a.
Introduction:A contingency is an event occurrence of which is not certain, in terms of revenue recognition, a contingent sale should not be recognized without providing for a provision against non-fulfillment of conditions on which the sale was based.
To evaluate: The critical mistake ofMr. Pin review of Q1 of 1997 and its impact on willingness of auditor to take action in later period.
b.
To describe: The factors that motivated Mr. P to act as he did.
c.
Introduction:
Audit committee: It is a group consisting of board of directors of the company who are responsible to supervise the financial reporting process and audit function undertaken within the organization. This committee or group does the function of selecting the auditor and review the audit report to ensure adherence financial accountability.
To describe:The elements related to corporate governance which failed in the H’s situation.
d.
Introduction:
Confirmation letters: A confirmation letter is an audit tool that involves communication between the auditor and a party which is associated with the auditee, this is a form of external confirmation through which the auditor aims to confirm the balances presented by auditee by reaching out to the party against whose name the balance is presented by auditee.
To evaluate:Errors done by audit team in the confirmation process of year ending 1997.
e.
Introduction:
Accounting principles: These are the rules and guidelines that have to be followed by the companies at the time of financial reporting.
To describe:The course of action that Mr. P required to enable us to do the right things at the time of the acquisition process and alert the concerned parties regarding the default in accounting practices.
Want to see the full answer?
Check out a sample textbook solutionChapter 9 Solutions
Auditing: A Risk Based-Approach (MindTap Course List)
- You are a senior manager in the audit department of Raven & Co. You are reviewing three situations which have arisen in respect of audit clients, which were recently discussed at the monthly audit managers' meeting:Grouse Co is a significant audit client which develops software packages. Its managing director, Max Partridge, has contacted one of your firm's partners regarding a potential business opportunity. The proposal is that Grouse Co and Raven & Co could jointly develop accounting and tax calculation software, and that revenue from sales of the software would be equally split between the two firms. Max thinks that Raven & Co's audit clients would be a good customer base for the product. Plover Co is a private hospital which provides elective medical services, such as laser eye surgery to improve eyesight. The audit of its financial statements for the year ended 31 March 2012 is currently taking place. The audit senior overheard one of the surgeons who performs laser…arrow_forwardPhillip Dale is a recent employee of RMGT Audit Firm. A new client Juicy Juice Limited has approached RMGT for the audit of its annual reports and Phillip was asked to start the preparation of the audit plan. Phillip knows only too well the importance of audit planning. It involves many considerations that help to develop more efficient engagements and provides auditors with important risk management techniques. Juicy Juice Limited operates in many overseas countries. The company employs over 2000 employees and is known for providing many great benefits for its employees. One of Juicy Juice’s biggest assets is its inventory as the company offers a large variety of products throughout the many overseas countries in which it operates. The company also regularly purchase shareholdings in other companies. The previous auditors of Juicy Juice have stated that the previous year’s audit had revealed extensive material misstatements. Questions A. Discuss FOUR (4) of the…arrow_forwardDave Czarnecki is the managing partner of Czarnecki and Hogan, a medium-sized local CPA firm located outside of Chicago. Over lunch, he is surprised when his friend Juarez Foley asks him, “Doesn’t it bother you that your clients don’t look forward to seeing their auditors each year?” Dave responds, “Well, auditing is only one of several services we provide. Most of our work for clients does not involve financial statement audits, and our audit clients seem to like interacting with us.” Identify ways in which a financial statement audit adds value for clients. List services other than audits that Czarnecki and Hogan likely provides. Assume Czarnecki and Hogan has hired you as a consultant to identify ways in which they can expand their practice. Identify at least one additional service that you believe the firm should provide and explain why you believe this represents a growth opportunity for CPA firms.arrow_forward
- 25. An audit firm has been asked by a client to attend a meeting between the client and its prospective investors in order to discuss the company’s financial performance in the last year. According to the Code of Professional Ethics for Accountants, what type of threat to objectivity will be created if the auditor attends this meeting? a. Advocacy threat b. Self review threat c. Self-interest threat d. Intimidation threatarrow_forwardYou are currently planning the audit of ABC company. You have audited ABC for the previous five years. ABC is a technology company that is currently going through an IPO. Because of its inexperience complying with SOX 404 requirements, ABC still has very poor internal controls overall, although controls for sales are strong and have been found to operate effectively during interim testing. Most of its accounting procedures involve complex accounting and the heavy use of estimates. ABC is frequently featured in the financial press. Pre-tax income for the current year under audit is $10,000,000. ABC's largest and most challenging account balances are sales revenue ($143,000,000) and research and development expense ($25,000,000). Based on the information above, tolerable misstatement/performance materiality for R&D expense would be: 50% of overall/planning materiality 75% of overall/planning materiality 50% of the R&D account balance 75% of the R&D account balance Based on the…arrow_forwardLuxwell, a Copenhagen, Denmark company that manufactures security devices, has contacted Christian Jespersen, certified auditor, to submit a proposal to do a financial statement audit. Luxwell was a bit taken aback when saw the cost of the financial audit, even though the fees were about average for an audit of a company Luxwell's size. The board of directors determined that the company could not afford to pay the price.Required: 1. Discuss the alternatives to having a financial statement audit2. What should Luxwell consider when choosing the assurance service?arrow_forward
- You are a CPA and you are the CFO (Chief Financial Officer) of USB Computer Technologies Inc., a company that specializes in customized business software. You have been requested by the board of directors of the company to attend its meeting. During the meeting, one of the directors asked you, "Why audits of our company performed by different auditors (internal, external, government). Before you could answer question, another direfctor mentioned "it would be more cost-efficient if our internal auditors will performed all the audits. " Requirements. Write down your reply to each question of the members of the board of directors. In relation to your answer in number 1, identify the issues that must be explained to the Board.arrow_forwardFinancial reports are the primary means by which corporations report their performance and financial condition.Financial statements are one component of the annual report mailed to their shareholders and to interested others.Required:Obtain an annual report from a corporation with which you are familiar. Using techniques you learned in thischapter and any analysis you consider useful, respond to the following questions:1. Do the firm’s auditors provide a clean opinion on the financial statements?arrow_forwardYour firm has many clients and many audits reporting obligations. The audits of most clients result in an unmodified opinion. The following draft represents the report that you contemplate for your nonissues. Independent Auditor's Report To: The Board of Directors We have [1] the accompanying financial statements of X Company, which comprise the balance sheets as of December 31, 20X1, and 20X0, and the related statements of income, changes in stockholders' equity, and [2] for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements [3] is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,…arrow_forward
- Explain the ‘audit expectation gap’. What causes the gap? b: Potter and Partners are a chartered accounting firm with offices in capital cities in most states. The head of the business development department is seeking to grow the firm’s revenue from non-audit services. Required: What non-audit services could a chartered accounting firm provide to its listed company clients? Explain why a company would buy these services from its audit firm instead of another consulting firm.arrow_forwardThe Directors of Aspen PLC have recently appointed your audit firm to act as their external auditor. Aspen PLC is a FTSE-250 fast growth company specialising in cloud computing solutions. As part of the audit services, you have been requested by the Directors of Aspen PLC to undertake the following services:▪ the external audit of the company’s annual financial statement▪ taxation services; and ▪ consultancy services relating to the trialling and implementation of a new, stateof-the-art information technology systemYour audit firm has not worked for Aspen PLC before but does act as auditor for its biggest rival, another FTSE-250 company Priory Mason PLC. Required: (a) Identify and explain the professional and ethical issues that your firm should consider with regards to the services requested by Aspen PLC, stated above. What safeguards should be implemented to address these issues? (b) Critically discuss the five key principles of ethics. (c) An auditor must never disclose a…arrow_forwardIn June 2001, in Oman, the Capital Market Authority issued the Corporate Governance Code, applicable to companies whose securities are listed on the Muscat Securities Market.The Code, drawn from codes of best practices from around the world but adapted to the local market, seeks to promote a "culture of compliance, transparency and accountability without limiting business initiative. Answer the following three questions . 31. Baker Tilly MKM (Oman) LLC is the auditor of United Power Company SAOG (Company) and has stated that the financial statements has fairly presented the financial performance and the cash flow for the year. The preparation of financial statements is the primary responsibility of a. Internal auditors of United Power Company SAOG b. Baker Tilly MKM (Oman) LLC c. Board of Directors d. Management at United Power Company SAOGarrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher: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
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage LearningBusiness/Professional Ethics Directors/Executives...AccountingISBN:9781337485913Author:BROOKSPublisher:Cengage