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Business

Accounting

audit risk to be consider in planning audit and audit procedures

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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Consider the following independent situations relating to the audit of five different audit clients for year ended 30 June 20X8. Assume that all the situations are material. For each of the above cases, state the appropriate audit opinion that the auditor would require. Give reasons 1. new client has changed its valuation method of property, plant and equipment. It has adopted the Fair Value Revaluation Model to replace the Historic cost measurement method. Whilst the auditor does not object to the change in the valuation model, the new method has a material effect on the financial statements and has not been disclosed. A special meeting was held between the CFO and the Finance Team and the Lead Partner from the Audit team, but nothing was resolved 2. (ii) A new start-up company specialising in air-drone mail/package delivery has grown strongly in the past year. Over the past three years the company has made consistent losses, borrowed heavily, experienced staff turnover and dealt with…
Carinal Ltd. specializes in the development of electronic components within quite acompetitive environment causing concerns for marketing and pricing. Its non-current assetsprimarily include IT software, property, and investments, and there have been additions tothese during the year.As audit manager, you are conducting a preliminary analytical review and associated riskanalysis for this client for the year ended June 30 2022. You have been presented with thefollowing draft financial information about Carinal with incomplete ratios and percentagescalculation. INCOME STATEMENT Year ended June 30 2022 2021 $'000 $'000Revenue…
Conclude and explain, with reference to the IPPF (code of ethics or standards) whether it is permissible or not permissible. Provide reason for your conclusion; 1.The CAE resolved not to report a significant finding about an illegal environmental activity to the audit committee because management had indicated that they would handle the issue.
Image to the questions is attached below. Questions 1.Using the information provided, identify and describe five audit risks, and explain the auditor's response to each risk, and in planning the audit if Fizzyco. 2. Describe the substantive procedures the audit team should perform to obtain sufficient and appropriate audit evidence about the following three matters: a. The treatment of the £5 million expenditure incurred on improving the factory production process; b. The release of the £1.5 million allowances for receivables; and c. The damage inventory. 3. Define a 'test if controls' and provide three examples of test of controls in relation to the audit and sales receivables. 4. Define a 'substantive procedure' and provide three examples of substantive procedures in relation to the audit and sales receivables.
BackgroundYou have been assigned to the 2020 audit of Oshikango (Pty) Ltd (hereafter Oshikango). Oshikango’s period end is 30 April 2020. The company has been established in 2013, it is situated in the Northern part of Namibia and they are operating in the automotive industry, selling new and used vehicles.With the Covid-19 pandemic that has caused uncertainties to the operation of many businesses, the audit team is worried about the going concern of Oshikango Pty Ltd. The company has made losses in the current year and they are facing a difficult financial position mainly due to the current economic status of Namibia. The decrease in the sales of vehicles has been noticed in the recent years. Oshikango has recently announced that they will be retrenching 15 of their employees post lockdown.Trade receivables auditYou are currently busy testing trade receivables balance and you have selected 2 samples of debtors from the accounting records as at 30 April 2020 and request positive…
explain. If, after obtaining an initial understanding of a client's internal control, the auditor wishes to further reduce the assessed level of control risk relating to plant asset transactions, the auditor should next Make extensive substantive tests of plant asset balances. Establish the physical existence of current year additions. Complete the plant asset section of the internal accounting control questionnaire. Further test those internal control procedures relating to processing and recording plant asset transactions.
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…
At a recent meeting of the accounting staff in your company, the controller raised the issue of using present value techniques to conduct impairment tests for some of the company's fixed assets. Some of the more senior members of the staff admitted having little knowledge of present value concepts in this context, but they had heard about a FASB Concepts Statement that may be relevant. As the junior staff in the department, you have been asked to conduct some research of the authoritative literature on this topic and report back at the staff meeting next week. Instructions If your school has a subscription to the FASB Codification, go to http://aaahq.org/asclogin.cfm to log in and access the FASB Statements of Financial Accounting Concepts. When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following items. (Provide paragraph citations.) (a) Identify the concept statement that addresses present value measurement in…
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…
please answer with reason
For the following independent situations, assume that you are the audit partner on the engagement: 1. In reviewing of subsequent events, you learned of heavy damage to the client's warehouse due to a fire occurred after year-end. The loss will partly be reimbursed by insurance. The newspaper described the event in detail. The client made adjustment to related inventories and buildings to reflect the loss. 2. All facts are the same as situation 1, but the client did not make adjustment to year end figure of inventory. 3. During the course of examination on your audit client, you suspect that a material amount of assets has been misappropriated through fraud. Management refuses to allow you to investigate further to confirm the suspicions. 4. The client's financing arrangements expired and the amount outstanding was past due. The client cannot renegotiate or obtain refinancing and is considering filing bankruptcy. Financial statements were prepared using the going concern basis and this…
Carinal Ltd. specializes in the development of electronic components within quite acompetitive environment causing concerns for marketing and pricing. Its non-current assetsprimarily include IT software, property, and investments, and there have been additions tothese during the year.As audit manager, you are conducting a preliminary analytical review and associated riskanalysis for this client for the year ended June 30 2022. You have been presented with thefollowing draft financial information about Carinal with incomplete ratios and percentagescalculation. INCOME STATEMENT Year ended June 30 2022 2021 $'000 $'000Revenue 22450 18675Cost of sales 8475 8055Gross Profit 13975 10620Distribution costs 4245 3120Administrative expenses 1276 2134Selling expenses 5555 512Profit from operations 2899 4854Net interest receivable 1245 495Profit before tax 4144 5349Income tax expense 2145 2345Net profit 1999 3004Retained profits 1325 2105Dividends paid $1250 $1049Accounting ratios and…