Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Question
Chapter 25, Problem 18.1MCQ
To determine
Identify the option that best describes the responsibility of the CPA in performing compilation services for a company.
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Assume that a CPA serves as an audit client’s business consultant and performs each of the following services for the client. Identify the threats to independence. Do you believe any safeguards can be employed to reduce the threat to an acceptable level? Explain.a. Advising on how to structure its business transactions to obtain specific accounting treatment under GAAP.b.Advising and directing the client in the accounting treatment that the client employed for numerous complex accounting, apart from its audit of the client’s financial statements.c. Selecting the audit client’s most senior accounting personnel by directly interviewing applicants for those positions.
In what document would the following statement most likely appear. It is our opinion that the
possible liability to the company from this proceeding is nominal in amount.
Lawyer's response to audit inquiry letter.
Audit committees communication to the auditor.
Auditor's engagement letter.
Audit inquiry to legal counsel.
Characteristics of internal accounting information includeall of the following except:a. It is audited by a CPA.b. It must be timely.c. It is oriented toward the future.d. It measures effi ciency and effectiveness.
Chapter 25 Solutions
Auditing And Assurance Services
Ch. 25 - Prob. 1RQCh. 25 - Prob. 2RQCh. 25 - Prob. 3RQCh. 25 - Prob. 4RQCh. 25 - Prob. 5RQCh. 25 - Prob. 6RQCh. 25 - Prob. 7RQCh. 25 - Prob. 8RQCh. 25 - Prob. 9RQCh. 25 - Prob. 10RQ
Ch. 25 - You have been asked to provide assurance on...Ch. 25 - Prob. 12RQCh. 25 - Prob. 13RQCh. 25 - Prob. 14RQCh. 25 - Prob. 15RQCh. 25 - Explain what is meant by prospective financial...Ch. 25 - Prob. 17RQCh. 25 - Prob. 18.1MCQCh. 25 - Prob. 18.2MCQCh. 25 - Prob. 18.3MCQCh. 25 - Prob. 19.1MCQCh. 25 - Prob. 19.2MCQCh. 25 - Prob. 20.1MCQCh. 25 - Prob. 20.2MCQCh. 25 - Prob. 21.1MCQCh. 25 - Prob. 21.2MCQCh. 25 - Prob. 21.3MCQCh. 25 - You are doing a review services and related tax...Ch. 25 - Prob. 23DQPCh. 25 - Prob. 24DQPCh. 25 - Prob. 25DQPCh. 25 - Prob. 27DQPCh. 25 - Prob. 28DQPCh. 25 - Prob. 29DQPCh. 25 - Prob. 30DQP
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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_forwardWhich of the following is incorrect? A. Non-assurance engagement include agree-upon procedures, compilation of financial or other information and tax consulting B. Assurance service report on the quality of information C. All engagements perform by the professional accountant are assurance engagement D. Assurance engagement encompass attestation engagementarrow_forward
- Which of the following statements relating to the role ofprofessional judgment in the financial reporting process is(are) true?a. Different accountants may evaluate similar situationsdifferently.b. The determination of which items should be disclosedin notes to fi nancial statements requires professionaljudgment.c. Once a complete list of generally accepted accountingprinciples is prepared, judgment by accountants will nolonger enter into the fi nancial reporting process.d. The possibility exists that professional judgment latermay prove to have been incorrect.arrow_forwardDefine the following terms below: A. Forensic Accounting B. Financial Accounting C. Auditing D. Fraud Examination E. Fraud Examiner F. Professional standards, legislation and regulatory requirements NB: Answer questions A-Farrow_forwardWhich is not a purpose of the IASB’s Conceptual Framework? -To assist auditors in forming an opinion as to whether financial statements conform to generally accepted accounting principles (GAAP). -D. To assist all parties to understand and interpret standards. To assist the IASB to develop IFRS standards that is based on consistent concepts. -To assist preparers to develop consistent accounting policies when no -----Standard applies to a particular transaction or other event, or when a standard allows a choice of accounting policy. Accounts Receivable when classified as trade will always be a? -Long Term Asset -Current Asset -Historical Asset -Non-Current Asset Which of the following statements describing a corporation is not true? -Shareholders own the business and manage its day-today affairs. -A corporation is subject to a greater governmental regulation than a single proprietorship or partnership. -Shareholders…arrow_forward
- The audit documentation are the connecting link between the client's accounting records, financial statements, and the auditor's report. TRUE OR FALSE? WHY?arrow_forwardMost companies are required to have an audit and appoint an auditor. (a) Explain how an auditor can be appointed.(b) Discuss what are the auditor's rights and duties in a company.arrow_forwardProfessional judgment plays a major role in the practice of accounting.a. In general terms, explain why judgment enters into the accounting process. b. Identify at least three situations in which accountants must rely on their professional judg-ment, rather than on official rules.arrow_forward
- The Accountant Should?arrow_forwardWhich 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 auditarrow_forwardThe Framework issued by the IASB suggests that to show a true and fair view the information in financial statements should: A. Not be so drawn that it could mislead users B. Be an accurate and full record of transactions within each accounting period C. Be prepared on a consistent basis from year to year. D. Comply with Accounting Standards and possess suggested qualitative characteristicsarrow_forward
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