I want answer A company has discovered that it has been underestimating its warrantyexpenses for the past several years. Discuss the potential impact of this erroron the company's financial statements and the steps the company should taketo correct the error. What are the implications of this error for the company'sinternal controls? How can the company prevent similar errors in the future?

Definitions Related to the Question1. Concept of Warranty ExpensesWarranty expenses refer to the…

Answered: A company has discovered that it has…

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter9: Auditing The Revenue Cycle

Section: Chapter Questions

Problem 20MCQ

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Introduction: Warranty liabilities are a crucial aspect of financial reporting, representing the estimated future costs that a company expects to incur related to warranties provided with its products or services. Proper accounting for warranty liabilities is essential for accurate financial statements and ensuring transparency for investors and stakeholders. Background: Let's consider XYZ Electronics, a leading manufacturer of consumer electronics. The company sells various electronic gadgets with warranties ranging from 1 to 3 years, depending on the product. To account for warranty liabilities, XYZ Electronics follows the accrual basis of accounting, recognizing the estimated future costs associated with warranties at the time of sale. Recording Warranty Liabilities: When a product is sold, XYZ Electronics estimates the future warranty costs based on historical data, industry standards, and its own experience with product failures. The estimated warranty expense is then recorded as…
Any time management makes an estimate, there is the risk of earnings management or fraud. Accounting for bad debts requires management to make an estimate on the future collectability of receivables. Discuss why this could be an area at risk for earnings management.
Should the SEC take tolerance on a company that recognizes and reports accounting irregularities and other frauds of the company?
A disadvantage of basing bad debt expense on the historical relationship between actual bad debts and the outstanding accounts receivable balance at the end of the year is that A it is not a generally accepted accounting procedure. B it is an income statement approach. C it may not recognize the cause and effect relationship between expenses and revenues. D it may not result in a reasonable estimate of the net realizable value of receivables.
A client that recently loosened its credit-granting policies uses percentages of aging categories as the basis for the initial calculation of the allowance for doubtful accounts. When auditing the allowance for doubtful accounts, the auditor must perform procedures to ensure that… Question options: The outstanding invoices were aged correctly since the aging is the basis for calculating the allowance. The client's aging categories are consistent with industry averages. The percentages of aging categories used to calculate the allowance were not impacted by managerial judgment. The percentages of aging categories used to calculate the allowance for the current year are identical to prior years.
would unpaid payroll taxes be fairly easily uncovered in an audit? Can employees try to conceal the non-payment? What are specific tests of controls that can be performed? Can outsourcing eliminate this risk?
Provide an appropriate response based on the following scenarios. Assume that the accounting clerk posts a customer’s payment for the wrong amount, giving the customer credit for less than he or she actually paid. How will this error be detected? How might this error have been prevented? Assume that the employee who opens the mail steals a customer payment. How will this theft be detected? How might this theft have been prevented?
When using the allowance method for accounting for bad debts, accounts receivable is reported on the balance sheet at the expected net realizable value. When a particular receivable from a customer ultimately is determined to be uncollectible and is written off, the recording of this event will Group of answer choices A)decrease the net realizable value of the accounts receivable. B)have an effect that is not determinable from the information given. C)increase the net realizable value of the accounts receivable. D)decrease total current assets. e)None of the above
13. When the estimate used for bad debt expense is changed, bad debt expense for all past periods must be recalculated. there is no change in the amount of bad debt expense recorded for future years. bad debt expense for current and future years is affected. The company must change its write-off policy as well. 14. Which of the following methods of determining bad debt expense does not generally (assuming materiality) provide a level of matching of expense and revenue that is acceptable following GAAP? Debiting bad debt expense with a percentage of sales under the allowance method. Debiting bad debt expense as accounts are written off as uncollectible. Debiting bad debt expense with an amount derived from aging accounts receivable under the allowance method. Debiting bad debt expense with a percentage of accounts receivable under the allowance method.
If an employee skims sales from a customer, which of the following will likely occur? a. The stolen payment if not material, will not be noticed by the organization. b. The receivable will become past due C. The customer will not be able to show proof that payment has been made. O d. The organization is likely to notice the theft of the payment immediately.
If a company uses the allowance method of accounting for bad debts, which one of the following statements is true?a. It violates the matching principle. b. It will record bad debts only when an account is determined to be uncollectible. c. It will reduce the accounts receivable at the end of the accounting period for estimated uncollectible accounts. d. It will report accounts receivable in the balance sheet at their net realizable value.
Cyber Systems’ management has been actively pursuing clients who fail to pay invoices when they fall due. Based on the experience of Cyber Systems in the 2021 financial year which ends on June 30, the longer an account receivable is outstanding, the more likely the client never pays the amount due. The longer the account is due, the more likely the client closes their travel agency and can never pay amounts due to Cyber Systems. Answer the following: (a) Identify the method and approach that is appropriate to account for bad debts in this case. (b) With reference to three relevant accounting principles, assumptions and/or qualitative characteristics, justify why the method and approach you have identified in part (a) is appropriate. Clearly label each part of your answer related to parts a and b above. In particular for part b, structure your answer as follows for each of the three relevant accounting principles, assumptions and/or qualitative characteristics:Identify accounting…

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