Auditing Chap. 5

1176 WordsDec 27, 20115 Pages
5-52 Trend analysis, common-size financial statements, and ratios are presented for the Brody Corporation in Figure 5.4. Assume that you are auditing Brody 's financial statements for the year ended 12/31/X8. You have performed tests of controls over the recording of gross sales and believe that the system is operating effectively and that 7 percent represents an accurate estimate of the increase in gross sales for 20X8 over the amount for 20X7. You should also assume that the financial statements for 20X6 and 20X7 are not misstated. Required a. | | Analyze Figure 5.4 and identify any accounts that appear to represent significant variations from what one might expect. For each of the accounts, identify another account that might…show more content…
John Ross, who had been a manager with a large CPA firm, was quickly hired to replace Wagner. Although the change in Datasave 's chief financial officer caused some disruption, the audit was completed on a timely basis. As the last step in the audit process, you have prepared the representation letter for signing. You wanted the letter to be signed by William Cox, the president; Robert Star, the controller; and Wagner, who occasionally came to the company 's offices to resolve matters regarding his past compensation. The signatures of Cox and Star were obtained, and you approached Wagner for his signature. In response to your request, Wagner replied, “I no longer am employed with this crazy company. Why should I take any responsibility for the financial statements?” Despite your attempts to persuade him, Wagner refused to sign the letter. Wagner also refused to discuss the reasons for his resignation, other than to say the reasons were personal. When you discussed the problem of Wagner 's refusal to sign with Cox, he indicated that there was no problem because Ross would sign the letter. You see this as a possible solution, but you are aware that Ross knows very little about the financial statements for the year under audit. Also, you are still somewhat concerned about the reasons for Wagner 's resignation.Required: a. Describe fully the alternatives that are available to you in this situation.Making
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