Concept explainers
A
Introduction: A material misstatement arises when there is a difference between what is written in the financial statements and what it actually should be. The difference can be in amounts, classification, presentation or disclosure.
To ascertain: Assessment of risk of material misstatements and the effect of this assessment on detection risk.
B
Introduction: A material misstatement arises when there is a difference between what is written in the financial statements and what it actually should be. The difference can be in amounts, classification, presentation or disclosure.
To ascertain:Assessment of risk of material misstatements and the effect of this assessment on detection risk.
C
Introduction: A material misstatement arises when there is a difference between what is written in the financial statements and what it actually should be. The difference can be in amounts, classification, presentation or disclosure.
To ascertain:Assessment of risk of material misstatements and the effect of this assessment on detection risk.
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Chapter 4 Solutions
EBK AUDITING & ASSURANCE SERVICES: A SY
- You are currently working for Clissold Industries. The company, which went public five years ago, engages in the design, production, and distribution of lighting equipment and specialty products worldwide. Because of recent events, Mal Clissold, the company president, is concerned about the company’s risk, so he asks for your input. In your discussion with Mal, you explain that the CAPM proposes that the market risk of the company’s stock is the determinant of its expected return. Even though Mal agrees with this, he argues that his portfolio consists entirely of Clissold Industry stock and options, so he is concerned with the total risk, or standard deviation, of the company’s stock. Furthermore, even though he has calculated the standard deviation of the company’s stock for the past five years, he would like an estimate of the stock’s volatility moving forward. Mal states that you can find the estimated volatility of the stock for future periods by calculating the implied standard…arrow_forwardRandall, Inc. is a private company that manufactures heavy machinery. The company has an active audit committee and board of directors. The audit committee consists of two outside directors and Howard Kress, the company chief financial officer. The audit committee meets quarterly to provide oversight of financial reporting, including reviewing new accounting policies and unusual transactions. Howard Kress personally reviews and approves any related party transactions. Internal audit of operating units are performed by the internal auditor, who reports directly to Laura Howe, the chief operating officer. The company has written code of conduct and employees agree to adhere to the code when they are hired. The company also has a hotline for confidential reporting of unethical behavior that is staffed by the corporate controller. The audit committee reviews summaries of all incidents and investigations performed. Required: Identify the weaknesses in Randall’s system of corporate…arrow_forwardGibson Delivery is a small company that transports business packages between New York and Chicago. It operates a fleet of small vans that moves packages to and from a central depot within each city and uses a common carrier to deliver the packages between the depots in the two cities. Gibson Delivery recently acquired approximately $7.0 million of cash capital from its owners, and its president, George Hay, is trying to identify the most profitable way to invest these funds. Todd Payne, the company's operations manager, believes that the money should be used to expand the fleet of city vans at a cost of $820,000. He argues that more vans would enable the company to expand its services into new markets, thereby increasing the revenue base. More specifically, he expects cash inflows to increase by $260,000 per year. The additional vans are expected to have an average useful life of four years and a combined salvage value of $101,000. Operating the vans will require additional working…arrow_forward
- ABC Ltd is a public listed Company on the Australian Securities Exchange. Frank Doorman is the CEO and Chair of the Board. The CFO (Chief Financial Officer) and the COO (Chief Operating Officer) are also directors on the Board. Due to his previous experience as an auditor, the CFO is also Chair of the Audit Committee, the other member of the audit committee is the COO, who was appointed because of his knowledge of systems and internal control in the Company. Frank sees no need for any other committees as the Company has been very stable over the last few years with no change of directors. The four other members of the board of directors at ABC Ltd are; Alice, the wife of Frank. Alice has never been employed by the Company. George, a long-time director of the bank that owns 20% of the shares in ABC Ltd and has provided much of the finance for the recent aggressive expansion of the Company. Drew, who is very experienced and the CEO of an Accounting firm that has no other…arrow_forwardThornton Delivery is a small company that transports business packages between New York and Chicago. It operates a fleet of small vans that moves packages to and from a central depot within each city and uses a common carrier to deliver the packages between the depots in the two cities. Thornton Delivery recently acquired approximately $6.7 million of cash capital from its owners, and its president, George Hay, is trying to identify the most profitable way to invest these funds. Todd Payne, the company's operations manager, believes that the money should be used to expand the fleet of city vans at a cost of $690,000. He argues that more vans would enable the company to expand its services into new markets, thereby increasing the revenue base. More specifically, he expects cash inflows to increase by $290,000 per year. The additional vans are expected to have an average useful life of four years and a combined salvage value of $102,000. Operating the vans will require additional working…arrow_forwardFinch Delivery is a small company that transports business packages between New York and Chicago. It operates a fleet of small vans that moves packages to and from a central depot within each city and uses a common carrier to deliver the packages between the depots in the two cities. Finch Delivery recently acquired approximately $5.2 million of cash capital from its owners, and its president, George Hay, is trying to identify the most profitable way to invest these funds. Todd Payne, the company's operations manager, believes that the money should be used to expand the fleet of city vans at a cost of $740,000. He argues that more vans would enable the company to expand its services into new markets, thereby increasing the revenue base. More specifically, he expects cash inflows to increase by $280,000 per year. The additional vans are expected to have an average useful life of four years and a combined salvage value of $96,000. Operating the vans will require additional working…arrow_forward
- Finch Delivery is a small company that transports business packages between New York and Chicago. It operates a fleet of small vans that moves packages to and from a central depot within each city and uses a common carrier to deliver the packages between the depots in the two cities. Finch Delivery recently acquired approximately $5.5 million of cash capital from its owners, and its president, George Hay, is trying to identify the most profitable way to invest these funds. Todd Payne, the company's operations manager, believes that the money should be used to expand the fleet of city vans at a cost of $800,000. He argues that more vans would enable the company to expand its services into new markets, thereby increasing the revenue base. More specifically, he expects cash inflows to increase by $340,000 per year. The additional vans are expected to have an average useful life of four years and a combined salvage value of $99,000. Operating the vans will require additional working…arrow_forwardZachary Delivery is a small company that transports business packages between New York and Chicago, It operates a fleet of small vans that moves packages to and from a central depot within each city and uses a common carrier to deliver the packages between the depots in the two cities. Zachary Delivery recently acquired approximately $5.6 million of cash capital from its owners, and its president, George Hay, is trying to identify the most profitable way to invest these funds. Todd Payne, the company's operations manager, believes that the money should be used to expand the fleet of city vans at a cost of $730,000. He argues that more vans would enable the company to expand its services into new markets, thereby increasing the revenue base. More specifically, he expects cash inflows to increase by $280,000 per year. The additional vans are expected to have an average useful life of four years and a combined salvage value of $103,000. Operating the vans will require additional working…arrow_forwardRundle Delivery is a small company that transports business packages between New York and Chicago. It operates a fleet of small vans that moves packages to and from a central depot within each city and uses a common carrier to deliver the packages between the depots in the two cities. Rundle Delivery recently acquired approximately $5.5 million of cash capital from its owners, and its president, George Hay, is trying to identify the most profitable way to invest these funds. Todd Payne, the company's operations manager, believes that the money should be used to expand the fleet of city vans at a cost of $720,000. He argues that more vans would enable the company to expand its services into new markets, thereby increasing the revenue base. More specifically, he expects cash inflows to increase by $320,000 per year. The additional vans are expected to have an average useful life of four years and a combined salvage value of $106,000. Operating the vans will require additional working…arrow_forward
- A group of environmentalists have purchased shares in a mining company. Some 200 members of the group are now shareholders and holding various amounts of shares. The members of the group who have purchased shares are not against profits being made by their company, but are concerned that appropriate health and safety standards are not implemented by the company, and further that appropriate environmental safeguards are implemented when extracting a mineral, transporting it and manufacturing the final product.What rights do members have to question directors at a meeting regarding the company’s environmental practices?What are the rights of members to actually call an extraordinary meeting in order to discuss a particular environmental issue that has arisen since the last meeting of members was held?arrow_forwardMr. Obaid being the board member of Sony company, Muscat, is responsible for safeguarding the shareholders' investment and the company's assets. He and his team members, conduct a review of the effectiveness of internal controls and should report that they have done so. How often Mr. Obaid and his team are required to conduct the review of internal control system of their company: At the most in 2 years Once in life time of the business At least once in a year Once in 5 years Üull lis uisI TOSHIBAarrow_forwardHatfield Industries is a large manufacturing conglomerate based in the United States with annual sales in excess of $300 million. Hatfield is currently under investigation by the Securities and Exchange Commission (SEC) for accounting irregularities and possible legal violations in the presentation of the company’s financial statements. A due diligence team from the SEC has been sent to Hatfield’s corporate headquarters in Philadelphia for a complete audit in order to further assess the situation.Several unique circumstances at Hatfield are discovered by the SEC due diligence team during the course of the investigation:∙ Management has been involved in ongoing negotiations with the local labor union, of which approximately 40% of its full-time labor force are members. Labor officials are seeking increased wages and pension benefits, which Hatfield’s management states is not possible at this time due to decreased profitability and a tight cash flow situation. Labor officials have…arrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage LearningAuditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub