Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Question
Chapter 24, Problem 20.3MCQ
To determine
Identify the option which is an example of an event occurring in the period between the end of the year being audited and the date of the auditor’s report that normally will not require disclosure in the financial statements or auditor’s report.
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A company Hira Ltd. has been mis-reporting its financial statements since more than 10 years which none of the stakeholders noticed for years. When the situation of the Company went from bad to worse and it had no option but to declare it bankrupt, the company issued a press statement that there is disparity between actual and reported results due to accounting errors. The first question from shareholders of the Company was why the auditors had not spotted and corrected the fundamental accounting errors? The auditor of the Company, WCP partnership (one of the largest audit firm in the country), had compromised its independence by a large audit fee and also consultancy income worth several times the audit fee. Because Hira Ltd. was such an important client for WCP, it had knowingly signed off inaccurate accounts in order to protect the management of the Company. The investigation also found a number of significant internal control deficiencies including no effective management oversight…
1.Which of the following reports are likely when management has not made available minutes to the board of directors meetings during the year?
a)Neither adverse nor disclaimer.
b)Adverse only.
c)Both adverse and disclaimer.
d)Disclaimer only.
2.Which of the following is least likely to be considered in determining whether a misstatement pervasively misstates the financial statement?
a)An immaterial misstatement is similar to one that occurred in the prior year.
b)A material misstatement represents a substantial proportion of the financial statements.
c)A disclosure is fundamental to users’ understanding of the financial statements.
d)A material misstatement is confined to specific elements, accounts, or items of the financial statements.
3.Due to complications related to a national health crisis, the auditors were unable to observe major portions of the client’s year-end inventory count. However, they believe that they have been able to perform adequate alternative procedures. If…
As a result of analytical procedures, the auditor determines that the gross profitpercentage has declined from 30% in the preceding year to 20% in the current year.The auditor should(1) express a qualified opinion due to inability of the client company to continue asa going concern.(2) evaluate management’s performance in causing this decline.(3) require footnote disclosure.(4) consider the possibility of a misstatement in the financial statements.
Chapter 24 Solutions
Auditing And Assurance Services
Ch. 24 - Prob. 1RQCh. 24 - Explain why an auditor is interested in a clients...Ch. 24 - Prob. 3RQCh. 24 - Prob. 4RQCh. 24 - Prob. 5RQCh. 24 - Prob. 6RQCh. 24 - Prob. 7RQCh. 24 - Prob. 8RQCh. 24 - What major considerations should the auditor take...Ch. 24 - Identify five audit procedures normally done as a...
Ch. 24 - Prob. 11RQCh. 24 - Prob. 12RQCh. 24 - Prob. 13RQCh. 24 - Prob. 14RQCh. 24 - Prob. 15RQCh. 24 - Prob. 16RQCh. 24 - Prob. 17RQCh. 24 - Prob. 18RQCh. 24 - Prob. 19RQCh. 24 - Prob. 20.1MCQCh. 24 - Prob. 20.2MCQCh. 24 - Prob. 20.3MCQCh. 24 - Prob. 21.1MCQCh. 24 - Prob. 21.2MCQCh. 24 - Prob. 21.3MCQCh. 24 - Prob. 22.1MCQCh. 24 - Prob. 22.2MCQCh. 24 - Prob. 22.3MCQCh. 24 - Prob. 23.1MCQCh. 24 - Prob. 23.2MCQCh. 24 - Prob. 23.3MCQCh. 24 - Prob. 24DQPCh. 24 - Prob. 25DQPCh. 24 - Prob. 26DQPCh. 24 - Prob. 28DQPCh. 24 - Prob. 29DQPCh. 24 - Prob. 32DQPCh. 24 - Prob. 33DQP
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- Kim Company, a CPA firm, conducted an audit for the 2020 financial statements of Erin Corporation. The auditors found that the accounting manager changed the journal entry for estimating bad debt expense to a smaller number to hide the poor results from extending credit to high risk customers. This made income materially higher than it otherwise would have been. This is an example of: Embezzlement Employee fraud Larceny Management fraud O None of the abovearrow_forwardEach of the following statements is a communication from management. Indicate whether the inclusion of each statement in written representations is appropriate. Provide your rationale for any statements whose inclusion in written representations is not appropriate.a. “Certain representations in this letter are described as being limited to matters that are material.”b. “No frauds involving management, employees who have significant roles in internal control, or other frauds that could have a material effect on the financial statements have occurred during the year under audit.”c. “Based on our assessment, we conclude that the Company has maintained an effective internal control over financial reporting as of December 31, 2017.” d. “We have prepared a description and evaluation of certain contingencies for which our attorneys have devoted substantive attention on our behalf in the form of legal representation.”e. “There are no significant deficiencies, including material weaknesses, in…arrow_forwardA COMPANY HAS DISCOVERED THAT IT HAS BEEN UNDERESTIMATING ITS WARRANTY EXPENSES FOR THE PAST SEVERAL YEARS. DISCUSS THE POTENTIAL IMPACT OF THIS ERROR ON THE COMPANY'S FINANCIAL STATEMENTS AND THE STEPS THE COMPANY SHOULD TAKE TO CORRECT THE ERROR. WHAT ARE THE IMPLICATIONS OF THIS ERROR FOR THE COMPANY'S INTERNAL CONTROLS? HOW CAN THE COMPANY PREVENT SIMILAR ERRORS IN THE FUTURE?arrow_forward
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