Case Study 3-29 Audit Report

E. Why does the auditor not use the same tolerable misstatement or percentage of account balance for all financial statement accounts?

In today’s world, the role of IT has turned accounting estimated critical in financial reporting and disclosure. Houghton and Fogarty have said that non-accurate or incorrect estimates have often caused to misstatements in audit report (Gray & Manson, 2007).

Compare the primary auditor objectives in auditing historical financial statements to auditing internal controls over financial reporting. Identify at least two (2) objectives that are the most significant in reducing the risk of reporting errors or misstatements in financial statements. Provide a rationale for your response.

1. For the year-end December 31, 2007, financial statements, what amount should M record as a liability?

f) To evaluate the material misstatement in the accounts, I think both of the consolidated income statement and the three financial statements are useful. We need to use the information properly from all the financial statements. However the consolidated income statement is the most useful one. If there is a significant change in an account balance comparing with preceding two years, the auditor will examine whether there a material misstatement exists. For instance, the bad debt expense as a percent of net sales in 2011, 2010 and 2009 are 0.56%, 0.70% and 0.69%, respectively. There should

Assuming that the end result is an unqualified audit report, outline the primary responsibilities of the audit firm after it issues the report in question.

1a) What should the auditor consider when determining whether an account should be considered significant?

a.  Information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. Date of the financial statements means the end of the most recent accounting period for which financial statements are being presented. It is implicit in this condition that it must be probable that one or more future events will occur confirming the fact of the loss.

3. Research auditing standards and describe the typical procedures that an auditor would perform in auditing a fair value estimate such as the

Risk for inflated revenue and net income, revenue being recognized when received instead of when earned.

The case study focuses on an employee, Paul Keller, who is being affected by a number of factors. His job performance is hindered by constraints such as his work environment, his home environment, stressors, mood, and the management style of his superior. The case study demonstrates how his job performance is affected and what the consequences could be as a result of his poor job performance and lack of concentration.

4. Identify the generally accepted auditing standard violated by the E&Y auditors in this case. Briefly explain how each standard was violated.

d. “The auditor's reliance on substantive tests to achieve an audit objective related to a particular assertion may be derived from tests of details, from analytical procedures, or from a combination of both. The decision about which procedure or procedures to use to achieve a particular audit objective is based on the auditor's judgment on the expected effectiveness and efficiency of the available procedures. For significant risks of material misstatement, it is unlikely that audit evidence obtained from substantive analytical procedures alone will be sufficient (PCAOB, AS 2305.09).”

3. A) If I were put in this situation as an equity investor, I would absolutely pursue legal actions against the auditors. If there was a

of neither intangible nor tangible assets due to a lack of information and thus assume a