Dhb Industries Inc

873 Words Feb 8th, 2016 4 Pages
FINAL CASE 1.10

1. There were many adjustments that were made in the original balance sheet to properly record overstatements made by DHB Inc. In the current assets, one major entry that was heavily overstated was inventory. Inventory went from $47,560,000 to $38,231,000. The difference of $47,742,000 is a material due to the magnitude of the difference.

Another material difference is deferred income tax assets that went from $483,000 to $19,094,000. Totaling a significant difference of $18,611,000.

Total current assets changed from $142,266,000 to $106,467,000. The majority of the differences of 35,799,000 came from the above.

Under current liabilities, two accounts that were significant were notes payable and income tax
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AS 15 states how an audit should have sufficient appropriate audit evidence.

4. The auditors have the responsibility to search for related-party transactions because of materiality. AU 334 & AS 18 gives a standard for related parties that auditors have to perform during an audit. One way to search for related parties is to examine the transactions between different parties and trace to locate the customers and or suppliers. Another way to locate related parties is money that comes into the business from lenders and or borrowers. Audit procedures that should be applied by discussing with the BOD of any transactions that may be related, examine closely each account and to audit intercompany accounts.

5. Management responsibilities in reporting internal controls are first to explain the effectiveness of internal controls, any adequate procedures made by management, and the effectiveness of internal control by financial reporting.

Auditors have the responsibilities as well as management to report internal controls. The auditors must examine closely management’s claim of effectiveness and also physically test the controls. After the examination, the auditors should express their opinion and any recommendations to fix any internal control weaknesses.

Auditing standards that give guidance for internal control reporting are AS 2 & AS 5.

6. Changing auditors frequently may have consequences for an entity because it shows…