Sim Project Issuing Audit Report

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

According to an article in the CPA Journal, the accounting profession has long contended that an audit conducted in accordance with generally accepted auditing standards (GAAS) provides reasonable assurance that there are no material misstatements contained within financial statements. Suggest at least two (2) alternative methods that auditors can use to provide a more concrete level of assurance to investors. Provide support for your responses with examples of such methods in use.

In order to properly manage possible obsolete inventory and uncollectable account receivables the company should have well identified the metrics in order to guarantee the proper disclosure of the information in the financial statements. In addition, the company does not apply a strong tone at the top promoting the idea of doing the right thing and avoid any types of misstatement in the financial statements. Also, the company could have stronger policies regarding the level of responsibilities that the managers have in the different divisions within the organization and how to solve possible disagreements between the internal auditors and the managers. Finally, the company should have better communication channels created in order to deal with these types of issues in which the managers, the internal auditor, and the Chief Auditor Executive CAE can come together and achieve an unbiased opinion in how the issue should be solved.

Examine evidence that the accounts receivable master file to the general ledger for accounts receivable.

1. Obtain an aged trial balance of individual customer accounts. Recalculate the total and trace to the general ledger control account.

It was believed that Johnson conducted all audits in accordance with the PCAOB standards for the 2012 and 2013 year-end financial statements. Unqualified opinions that were issued were done in two different forms: 10-K and S-1. Six of the clients were affected by the unqualified opinion, and the other two clients had issues with the registration statements.

The auditor should have verified the accuracy and the existence of the figures that were appearing in the income statement as revenue. The verification of the sales system should include authorization of the sales and the accounts recording of these sales (Rittenbergm Et al., 2009). An audit on the sale systems involves ensuring that there is proper authorization of the sales orders, proper matching of customers to these orders, payments and the invoices and the records of goods outwards. An audit plan on revenue and sales system should include verification of any sales figure that appears at the end of the financial period as in most cases, there is a possible risk of fraud or wrong adjustment of figures. It would also include an audit on the sales ledger control

Confirmation is the process of obtaining and evaluating a direct communication from a third party in response to a request for information about a particular item affecting financial statement assertions. It describes the concept of assessing inherent and control risks, determining the acceptable level of detection risk, and designing an audit program to achieve an appropriately low level of audit risk. The auditor uses the audit risk assessment in determining the audit procedures to be applied, including whether they should include confirmation. The greater the combined assessed level of inherent and control risk, the greater the assurance that the auditor needs from substantive tests related to a financial statement assertion.

Because the credit system is not well documented, the auditor will be searching for evidence that sales were potentially made without credit approval. Such evidence would have an effect on the auditor’s judgment as to the amount of evidence needed in examining the allowance account and bad debt expense.

The purpose of the Auditors report was to check the conformance of the Company financial report;

A review and an audit report are both a form of an attestation engagement. A Review, however, is less in scope so it provides a moderate level of assurance on the financial statements. It is considered a “sniff” of an audit, which comparatively provides reasonable assurance that no material misstatements occurred. Since a review deals with a limited scope, it does not provide the basis for expressing an opinion on the presentation of the

Accounts receivable is money owed to a company by its debtors. The medical office has the responsibility to maximize its revenue potential by ensuring cash flow sufficiently for effective management. The overall goal is to achieve the shortest collection period possible. Account Receivable (AR) management involve almost all areas of the medical office.

I was assigned to conduct an audit of the ending cash balances concerning two bank accounts, bank CDs, and petty cash for Temple Co. At first glance, I assumed that the large Citizens bank account had both high risk and high materiality, the TD account had medium risk along with low materiality, the CD had low risk and low materiality, and the petty cash was high risk and low materiality. Knowing this I conducted specific audit testing and questioned the bookkeeper along with the controller to ensure the validity of the amounts stated on the balance sheet.

The chief executive of the company was closely working with the vendors whose confirmations were vital in the auditing work and hence they could have submitted false confirmations. The auditing firm established a national risk management program for its clients and so national reviews were done to identify the high risk items in the financial statement. The vendor allowances were particularly high but they were not documented. As such, the auditors were supposed to demand for the documentations and compare them with the real figures. It is however noted that most of the documentations received were non-standard and this could have led to a different audit report given that vendor allowances were earlier identified as a high risk area. Inventory management was found to be poor especially in the allowances for inventory reserves. The audit firm was therefore obliged to carry out a thorough evaluation of the inventory reserves and determine whether it was reasonable. The valuation was also supposed to include all classes of inventory but for the case of the company, the evaluation excluded instances where no sales had been made. Hence, this evaluation could not accurately represent the position of the inventory reserve in the company. (Waters,2003)

The adequacy of the confirmations as evidence is underminded by the knowledge that the client told the suppliers how to respond. In reality, the auditor should have verified the confirmed balances using alternative procedures. There is no discussion of alternate procedures for nonresponses or the resolution of six responses that were not reconciled to Grande’s records.