Please explain the answers as detailed as possible for why this audit opinion was given. 18-12 (LO1,2,3,4) For each of the following independent situations, indicate the type of financialstatement audit report that you would issue, and briefly explain your reasoning. Assume thateach item is at least material.a The management of Bonner Corporation has decided to exclude the statement of cash flowsfrom its financial statements because it believes that its bankers do not find the statement tobe very useful.b You are auditing Diverse Carbon, a manufacturer of nerve gas for the military, for the yearended 30 September. On 1 September, one of its manufacturing plants caught fire, releasingnerve gas into the surrounding area. Thirteen people were killed and numerous othersparalysed. The company's legal counsel indicates that the company is liable and that theamount of the liability can be reasonably estimated, but the company refuses to disclose thisinformation in the financial statements.c During your audit of Cuccia Coal Company, the controller, Tracy Tricks, refuses to allowyou to confirm accounts receivable because she is concerned about complaints from hercustomers. You are unable to satisfy yourself about accounts receivable by other auditprocedures and you are concerned about Tracy's true motives.d On 31 January, Asare Toy Manufacturing hired your firm to audit the company's financialstatements for the prior year. You were unable to observe the entity's inventory on 31December. However, you were able to satisfy yourself about the inventory balance usingother audit procedures.e Gelato Bros. leases its manufacturing facility from a partnership controlled by the chiefexecutive officer and major shareholder of Gelato. Your review of the lease indicates thatthe rental terms are in excess of rental terms for similar buildings in the area. The companyrefuses to disclose this related-party transaction in the notes.f Johnstone Manufacturing Company has used the double-declining balance method todepreciate its machinery. During the current year, management switched to the straight-linemethod because it felt that it better represented the utilization of the assets. You concur withits decision. All information is adequately disclosed in the financial statements.

Auditing refers to the process of evaluating and investing all the financial documents of the…

,3,4) For each of the following independent situations, indicate the type of financial ent audit report that you would issue, and briefly explain your reasoning. Assume that em is at least material. management of Bonner Corporation has decided to exclude the statement of cash flows its financial statements because it believes that its bankers do not find the statement to ery useful. are auditing Diverse Carbon, a manufacturer of nerve gas for the military, for the year ed 30 September. On 1 September, one of its manufacturing plants caught fire, releasing e gas into the surrounding area. Thirteen people were killed and numerous others lysed. The company's legal counsel indicates that the company is liable and that the unt of theliability can be ronsc nably ostimated but the comnany rofuses to discloso this

,3,4) For each of the following independent situations, indicate the type of financial ent audit report that you would issue, and briefly explain your reasoning. Assume that em is at least material. management of Bonner Corporation has decided to exclude the statement of cash flows its financial statements because it believes that its bankers do not find the statement to ery useful. are auditing Diverse Carbon, a manufacturer of nerve gas for the military, for the year ed 30 September. On 1 September, one of its manufacturing plants caught fire, releasing e gas into the surrounding area. Thirteen people were killed and numerous others lysed. The company's legal counsel indicates that the company is liable and that the unt of theliability can be ronsc nably ostimated but the comnany rofuses to discloso this

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter2: The Auditor’s Responsibilities Regarding Fraud And Mechanisms To Address Fraud: Regulation And Corporate Governance

Section: Chapter Questions

Problem 25RQSC

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Jaycom Enterprises has invested its excess cash in the bonds of several different companies and desires to maximize income over the short run. Jaycom is unsure about the appropriate investment policy and thus what reporting practice to follow. What classification procedure and subsequent classification could Jaycom follow in order to meet its objective? How will Jaycom justify its choice to the Jaycom auditors?
Items 1 through 6 are common questions found in internalcontrol questionnaires used by auditors to obtain an understanding of internal controlfor owners’ equity. In using the questionnaire for a client, a “yes” response indicates apossible internal control, whereas a “no” indicates a potential deficiency.1. Are all entries in the owners’ equity accounts authorized at the proper level in theorganization?2. Are issues and retirements of stock authorized by the board of directors?3. Does the company use the services of an independent registrar or transfer agent?4. If an independent registrar and transfer agent are not used:(a) Are unissued certificates properly controlled?(b) Are cancelled certificates mutilated to prevent their reuse?5. Are common stock master files and stock certificate books periodically reconciledwith the general ledger by an independent person?6. Is an independent transfer agent used for disbursing dividends? If not, is an imprestdividend account maintained?
b. The management of Bonner Corporation has decided to exclude the statement of cash flows from its financial statements because it believes that its bankers do not find the statement to be very useful. c. You are auditing Diverse Carbon, a manufacturer of nerve qas for the military, for the year
3. Identify the factors that may have contributed to the alleged flaws in the audit procedures that PwC applied in testing the year-end market values of the Lipper hedge funds’ investments. Discuss specific measures that audit firms can employ to reduce the likelihood that such factors will undercut the quality of their audits.
9-18. During audit planning, an auditor obtained the following information:1. The company’s financial stability or profitability is threatened by economic, industrial, or its operating conditions.2. There is excessive pressure on management to meet debt repayment requirements.3. The company’s board of directors’ personal net worth is materially threatened by its financial performance.4. Important accounting estimates involve subjective judgments or uncertainties that are difficult to verify.5. The audit committee overlooks certain aspects of financial reporting.6. The company experiences high turnover in its information technology staff and internal audit function.7. There is ineffective communication and therefore insufficient support of the company’s values.8. There have been several incidents of violations of security laws and other regulations in the past.9. The management makes unrealistic or overly optimistic forecasts to analysts, creditors, and other third parties.Required:a.…
118-Since accounting information is used for decision making. As a result of financial manipulations, it is expected that the result might be unrealistic. Therefore, it is far necessary for the accounts department to show fair financial results which is only possible if a. Reputed audit firm is selected for audit b. A fair accountant is hired on this position c. A strong compliance with accounting standards d. None of the options
14 From the following statements, identify the statement/s that will not participate in the audit of an entity. a. Statement of Debtors b. All the options c. Statement of Creditors d. Bank Reconciliation statement
14. Paul Schmidt, a representative for Westby Investments, is explaining how security analysts use the results of the accounting process. He states, "Analysts do not have access to all the entries that went into creating a company's financial statements. If the analyst carefully reviews the auditor's report for any instances where the financial statements deviate from the appropriate accounting principles, he can then be confident that management is not manipulating earnings." Schmidt is: correct. incorrect, because the entries that went into creating a company's financial statements are publicly available. incorrect, because management can manipulate earnings even within the confines of generally accepted accounting principles.
You are the auditor of MasterFood. As a result of your audit work, you discover that MasterFood is currently trying to raise finance to fund operating activities. You believe that if the finance is not received, there is significant doubt over the going concern status of MasterFood. You conclude that the going concern assumption is appropriate, but you recommend that the financial statements should contain a note disclosing the cash flow problems faced by the company, a description of the finance being sought, and an evaluation of the going concern status of the company. The directors do not wish to include the note in the financial statements. Required: Explain the audit opinion which will be issued if: I. The directors refuse to include the disclosure note ii. the directors refuse to include the disclosure note
14. The government normally sets the following to regulate the behavior of the players in the financial markets, except: a. Standardized forecasting and risk assessment b. Minimum capital requirements c. Control of new players d. Full disclosure of information
A current issue before the Financial Accounting Standards Board (FASB) is whether accounting standards should be moving from rule-based standards to principle-based standards. Rule-based standards provide specific measurements guidelines that are currently used to classify investment securities (for example, less than 20%, from 20% to 50%, and over 50%). Principle-based standards rely on general principles such as significant influence or control of a company, without any more detailed guidelines. You are the chief financial officer for a large corporation, and FASB just issued a request for comment on a proposed change from the current standard to a principle-based standard. Choose the standard that best meets the business need and justify your choice. Evaluate and defend whether your choice would change if you were an investor in the company.
The following factors describe a potential audit client. For each factor, indicate whether it is indicative of poor corporate governance. Explain the reasoning for your assessment. Finally, determine the risks to reliable financial reporting that are associated with each factor. a.The company is in the financial services sector and has a large number of consumer loans, including mortgages, outstanding. b.The CEO’s and CFO’s compensation is based on three components: (a) base salary, (b) bonus based on growth in assets and profits, and (c) significant stock options. c.The company has an internal auditor who reports directly to the CFO and makes an annual report to the audit committee.