Marissa is an audit intern working at Marshall CPA firm. Her supervisor at Marshall CPA firm has explained that the audit of property, plant and equipment and the related accounts ties in to management's expectations of the firm's earnings. Marissa is unclear as to how this relationship works and asks the supervisor to elaborate. Which of the following would be the most accurate response? O The relationship is fairly straightforward. If the client's management is keen to show strong earnings to beat analysts' expectations, they may manipulate depreciation expenses to boost these earnings. O The best way to think about this relationship is to think about how fixed assets are depreciated over time, and the incentive management has to shorten useful lives to decrease depreciation expenses. O The relationship works on the premise that when property, plant and equipment is amortized, the firms earnings are boosted through the accelerated amortization of fixed assets. O None of these answer choices are correct.

Marissa is an audit intern working at Marshall CPA firm. Her supervisor at Marshall CPA firm has explained that the audit of property, plant and equipment and the related accounts ties in to management's expectations of the firm's earnings. Marissa is unclear as to how this relationship works and asks the supervisor to elaborate. Which of the following would be the most accurate response? O The relationship is fairly straightforward. If the client's management is keen to show strong earnings to beat analysts' expectations, they may manipulate depreciation expenses to boost these earnings. O The best way to think about this relationship is to think about how fixed assets are depreciated over time, and the incentive management has to shorten useful lives to decrease depreciation expenses. O The relationship works on the premise that when property, plant and equipment is amortized, the firms earnings are boosted through the accelerated amortization of fixed assets. O None of these answer choices are correct.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

You have been employed Arens & Elder CPA for many years. As a training officer for the firm, part of your responsibility include training new staff before they are sent out on an initial audit job. Three new members of staff are expected to work on the audit of Flemings Limited. Your training of these new staff members will focus on management assertions and audit procedures. The following are various management assertions (1 through 10), made by Flemings, that are related to their sales and accounts receivable. i. All sales transactions have been recorded. ii. Receivables are appropriately classified as to trade and other receivables in the financial statements and are clearly described. iii. Accounts receivable are recorded at the correct amounts. iv. Sales transactions have been recorded in the proper period. v. Sales transactions have been recorded in the appropriate accounts. vi. All required disclosures about sales and receivables have been made. vii. All…
Huang is an investment adviser for high-net-worth clients. Huang’sresponsibility is to assist new clients complete the extensive documentationneeded in opening an account. These signed documents give access to clientassets and the discretion to trade on behalf of the client. Because Huang is new and not familiar with firm procedures and is afraid of making mistakes with the documents. Therefore, he uses erasable ink in completing thedocumentation so he can easily fix any mistakes without having to go back tothe client for additional signatures. Comment the action of Huang
An IT auditor is conducting data analysis procedures on an employee expense report file and notices several expenses for $24.99 from the same individual. The company’s policy requires that any expenses that are under $25.00 do not require a receipt. The IT auditor should: [SELECT ALL THAT APPLY a) Maintain professional skepticism and investigate these transactions further b) Pass on investigating these items further, focusing on higher dollar amounts c) Evaluate the business process approval controls, and related procedures d) Discuss fraud awareness and detection programs with management to gain an understanding of management’s commitment to fraud prevention and related entity-level anti-fraud controls.
Which of the following would limit the independence of the Internal Audit function? The Internal Audit function reports to the Audit Committee. The remuneration package of the Internal Audit function includes a bonus based on profit for the year. The Internal Audit function has too many staff for the work available. Several of the Internal Audit function staff are qualified accountants but several others are not.
Stewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will be whether the financial report should be amended, or additional notes included for these subsequent events. Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows. (a) The board is planning to issue shares in a private placement on 15 August. (: another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August. (? lodged in the Supreme Court in the week after year-end claiming damages for illness allegedly caused by chemicals used at a subsidiar y company's…
Hi, I have an assignment and I was asked to the audit Assume you are the senior accountant on an audit engagement of a fictitious business, Pine Street Company (PSC). Assume the instructor is the engagement partner. You are to prepare a audit program for PSC. The firm manufactures and sells bicycles. The audit program must be in one of the following areas of the business: accounts receivable and revenues; inventories and costs of goods sold; accounts payable; payroll; or property, plant and equipment. Week 2 - Identify the components/sections of a cash audit program for PSC. Date General Journal Debit Credit Merchandise Inventory : $5,900 Account Payable Johns $5,900 Merchandise Inventory $330 Cash $330 Account Payable Johns $900 Merchandise Inventory $900 Account Payable Johns $5,000 Cash $4,900 Merchandise Inventory $100 Merchandise Inventory $ 12,250 Account Payable Johns $12,250 Account Payable Johns $3,250 Merchandise Inventory $3,250 Account…
Erica Gray, CPA, is a sole practitioner. She has been practicing as an auditor for 10 years. Recently a long-standing audit client asked Gray to design and implement an integrated computer-based accounting information system. The fees associated with this additional engagement with the client are very attractive. However, Gray wonders if she can remain objective on subsequent audits in her evaluation of the client’s accounting system and its records if she was responsible for its design and implementation. Gray knows that professional auditing standards require her to remain independent in fact and appearance from her auditing clients. Required 1. What do you believe auditing standards are mainly concerned with when they require independence in fact? In appearance? 2. Why is it important that auditors remain independent of their clients? 3. Do you think Gray can accept this engagement and remain independent? Justify your response.
Steve Ankenbrandt, president of Beeb Corporation, has been discussing the company’s internal operations with the presidents of several other multidivision companies. Ankenbrandt discovered that most of them have an internal audit staff. The activities of the staffs at other companies include financial audits, operational audits, and sometimes compliance audits. Required: Describe the meaning of the following terms as they relate to the internal auditing function: a. Financial auditing. b. Operational auditing. c. Compliance auditing.
Stewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will be whether the financial report should be amended, or additional notes included for these subsequent events.Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows.(a) The board is planning to issue shares in a private placement on 15 August. (b) The share issue is to fund the purchase of a 60 per cent stake in another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August. (c) A writ was lodged in the Supreme Court in the week after year-end claiming damages for…
Tana Thorne works in a public accoungting firm and hopes to eventually be a partner. The management of Allnet Company invites Thorne to prepare a bid to audit Allnet's financial statements. In discussing the audit fee, Allnet's management suggests a fee range in which the amount depends on the reported profit of Allnet. The higher its profit, the higher will be the audit fee paid to Thorne's firm. 1. Identify the parties potentially affected by this audit and the fee plan proposed. 2. What are the ethical factors in this situation? Explain 3. Would you recommend that Thorne accept this audit fee arrangement? Why or why not? 4. Describe some ethical considerations guiding your recommendation.
In making client acceptance and continuance decisions, the auditor will perform various procedures in assessing the client. Which of these would most likely not be one of those procedures? a. obtain background checks on management to assess management integrity b. review regulatory filings and examination reports c. analyze client financial statements and compare to industry metrics d. submit management to a lie detector test
1. Madeline is a CPA and the CFO of ABC Company. Madeline’s sister is Katherine. Katherine is a CPA who just joined the office of Billem and Howe, CPA’s as a Senior Accountant. Katherine has been assigned to the Los Angeles office. ABC Company’s headquarters is in Austin, Texas, which is where Madeline has her office. ABC has asked Billem and Howe to bid on the attest engagement. All of the audit work will be performed from Billem and Howe’s Austin office with no support or coordination from the Los Angeles office. Question: Does it matter if Katherine owns stock in ABC?