AUDITING+ASSURANCE 12MONTH ACCESS CARD
17th Edition
ISBN: 9780135635131
Author: ARENS
Publisher: WILEY
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Question
Chapter 13, Problem 32DQP
(a).
To determine
Determine the sequence in which the decisions should be made.
(b).
To determine
Determine the proper sequence for audit of sales and collection cycle and
(c).
To determine
Determine the correct sequence for audit of property, plant, equipment and plant acquisitions records.
(d).
To determine
Determine the correct sequence for audit of payroll expenses and related liability.
(e).
To determine
Determine the correct sequence for audit of inventory and related inventory cost records.
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In auditing the client’s receivables, the auditor decided to select entries in the sales journal and trace them back to the sales invoice, delivery receipt and the sales order. This procedure is consistent in corroborating which of the following assertion? *
A. ValuationB. ExistenceC. CompletenessD. Rights and Obligationse. None of the above
The following are two specific audit objectives in the audit of accounts payable. The list referred to is the list of accounts payable taken from the accounts payable subsidiary record. The total amount in the list agrees with the accounts payable balance in the general ledger. What is the emphasis of the auditor in the following audit procedures?
Group of answer choices
1. All accounts payable included in the list represent amounts due to valid vendors.
a. emphasis on possible overstatement
b. emphasis on possible understatement
2. There are no unrecorded accounts payable.
a. emphasis on possible overstatement
b. emphasis on possible understatemen
Question:
Assume that you are an auditor of a company.
Explain any THREE categories of assertions that
you will be testing when auditing the financial
statements of the company.
You are required to:
(ii.) with proper justification and two sample
transactions.
Chapter 13 Solutions
AUDITING+ASSURANCE 12MONTH ACCESS CARD
Ch. 13 - Prob. 1RQCh. 13 - Prob. 2RQCh. 13 - Prob. 3RQCh. 13 - Prob. 4RQCh. 13 - Prob. 5RQCh. 13 - Prob. 6RQCh. 13 - Explain how the calculation and comparison to...Ch. 13 - Prob. 8RQCh. 13 - Prob. 9RQCh. 13 - For each of the eight types of evidence discussed...
Ch. 13 - Prob. 11RQCh. 13 - Prob. 12RQCh. 13 - Prob. 13RQCh. 13 - Prob. 14RQCh. 13 - Prob. 15RQCh. 13 - Prob. 16RQCh. 13 - Prob. 17RQCh. 13 - Prob. 18RQCh. 13 - Prob. 19RQCh. 13 - Prob. 20RQCh. 13 - Prob. 21.1MCQCh. 13 - Prob. 21.2MCQCh. 13 - A conceptually logical approach to the auditors...Ch. 13 - Prob. 22.1MCQCh. 13 - Prob. 22.2MCQCh. 13 - Prob. 22.3MCQCh. 13 - Prob. 23.1MCQCh. 13 - b. Substantive analytical procedures are most...Ch. 13 - Prob. 23.3MCQCh. 13 - Prob. 24DQPCh. 13 - Prob. 25DQPCh. 13 - Prob. 26DQPCh. 13 - Prob. 27DQPCh. 13 - Prob. 28DQPCh. 13 - Prob. 29DQPCh. 13 - Prob. 30DQPCh. 13 - Prob. 31DQPCh. 13 - Prob. 32DQPCh. 13 - Prob. 33DQPCh. 13 - Prob. 34DQPCh. 13 - Prob. 35DQP
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- 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.arrow_forwardProfessional 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.arrow_forwardAn audit strategy sets the direction, timing, and scope of an audit. Based on your audit knowledge, which of the following would be included in the audit strategy document? Select one:a. A flowchart of the entity's internal control system.b. The decision as to the combination of substantive testing and tests of control that would be adopted.c. The number of sales transactions to be tested.d. The results of the interim testing of payroll.arrow_forward
- The auditor's assessment of the reliability and sufficiency of the information contained in the underlying accounting records is a part of ______________ a. Audit Test b. Comparison c. Evaluation d. Judgementarrow_forwardWhich assertion is most likely being tested when an auditor vouches transactions from the sales Journal to the sales orders? a. cutoff b. rights c. completeness d. accuracyarrow_forwardthe auditor is planning to use accounts payable confirmations when auditing the client's accounts payable. The use of accounts payable confirmations will test which of the following assertions? a. rights and obligations b. existence (only) c. existence and completeness d. cutoffarrow_forward
- Which of the following types of documentary evidence should the auditor consider to be the most reliable? Select one: a. A sales invoice issued by the client and supported by a delivery receipt from an outside trucker. b. Confirmation of an account payable balance mailed by and returned directly to the auditor c. An audit schedule prepared by the client’s controller and reviewed by the client’s treasurer. d. A check, issued by the company and bearing the payee’s endorsement, that is included with the bank statements mailed directly to the auditorarrow_forwardTo do an audit of a company's financial statements, there must be several key elements and procedures including all of the following except: O A. Quantitative information in a verifiable form that can be checked by the auditor. O B. Some standards or criteria by which the auditor can evaluate the information, which are generally accepted accounting principles or International Financial Reporting Standards. C. Determining the degree of correspondence between information and established criteria using some kind and amount of evidence. O D. None of the above.arrow_forwardAuditors are tasked with gathering a wide variety of information and then determining if it could impact the fair presentation of the financial statements in accordance with generally accepted accounting principles. To do this auditors use a framework of risk called the audit risk model. On the following tab you will be presented with a set of facts about Apollo, you must decide if it is related to the audit, if so which part of the audit risk model they fall under (inherent risk or control risk), how they affect the risk of material misstatement and what impact they have on detection risk. Apollo operates in the competitive athletic and outdoor footwear industry. Relevant to Apollo's Financial Statement Audit? Yes, No, or NAIR Factor/ Yes, No, or NACR Factor/ Yes, No, or NA Why? CommentsImpact on RMM/ Yes (increase), No - (decrease), NA No effect, Not enough infoImpact on DR/ Yes (increase), No - (decrease), NA No effect, Not enough infoarrow_forward
- To obtain an understanding of a continuing client in planning an audit, an auditor most liky would; A. Perform test of details of transactions and balances B. Read internal audit reports. C. Read Specialized industry journals. D. Reevaluate the risks of material misstatementarrow_forwardAnalytical procedures are an important part of the audit process and consist of the evaluation of financial information by the study of plausible relationships among financial and nonfinancial data. Analytical procedures may be done during planning, as a substantive test, or as a part of the overall review of an audit. The following are various statements regarding the use of analytical procedures: Should focus on enhancing the auditor’s understanding of the client’s business and the transactions and events that have occurred since the last audit date Should focus on identifying areas that may represent specific risks relevant to the audit Require documentation in the working papers of the auditor’s expectation of the ratio or account balance Generally use data aggregated at a lower level than the other stages Should include reading the financial statements and notes to consider the adequacy of evidence gathered Not required during this stage Involve reconciliation of…arrow_forwardThe following are two specific audit objectives in the audit of accounts payable. The list referred to is the list of accounts payable taken from the accounts payable subsidiary record. The total amount in the list agrees with the accounts payable balance in the general ledger. Which of these two audit objectives validates the management assertion of existence, and which one applies to completeness? Group of answer choices 1. All accounts payable included in the list represent amounts due to valid vendors. a. existence b. occurrence 2. There are no unrecorded accounts payable. a. existence b. occurrencearrow_forward
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