of management about compliance with laws and regulations b. Inspecting correspondence with relevant licensing or regulatory authorities. Auditor should remain alert that other audit procedures may bring instances of noncompliance, such as: - Answers 1) Reading minutes 2) Inquiring of legal counsel 3) Performing substantives tests of details Meaning of noncompliance? - Answers Acts of omission or commission by the entity, either intentional or unintentional, which are contrary to the prevailing laws or regulations What are the 8 indications of non-compliance? - Answers 1) Investigation by governmental agency 2) Violations cited by regulators 3) Unusually large payments made in cash 4) Unexplained payments of gov't officials 5) Improperly recorded transactions 6) Purchasing prices significantly above/below market 7) Adverse media comment 8) Payments to registered tax havens Audit procedures when noncompliance identified or suspected - Answers 1) Obtain understanding of the nature of the act and circumstances in which it has occurred 2) Obtain further information to evaluate the possible effect on the financial statements 3) Discuss matter with management (at level above those involved) 4) Communicate with those charged with governance Evaluating implications of noncompliance: - Answers - Evaluate implications with regard to other aspects of the audit, including auditor's risk assessment and reliability of management's written representations. - Possible effect on financial statements: 1) Quantitative effect of noncompliance 2) Qualitative materiality of effect of noncompliance 3) Whether potential financial consequences require accrual or disclosure under applicable financial reporting framework 4) Question overall fair presentation of financial statements How the Foreign Corrupt Practices Act investigation works? - Answers 1) whistleblower or audit alleges bribery 2) audit committee hires external law firm 3) company self reports to the justice department 4) law firm dispatches lawyers world wide 5) justice department prosecutes or settles Who is notified with non-compliance? - Answers Disclosure OUTSIDE of management and those charged with governance is not ordinary part of auditor's responsibility. In certain circumstances where auditor may be required to disclose non-compliance? - Answers 1) 10-a investigation 2) Form 8-K, reporting auditor change 3) Government funding source 4) Communications with successor auditor 5) Response to subpoena what is the purpose of communication with those charge with governance? - Answers 1) Clearly communicate responsibilities of auditor and scope and timing of audit 2) Obtain information relevant to the audit 3) Provide timely observations relevant to their (e.g., those charged with governance) responsibilities in overseeing the financial statement process what are the matters to communicate? - Answers 1) Auditor responsibilities 2) Overview of planned scope and timing of audit 3) Significant findings for the audit what are significant findings from the audit? - Answers 1) Significant difficulties encountered during the audit