Late Appointment of Auditors. AOW has completed the audit of the financial statements of Musgrave Company for the year ended December 31, 2017, and is now preparingthe report.AOW has audited Musgrave’s financial statements for several years, but this yearMusgrave delayed the start of the audit work, so AOW was not present to observe the takingof the physical inventory on December 31, 2017. The inventory balance is $194,000,which represents 39 percent of Musgrave’s total assets and 69 percent of its currentassets. However, AOW performed alternative procedures including (1) examination ofshipping and receiving documents with regard to transactions since the date of the financialstatements, (2) extensive review of the inventory count sheets, and (3) discussion of thephysical inventory procedures with responsible company personnel. AOW also is satisfiedabout the propriety of the inventory valuation calculations and the consistency of the valuation method. Musgrave determines year-end inventory quantities solely by means ofphysical count.Required:Draft AOW’s report on the balance sheet at the end of the current year and on the statementsof operations, changes in shareholders’ equity, and cash flows for the year then ended.(Hint: Did the alternative procedures produce sufficient appropriate evidence?)
Late Appointment of Auditors. AOW has completed the audit of the financial statements of Musgrave Company for the year ended December 31, 2017, and is now preparing
the report.
AOW has audited Musgrave’s financial statements for several years, but this year
Musgrave delayed the start of the audit work, so AOW was not present to observe the taking
of the physical inventory on December 31, 2017. The inventory balance is $194,000,
which represents 39 percent of Musgrave’s total assets and 69 percent of its current
assets. However, AOW performed alternative procedures including (1) examination of
shipping and receiving documents with regard to transactions since the date of the financial
statements, (2) extensive review of the inventory count sheets, and (3) discussion of the
physical inventory procedures with responsible company personnel. AOW also is satisfied
about the propriety of the
physical count.
Required:
Draft AOW’s report on the balance sheet at the end of the current year and on the statements
of operations, changes in shareholders’ equity, and
(Hint: Did the alternative procedures produce sufficient appropriate evidence?)
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