As the engagement partner, you have reviewed the audit working papers of Royal HeightLimited. The audit team has highlighted the following matters in the working papers:1. Thirty percent of the company's recorded turnover (revenue) comprises of cashsales. Proper records of cash sales have not been maintained. Consequently, theaudit team was unable to design audit procedures to verify the cash sales.2. During the current year, the company changed the method of charging depreciationon its fixed assets from the straight line to the diminishing balance method.However, all the required disclosures have been included in the notes to the financialstatements.Required:Discuss the impact of each of the above matters on your audit report.1

The audit report will be prepared by the auditors based on the information provided by the company…

Answered: As the engagement partner, you have…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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audit is scheduled to begin in one weck. With respcct to past duc audit fccs, Alma 1. Alma, CPA, had not been paid yet her prior year's audit fee. The current year', audit is scheduled to begin in one weck. With respect to past duc audit fccs, Alm should a. Perform the scheduled audit and allow the company to pay when cash flow difficulties are alleviated. b. Perform the scheduled audit only after arranging a definite payment schedule and securing notes signed by the company. C. Inform management that the past due audit fees may be considered a loan on which interest must be computed for financial statement purposes. d. Inform management that the past-due audit fees are considered an impairment of auditor's independence. 2. Without the consent of the client. a CPA should not disclose confidential information contained in working papers to a a, Court that has issued a valid subpoena. b. Disciplinary body created under state statute. c. Voluntary quality control review board. d. CPA firm…
The 2021 financial statement audit of OMG company began when the trial balance was received from management. You were assigned to audit the accounts payable of the entity. The schedule of liabilities to vendor showed that the company has only five suppliers which account for 90% of the total accounts payable balance. Thus, the audit team has decided to send confirmation letters to those vendors. Upon your further review, you have noted that the amounts provided in the schedule and the trial balance does not balance, but you have noted that the difference is below the materiality threshold. Considering the facts provided, which of the following statements is true? A. Negative confirmation letters may be sent to the suppliers even if we did not rely on controls. B. There is a sampling risk associated with the audit sampling procedure performed by the audit assaciate C. The sampling technique used by the audit associate is invald because it involves bias. D. Since the difference is below…
Discuss whether the changes described in each of the cases below require recognition in the CPA’s audit report as to consistency. (Assume that the amounts are material.) a. The company changed its inventory method to FIFO from weighted-average, which had been used in prior years. b. The company disposed of one of the two subsidiaries that had been included in its consolidated statements for prior years. c. The estimated remaining useful life of plant property was reduced because of obsolescence.
Lenexa State Bank has followed the practice of capitalizing certain marketing costs and amortizing these costs over their expected life. In the current year, the bank determined that the future benefits from these costs were doubtful. Consequently, the bank adopted the policy of expensing these costs as incurred. How should the bank report this accounting change in the comparative financial statements?
The Ministry of Magic, the regulator of businesses, is concerned about the public financial reporting that was produced by Eeylops Owl Emporium Ltd. The Ministry was aware that the emporium had not indicated that it was discontinuing a division of its business and that for the last financial year it had not included an acquisition of a new building in its balance sheet, which it had purchased some three months before the end of the financial year. Explain why the regulator is concerned with such oversights and what the emporium is required to do in each case.
An auditor discovered the following matters while performing tests of controls 1.An invoice for goods received from Company for P10,000 was paid, but the client never ordered the goods. Required: a.What control would have prevented or detected each of the above misstatements? b.What test should the auditor perform to test the control? c.To which financial statement assertion does the misstatement relate?
Write the audit approach section like the cases in the chapter.Hide the Loss under the GoodwillGulwest Industries, a public company, decided to discontinue its unprofitable line of business of manufacturing sporting ammunition. Gulwest had capitalized the startup cost of the business, and with its discontinuance, the $7 million deferred cost should have been written off. Instead, Gulwest formed a new corporation, Amron, and transferred the sporting ammunition assets (including the $7 million deferred cost) to it in exchange for all Amron stock. In the Gulwest accounts, the Amron investment was carried at $12.4 million, which was the book value of the assets transferred (including the $7 million deferred cost). Gulwest and a different public company (Big Industrial) created another company (BigShot Ammunition). Gulwest transferred all Amron assets to BigShot in exchange for (1) common and preferred stock of Big Industrial valued at $2 million and (2) a note from BigShot in the amount of…
You are a partner incharge of the audit for Bargin Ltd, a private company. The finishing of the audit report is pending for the income year 2018 and you have recorded some situations where possible action is required They are listed below: Bargin Ltd, carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements. Management of Bargin Ltd, refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material. You were unable to confirm accounts receivable with Bargin Ltd, customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures. One week before the end of fieldwork, you discover that the audit manager on the Bargin Ltd, engagement owns a material amount of Bargin Ltd, common stock. You relied…
You a partner incharge of the audit for Bargin Ltd, a private company. The completion of the audit report is pending for the income year 2018 and you have recorded some situations where possible action is required They are listed below: Bargin Ltd, carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements. Management of Bargin Ltd, refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material. You were unable to confirm accounts receivable with Bargin Ltd, customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures. One week before the end of fieldwork, you discover that the audit manager on the Bargin Ltd, engagement owns a material amount of Bargin Ltd, common stock. You relied…
You are the lead partner overseeing the audit for Camo Ltd, a privately owned company. The completion of the audit report is pending for the income year 2020 and you have noted several situations with possible actions. The situations are as follows: 1. Camo Corporation carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements. 2. Management of Camo Corporation refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material. 3. You were unable to confirm accounts receivable with Camo’s customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures. 4. One week before the end of fieldwork, you discover that the audit manager on the Camo engagement owns a material amount of Camo’s common stock. 5.…

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