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Take Home Exam for Final Assignment 2020-2021/Spring
ACC302: Principles of Auditing
Cut-Off Date : 28th April 2021
Cut off Time : 08:05 PM
Total Marks
Duration
: 100
: 24 Hours
Contents:
Warnings and Declaration…………………………………………………………….………………………………………………………………. 1
Question1 ………………………….…………………………………………………………………………………………….………………………..…. 2
Question 2 …………………………………………………………………………………………………………………………….……………….…..…. 3
Question 3 ………….…………………………………………………………………………………………………………………………………………. 4
Question 4 ………….…………………………………………………………………………………………………………………………………………. 5
Plagiarism Warning:
As per AOU rules and regulations, all students are required to submit their own THE-Final work and avoid plagiarism. The
AOU has implemented sophisticated techniques for plagiarism detection. You will be penalized for any act of plagiarism
as per the AOU’s rules and regulations.
Declaration of No Plagiarism by Student (to be signed and submitted by student with THE-Final work):
I hereby declare that this submitted THE-Final work is a result of my own efforts and I have not plagiarized any
other person’s work.
Name of Student
:
…………………………………………………..
Signature
:
…………………………………………………..
Date
:
…………………………………………………..
ACC302 / THE-Final
1 of 5
2020-2021/Spring
Question 1: (25 marks)
Adam, the sole owner of a small hardware business, has been told that the business should have its
financial statements audited by an independent CPA. Adam, having some bookkeeping experience, has
personally prepared the company’s financial statements and does not understand why such statements
should be audited by a CPA. Adam discussed the matter with Farber, a CPA, and asked Farber to
explain why an audit is considered important.
Required:
a. Describe the objectives of an independent audit refer to above case. (15 marks)
b. Identify five ways in which an independent audit may be beneficial to Adam. (10 marks)
ACC302 / THE-Final
2 of 5
2020-2021/Spring
Question 2: (25 marks)
A. The firm of Johns, Apple & co, CPAs, is the auditor of Alpha Corporation, a nonpublic
company. The president of Alpha, Karen Lester, has been putting pressure on Sara, the audit
partner, to accept a questionable accounting principle. She has even threatened to take steps to
replace the CPA firm if he does not acquiesce.
Does this situation impair the CPA firm’s independence? Explain your answer.
(13 marks)
B. Roger Royce, CPA, has encountered a situation that he thinks may pose a threat to his
independence with respect to Watson, Inc., an audit client. The situation is not addressed by an
independence rule or regulation.
Using the AICPA Conceptual Framework for Independence Standards, describe how Royce
can determine whether the threat truly impairs his independence.
(12 marks)
ACC302 / THE-Final
3 of 5
2020-2021/Spring
Question 3: (25 marks)
“Our responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with International Standards on Auditing. Those Standards require
that we comply with relevant ethical requirements and plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures
in the financial statements. The procedures selected depend on our judgement, including the
assessment of the risks of material misstatement of the financial statements, whether due to fraud
or error. In making those risk assessments, we consider internal control relevant to the entity’s
preparation and fair presentation of the financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as
well as evaluating the overall presentation of the financial statements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
‘Opinion’, In our opinion the financial statements present fairly, in all material respects, the financial
position of the Company as at 31 December 2015 and its financial performance and its cash flows for
the year then ended in accordance with International Financial Reporting Standards”.
a. What are the basic elements of auditor’s report? Explain briefly. (10 marks)
b. What do you understand from the above one section of auditor’s report? (10 marks)
c. What conclusion or result you can extract from the above paragraph about the company
financial statement representations? (5 marks)
ACC302 / THE-Final
4 of 5
2020-2021/Spring
Question 4: (25 marks)
Auditor risk can be defined as the risk that the auditor expresses an inappropriate audit opinion when
the financial statements are materially misstated. Audit risk is a function of material misstatement and
detection risk.
Audit risk is fundamental to the audit process because auditors cannot and do not attempt to check all
transactions. Identify and explain the components of audit risk. Support your answer with example
from the real-world business case.
End of Assessment
ACC302 / THE-Final
5 of 5
2020-2021/Spring

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