2. What are the main procedures used by an auditor when performing review or moderate assurance level engagement on financial statements of a company? (Hint: There are 3 main procedures, list the 3) _______________ _______________ _______________
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2.
What are the main procedures used by an auditor when performing review or moderate assurance level engagement on financial statements of a company? (Hint: There are 3 main procedures, list the 3)
- _______________
- _______________
- _______________
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Solved in 3 steps
- Professional guidance indicates that the auditor should consider revenue recognition to be high risk in planning an audit of a company’s financial statements. a. Identify the activities that affect the revenue cycle. b. Identify the financial statement accounts typically associated with the revenue cycle.Indicate whether each statement describes financial accounting or managerial accounting. The information is directed at external users who are making decisions pertaining to investing, extending credit, and other decisions. The principal users are the organizations managers. The key focus is on the entity as a whole. The rules and principles are very flexible. The information gathered is usually available after an independent audit has been completed.An important task ¡n the audit of the revenue cycle is determining whether a client has appropriately recognized revenue. a. What is the five-step process that companies should use in recognizing revenue? Why might the auditor need to do additional research and consider additional criteria on revenue recognition? b. The following are situations in which the auditor will make decisions about the amount of revenue to be recognized. For each of the following scenarios, labeled (1) through (6): . Identify the key issues to address in determining whether or not revenue should he recognized. . Identify additional information the auditor may want to gather in making a decision on revenue recognition. . Based only on the information presented, develop a rationale for either the recognition or nonrecognition of revenue. 1. AOL sells software that is unique as a provider of Internet services. The software contract includes a service fee of $19.95 for up to 500 hours of Internet service each month. The minimum requirement is a one-year contract. The company proposes to immediately recognize 30% of the first-year’s contract as revenue from the sale of software and 70% as Internet services on a monthly basis as fees are collected from the customer. 2. Modis Manufacturing builds specialty packaging machinery for other manufacturers. All of the products are high end and range in sales price from $5 million to $25 million. A major customer is rebuilding one of its factories and has ordered three machines with total revenue for Modis of $45 million. The contracted date to complete the production was November, and the company met the contract dare. The customer acknowledges the contract and confirms the amount. However, because the factory is not yet complete, it has asked Modis to hold the products in the ware house as a courtesy until its building is complete. 3. Standish Stoneware has developed a new low-end line of baking products that will be sold directly to consumers and to low-end discount retailers. The company had previously sold high-end silverware products to specialty stores and has a track record of returned items for the high-end stores. The new products tend to have more defects, but the defects are not necessarily recognizable ¡n production. For example, they are more likely to crack when first used in baking. The company does not have a history of returns from these products, but because the products are new, it grants each customer the right to return the merchandise for a full refund or replacement within one year of purchase. 4. Omer Technologies is a high-growth company that sells electronic products to the custom copying business. It is an industry with high innovation, but Omer’s technology is basic. In order to achieve growth, management has empowered the sales staff to make special deals to increase sales in the fourth quarter of the year. The sales deals include a price break and an increased salesperson commission but not an extension of either the product warranty or the customer’s right to return the product. 5. Electric City is a new company that has the exclusive right to a new technology that saves municipalities a substantial amount of energy for large-scale lighting purposes (e.g., for ball fields, parking lots, and shop ping centers). The technology has been shown to be very cost effective in Europe. In order to get new customers to try the product, the sales force allows customers to try the product for up to six months to prove the amount of energy savings they will realize. The company is so confident that customers will buy the product that it allows this pilot-testing period. Revenue is recognized at the time the product is installed at the customer location, with a small provision made for potential returns. 6. Jackson Products decided to quit manufacturing a line of its products and outsourced the production. However, much of its manufacturing equipment could be used by other companies. In addition, it had over $5 million of new manufacturing equipment on order in a noncancelable deal. The company decided to become a sales representative to sell the new equipment ordered and its existing equipment. All of the sales were recorded as revenue.
- What are the main procedures used by an auditor or an accountant when performing a review or moderate assurance level engagement on financial statements of a company? (Hint: There are 3 main procedures, list the 3) _______________ _______________ _______________Which of the following is the purpose of an Auditor’s Report? 1. To inform readers that financial statements are free of important and significant errors. 2. To show a fair picture of operating results, financial position and cash flows. 3. To give assurances to the financial health and strength of a company. A. All of the above B.Factors the auditor should understand as a part of his understanding of business Operations and Processes including of the following except : 1-Information about related parties 2-Effectiveness and efficiency of operations 3-Major sources of revenue 4-Sources of financing
- QUESTION (AUDITING) 1. Briefly explain with five reasons why auditors are needed in society?2. Mention, a few characteristics that are important for an auditor to have?3. Identify and briefly discuss the inherent limitations of an audit of the set of annual financial statements of a company?Which of the following statements is correct? A.The external auditor is responsible for the preperation of a company's financial statements. B.Audit commitees are now compulsory for the top 500 companies C.An audit commitee may be responsible for reviewing policies on internal control procedures D.Corporate governance can provide assurances that management is accountable for the actions13. Which of the following is NOT an obligation or duties of an auditor? a. Inspect account books and accounting systems for efficiency b. Prepare detailed reports on audit findings c. Examine and evaluate financial and information systems d. Helps to prepare the financial statements of companies
- Q1. Which of the following procedures would provide the most reliable audit evidence? (in your response, describe the hierarchy of audit evidence). Q2. An important role of the Public Company Accounting Oversight Board is to oversee the: (in your response, explain how the PCAOB regulates auditors of public companies. For example, what methods do they use, how do they set rules, what are some of those rules).The following are various activities an auditor doesduring audit planning.1. Determine the likely users of the financial statements.2. Identify whether any specialists are required for the engagement.3. Send an engagement letter to the client.4. Tour the client’s plant and offices.5. Compare key ratios for the company to those for industry competitors.6. Review management’s risk management controls and procedures.7. Review accounting principles unique to the client’s industry.8. Identify potential related parties that may require disclosure.For each procedure, indicate which of the first four parts of audit planning the procedureprimarily relates to: (1) accept client and perform initial audit planning; (2) understandthe client’s business and industry; (3) assess client business risk; (4) perform preliminaryanalytical procedures.