What type of disclosure or accounting do you believe isnecessary for the following items?(a) Because of a general increase in the number of labordisputes and strikes, both within and outside the industry,there is an increased likelihood that a companywill suffer a costly strike in the near future.(b) A company reports a material unusual and infrequentloss on the income statement. No other mentionis made of this item in the annual report.(c) A company expects to recover a substantial amountin connection with a pending refund claim for aprior year’s taxes. Although the claim is being contested,counsel for the company has confirmed theclient’s expectation of recovery

What type of disclosure or accounting do you believe isnecessary for the following items?(a) Because of a general increase in the number of labordisputes and strikes, both within and outside the industry,there is an increased likelihood that a companywill suffer a costly strike in the near future.(b) A company reports a material unusual and infrequentloss on the income statement. No other mentionis made of this item in the annual report.(c) A company expects to recover a substantial amountin connection with a pending refund claim for aprior year’s taxes. Although the claim is being contested,counsel for the company has confirmed theclient’s expectation of recovery

Contemporary Auditing

11th Edition

ISBN:9781337650380

Author:KNAPP

Publisher:KNAPP

Chapter2: Audits Of High-risk Accounts

Section2.8: Belot Enterprises

Problem 3Q

See similar textbooks

Similar questions

A loss due to an employee strike should be reported as: A) A separated line item in retained earnings B) Discontinued operations C) other revenues and expenses D) selling expense
c. Assuming you have checked this account and have detected that client did not record an expense transaction of $60,000 for the accrued salary incurred in June 2020. The client also did not calculate and record the accrued annual leave expenses for the 2020 financial year at the amount of $30,000 - What management assertions are violated (i.e. at risk) - What would you do in relation to the personnel expenses account if you have determined that the issues detected all are errors (an unintentional mistake).
A company fails to record accrued wages for the current year. Which of the following statement is true? O Retained earnings for the current year is overstated. O Net income for the current year is correct. O Retained earnings for the current year is understated. O Net income for the current year is understated.
Companies often voluntarily provide non-GAAP earnings when they announce annual or quarterly earnings. These numbers are controversial as they represent management’s view of permanent earnings. The Sarbanes-Oxley Act (SOX), issued in 2002, requires that if non-GAAP earnings are included in any periodic or other report filed with the SEC or in any public disclosure or press release, the company also must provide reconciliation with earnings determined according to GAAP. Professors Entwistle, Feltham, and Mbagwu, in “Financial Reporting Regulation and the Reporting of Pro Forma Earnings,” examine whether firms changed their reporting practice in response to the regulations included in SOX. Answer the following: What sample of firms did the authors use in their examination? What percent of firms reported non-GAAP earnings (referred to as pro forma earnings by the authors) in 2001? In 2003? What was the most frequently reported adjusting item in 2001? In 2003? What is the authors’ main…
Companies often voluntarily provide non-GAAP earnings when they announce annual or quarterly earnings.These numbers are controversial as they represent management’s view of permanent earnings. The SarbanesOxley Act (SOX), issued in 2002, requires that if non-GAAP earnings are included in any periodic or other reportfiled with the SEC or in any public disclosure or press release, the company also must provide a reconciliationwith earnings determined according to GAAP.Professors Entwistle, Feltham, and Mbagwu, in “Financial Reporting Regulation and the Reporting of ProForma Earnings,” examine whether firms changed their reporting practice in response to the regulations includedin SOX.Required:1. In your library or from some other source, locate the indicated article in Accounting Horizons, March 2006.2. What sample of firms did the authors use in their examination?3. What percent of firms reported non-GAAP earnings (referred to as pro forma earnings by the authors) in2001? In 2003?4.…
A certain contingent liability was evaluated at year-end, and considered to have a reasonable possibility of becoming an actual liability. If the accountant decided not to report it in the notes to the financial statement, what effect would this have on the financial reporting of the company? A The liabilities on the balance sheet would be understated B The information about the item would be inadequately disclosed in the notes C The net income of the company would be understated D There would be no effect
An auditor is skeptical about the assertion on the salary expenses. He collected information on the number of employees, categories of employees, their pay scales to estimate the amount of salary expenses. In this case the auditor is considering: O a. Relationship between financial and non- financial information O b. Anticipated results of the entity O c. Comparable information from previous period o d. Similar industry information
Which of the following statements regarding liabilities is false? Multiple Choice A liability is a probable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events. Potential future wages to be paid to employees should be recorded as liabilities. Long-term liabilities are obligations due after one year, or the company’s operating cycle if longer. Liabilities are classified as either current or long term. Liabilities can involve uncertainty in whom to pay.
33. Which obligations are classified as current liabilities even if they are due to be settled after more than twelve months from the end of the reporting period? I. Trade payables and accruals for employee and other operating costs that are part of the entity’s working capital II. A portion of long-term interest-bearing liabilities III. Bank overdrafts arising from settlements of purchases of inventory IV. Dividends payable a. I, III, and IV b. I, II, III, and IV c. III only d. I and III
Suppose an auditor has been paid $1,000,000 each year for the past several years by a company to perform the audit of its annual financial statements. This company is the auditor’s largest client. In the current year, the auditor notices that the preliminary income statement excludes certain expenses that typically are shown. When asked, management tells the auditor that these expenses do not reflect the company’s true performance, so they will not be shown in this year’s income statement. Plus, management informs the auditor that it will be paying $1,200,000 for this year’s audit, and management commits to using the auditor for at least five more years. Required: 1. Understand the reporting effect: Does the audit arrangement described above have the potential to jeopardize the auditor’s opinion of management’s decision not to report certain expenses? 2. Specify the options: Are auditors employees of the company who must accept requests of management? 3. Identify the impact: Do…
The following items represent various types of liabilities. Identify if the following independent situations should be (a) recorded in the financial statements, (b) disclosed in a footnote in the financial statements, or (c) neither. ______ 1. A manufacturing company is sued for alleged product liability. The company’s attorney does not feel that the suit will result in liability to the company, but a loss is possible. If adversely adjudicated, the liability would be material. ______ 2. Alpha has sold products to Sparkle Jewelers, a retailer that sold the products to customers. The manufacturer’s warranty offers replacement of the product if it is found to be defective within 90 days of the sale to the consumer. Historically, 0.06% of the products are returned for replacement. ______ 3. A customer has filed a lawsuit for a minor amount against Sparkle Jewelers. Sparkle’s attorneys have reviewed the case and have found that many similar cases have never been awarded to the plaintiff.
Current GAAP requires a company to account for a change in accounting estimate that impacts multiple periods during