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![Indicate whether you agree or disagree with the following statements and explain your reasoning.
Teresa Dziuba was assigned to the Heathcliff Energy audit. She was ensuring that when
recognizing revenues, all transactions and events that should have been recorded have been
recorded. She was testing the existence assertion.
Assume materiality for the financial statements as a whole is $200,000 and performance materiality
for accounts receivable is set at $80,000. If the auditor finds one receivable that is overstated by
$110,000, the auditor can ignore the error as it is less than $200,000 (overall materiality).
Steve Slopak, the group partner was reviewing the work of Manny Fernandez on the Lake Shore
Gold account. Manny asked Steve for an explanation on how audit risk_ould affect his work.
Steve answered: “Audit risk affects the quantity and quality of evidence gathering."](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8286069a-69bb-4c25-89af-db5135446ba9%2F31c23757-f72d-47f2-81be-6024a3c46b44%2Fcqqv74_processed.jpeg&w=3840&q=75)
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- The auditors have determined that each of the following objectives will be a part of the audit of SSC Corporation. While several procedures will ordinarily address an audit objective, select the procedure most directly related to the audit objective. Each procedure may be used once, more than once, or not at all. 1. All receivables that should be recorded are recorded as of year-end. 2. Recorded receivables are at appropriate net realizable values. 3. Recorded receivables exist. 4. The client has rights to recorded year-end receivables. 5. The presentation and disclosure of receivables are adequate. Trace a sample of sales invoiced from late in December to the sales journal and to postings in accounts receivable and sales amounts. Review the aged trial balance for significant past due accounts. Review board of director minutes and underlying contracts and sales terms with customers. Vouch year-end accounts…You are an employee of Dick and Associates’ Auditing Firm. The company take on an engagement to audit Full Bright Company Limited. The engagement was divided into segments such as receivables, payables, cash and bank, inventories and non- current assets and each segment is headed by an audit senior. The audited of the non -current assets was assigned to you. After reviewing the financial statement, you re-cognized that non-current assets values 500 million and current assets values 400 million. A machine values 250 million was acquired by Full Bright Co. Ltd during the period under audit. You also noticed that the Depreciation on some of the assets were not calculated properly. The company did not keep a fixed asset registry. NB. The company has no Goodwill. a) Discuss at least four (4) audit procedures you would perform in completing your audit on the non-current assets. b)…Field, CPA, is auditing the financial statements of MillerMailorder, Inc. (MMI). Field has compiled a list of possible inherentand fraud risks in the revenue cycle that may result in the misstatementof MMI’s financial statements and a corresponding list ofinternal controls, which, if properly designed and implemented,could assist MMI in preventing or detecting material misstatements.For each risk numbered 1 through 15 in column 1, select one internalcontrol from column 2 (labeled a. through t.), which, if properlydesigned and implemented, most likely could assist MMI in preventingor detecting material misstatements. Internal controls can beselected for more than one risk.
- You are the audit partner of ‘Power Auditors’ and you are auditing your client ‘FreefallIncorporated’.After finishing all the tests on the client’s financial information you determine that there is amaterial misstatement in the accounts receivable account of your client. This misstatementhas also caused the sales revenue account to be materially misstated. You have notified theclient about the misstatement but as of reporting date, client has not made any corrections.You also found misstatements in the fixed assets and accounts payable accounts, but theyare not material as per your assessment. You found no other misstatements in the otheraccounts.In addition to this, you also notice that the client has a large amount of debt which will bedue next year. As the business has suffered a loss this year and does not have enough cashflow at the end of the year to pay the debt next year, the client will need to secure someform of refinancing next year. Without this refinancing, there is a…Elizabeth Johnson, CPA, has completed the audit of notespayable and other liabilities for Valley River Electrical Services and now plans to auditcontingent liabilities and commitments.a. Distinguish between contingent liabilities and commitments and explain why bothare important in an audit.b. Identify three useful audit procedures for uncovering contingent liabilities thatJohnson will likely perform in the normal conduct of the audit, even if she had noresponsibility for uncovering contingencies.c. Identify three other procedures Johnson is likely to perform specifically for the purpose of identifying undisclosed contingencies to help her obtain evidence about thecompleteness presentation and disclosure objective.1.Compile a working paper indicating all relevant information that should be included in the working paper. In your design and compilation of the working paper ensure that include the following elements:Audit Objective:Sample:Audit Procedures:Testing workings and results:Conclusion:
- Alexander Robinson, a junior auditor working for Big One Accounting Firm. He is included in the audit team engaging in the audit the Financial Reports of Complicated Ltd., a listed company on AST. When evaluating audit results for assets in the audit, Alexander has set the preliminary judgment about materiality to be $67,000. He then allocated the materiality to all the asset accounts. The account balances, performance materiality and estimated overstatements in the accounts are shown below: Account Account balance Performance materiality Estimate of total overstatements Cash 60,000 6,000 5,500 Account receivable 1,300,000 20,000 500,000? Inventory 2,100,000 60,000 45,000 Other assets 360,000 24,000 23,000 Total 4,090,000 110,000 Alexander has chosen a sample of $500,000 in Accounts Receivable. He tested it and uncovered $6000 in overstatement. He then checked on the individual accounts and all accounts in the total assets against the allocated performance…Various Completion Matters. For each of the following independent situations, describe the most appropriate course of action that the auditors should take.a. Drew Allison is conducting the audit of Anderson Inc. as of December 31, 2017. At the beginning of the evidence gathering, Allison becomes aware that one of Anderson’s major customers (Jones) is experiencing significant financial difficulties. Jones normally accounts for 5 percent of Anderson’s net sales. After performing the necessary procedures, Allison believes that $2.8 million of Jones’s receivable balance will ultimately become uncollectible. Allison further believes this amount is material to Anderson’s financial condition and results of operations.b. Nagan Carmelo is completing the December 31, 2017, audit of Nugget Company. As part of the final procedures, Carmelo has requested representations from Nugget’s management regarding their assertion as to the fairness of the financial statements and other important matters…Johnny Kang, CPA, is the auditor of the Felix Lee Ltd. Johnny Kang, CPA is considering the audit work to be performed in the accounts payable area for the current year’s engagement. The prior year papers show that confirmation requests were mailed to one hundred of the client’s one thousand suppliers. The selected suppliers were based on Johnny Kang’s sampling, which was designed to select high value items in the accounts payable balance. Johnny Kang and Felix Lee Ltd.’s accountant, DY Anderson spent substantial number of hours resolving relatively minor differences between the confirmation replies and accounting records. Alternative audit procedures were used for those suppliers who did not respond to the confirmation requests. Required:1. Identify the accounts payable assertions that Johnny Kang must consider in determining the substantive tests to be followed. 2. Identify situations for which Johnny Kang should use accounts payable confirmations and discuss whether he is required to…
- Auditors make materiality judgments during the planning/risk assessment phase of the audit to be sure they ultimatelygather sufficient evidence during the audit to provide reasonableassurance that the financial statements are free of material misstatements.The lower the materiality threshold that an auditorhas for an account balance, the more the evidence that the auditormust collect. Auditors often use quantitative benchmarks such as 1% of total assets or 5% of net income to determine whethermisstatements materially affect the financial statements, but ultimatelyit is an auditor’s individual professional judgment as towhether a given misstatement is or is not considered material.a. What is the relationship between the level of riskiness of theclient and the level of misstatement in an account balancethat an auditor would consider material? For example,assume that Client A has weaker controls over accountsreceivable compared to Client B (therefore, Client A is riskierthan Client B).…In an audit sampling application, an auditora. Performs procedures on all items in a balance and makes a conclusion about the entirebalance.b. Performs procedures on less than 100 percent of the items in a balance and formulates aconclusion about the entire balance.c. Performs procedures on less than 100 percent of the items in a class of transactions tobecome familiar with the client’s accounting system.d. Performs analytical procedures on the client’s unaudited financial statements when planning the audit.You are evaluating audit results for assets in the audit ofRoberts Manufacturing. You set the preliminary judgment about materiality at $50,000.The account balances, performance materiality, and estimated overstatements in theaccounts are shown next.Account Performance Estimate of TotalAccount Balance Materiality OverstatementsCash $ 50,000 $ 5,000 $ 1,000Accounts receivable 1,200,000 30,000 20,000Inventory 2,500,000 50,000 ?Other assets 250,000 15,000 12,000Total $4,000,000 $100,000 ? a. Assume you tested inventory amounts totaling $1,000,000 and found $10,000 inoverstatements. Ignoring sampling risk, what is your estimate of the total misstatement in inventory?b. Based on the audit of the assets accounts and ignoring other accounts, are the overallfinancial statements acceptable? Explain.c. What do you believe the auditor should do in the circumstances?
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