The maintenance of auditor independence is vital to the credibility of the audit in the minds of the users of financial statements.” 1. State the provisions of the companies Act, 2019 (Act 992) which strengthen the independence of the auditor. 2. Suggest how the independence of the auditor might be further strengthened and improved.
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“The maintenance of auditor independence is vital to the credibility of the audit in the minds of the users of financial statements.”
1. State the provisions of the companies Act, 2019 (Act 992) which strengthen the independence of the auditor.
2. Suggest how the independence of the auditor might be further strengthened and improved.
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- Professional guidance indicates that the auditor should consider revenue recognition to be high risk in planning an audit of a company’s financial statements. a. Identify the activities that affect the revenue cycle. b. Identify the financial statement accounts typically associated with the revenue cycle.An important task ¡n the audit of the revenue cycle is determining whether a client has appropriately recognized revenue. a. What is the five-step process that companies should use in recognizing revenue? Why might the auditor need to do additional research and consider additional criteria on revenue recognition? b. The following are situations in which the auditor will make decisions about the amount of revenue to be recognized. For each of the following scenarios, labeled (1) through (6): . Identify the key issues to address in determining whether or not revenue should he recognized. . Identify additional information the auditor may want to gather in making a decision on revenue recognition. . Based only on the information presented, develop a rationale for either the recognition or nonrecognition of revenue. 1. AOL sells software that is unique as a provider of Internet services. The software contract includes a service fee of $19.95 for up to 500 hours of Internet service each month. The minimum requirement is a one-year contract. The company proposes to immediately recognize 30% of the first-year’s contract as revenue from the sale of software and 70% as Internet services on a monthly basis as fees are collected from the customer. 2. Modis Manufacturing builds specialty packaging machinery for other manufacturers. All of the products are high end and range in sales price from $5 million to $25 million. A major customer is rebuilding one of its factories and has ordered three machines with total revenue for Modis of $45 million. The contracted date to complete the production was November, and the company met the contract dare. The customer acknowledges the contract and confirms the amount. However, because the factory is not yet complete, it has asked Modis to hold the products in the ware house as a courtesy until its building is complete. 3. Standish Stoneware has developed a new low-end line of baking products that will be sold directly to consumers and to low-end discount retailers. The company had previously sold high-end silverware products to specialty stores and has a track record of returned items for the high-end stores. The new products tend to have more defects, but the defects are not necessarily recognizable ¡n production. For example, they are more likely to crack when first used in baking. The company does not have a history of returns from these products, but because the products are new, it grants each customer the right to return the merchandise for a full refund or replacement within one year of purchase. 4. Omer Technologies is a high-growth company that sells electronic products to the custom copying business. It is an industry with high innovation, but Omer’s technology is basic. In order to achieve growth, management has empowered the sales staff to make special deals to increase sales in the fourth quarter of the year. The sales deals include a price break and an increased salesperson commission but not an extension of either the product warranty or the customer’s right to return the product. 5. Electric City is a new company that has the exclusive right to a new technology that saves municipalities a substantial amount of energy for large-scale lighting purposes (e.g., for ball fields, parking lots, and shop ping centers). The technology has been shown to be very cost effective in Europe. In order to get new customers to try the product, the sales force allows customers to try the product for up to six months to prove the amount of energy savings they will realize. The company is so confident that customers will buy the product that it allows this pilot-testing period. Revenue is recognized at the time the product is installed at the customer location, with a small provision made for potential returns. 6. Jackson Products decided to quit manufacturing a line of its products and outsourced the production. However, much of its manufacturing equipment could be used by other companies. In addition, it had over $5 million of new manufacturing equipment on order in a noncancelable deal. The company decided to become a sales representative to sell the new equipment ordered and its existing equipment. All of the sales were recorded as revenue.Outline the reasons why auditor independence is considered of fundamental importance for confidence in financial statement auditing and evaluate the case for and against recent regulatory changes that affect the relationship between the auditor and the reporting company. Any help?
- Prior to accepting a new audit engagement, a public accounting firm shoulda. Attempt to contact the predecessor auditors.b. Evaluate the integrity of management.c. Assess the firm’s resources to ensure that they are sufficient to permit the firm to accept the engagement.d. All of the above.Which of the following is the most important responsibility of the external auditor? a. To ensure that financial statements comply with applicable financial reporting framework b. To ensure compliance with laws and regulations applicable to the entity c. To design, implement and maintain a system of internal control d. To express an opinion on a true and fair view of the financial statementsWhich of the following should an auditor obtain from the predecessor auditor prior to accepting an audit engagement? O All matters of continuing accounting significance O Facts that might bear on the integrity of management O Analysis of balance sheet accounts O Analysis of income statement accounts
- Which of the following are rights of auditors? I. To access all accounting books and records at all times II. To insist that financial statements are corrected if they do not give a true and fair view III. To receive notice of all board meetings on matters of concern to the auditor IV. To attend and be heard at all board meetings on matters of concern to the auditor V. To receive all information and explanations from management necessary for the proper conduct of the auditFundamental Principles (Comprehensive). In each of the following, identify which ofthe elements of the fundamental principles is most applicable. In addition, discuss whataction(s) (if any) you believe auditors should take with respect to these issues.a. An entity has contacted you about performing its audit engagement. You have not previously served a client in the entity’s industry, which has many industry-specific accounting issues that are both technical and complex.b. An entity has entered into a number of lease agreements. Based on the requirements ofGAAP, you believe that these obligations meet the criteria for being classified as capitalleases; however, the entity has elected to treat these leases as operating leases, providingfull and complete disclosure of this treatment in the footnotes to the financial statements.c. Because of a disagreement with its current auditors, an entity has contacted you aboutconducting its current-year audit. However, because the previous auditors…Which of the following may not be the possible sources of obtaining information in respect of client's business for the purpose of preparation of an audit plan? O a. Minutes of directors and shareholders of entity's competitors O b. Discussion of audit matters with an internal auditor OC. Discussions with client's lawyers O d. Predecessor auditor's working papers
- Chapter 1: Introduction of Auditing A. Section 267 and 271 of the Companies Act 2016 respectively require for the private and public companies to appoint an auditor for each financial year. An auditor should ensure that the financial statements of the company are prepared in accordance with the relevant accounting standards. An auditor is guided by the auditing standards in order to obtain reasonable assurance that the financial statements are free from material misstatements. Required: i. Explain two (2) benefits of a financial statements audit performed by an approved company auditor. i. Explain the tem 'reasonable assurance'. i. Explain two (2) importance of auditing standards to an auditor in performing the assigned duties.Which of the following is the primary responsibility of auditor? a. To ensure compliance with laws and regulations applicable on the entity b. To design, implement and maintain system of internal control. c. To ensure that financial statement comply with applicable financial reporting framework d. To express an opinion on true and fair view of the financial statements.**Objective Question:** Which type of audit primarily focuses on ensuring that an organization complies with relevant laws, regulations, and internal policies? A) External audit B) Tax audit C) Compliance audit D) Forensic audit
