34 the Tollowing data as well as his computed balance of P2.350,000 as the gross sales of the company. As the external auditor of the firm, vou are tasked to compute whether the gross sales presented to you is understated or overstated as compared to your audited amount. How much is the understatement or overstatement? (Place 0 if there is no misstatement. If the amount represents an overstatement, place a - sign before the amount. No need to provide description.) * WITH 100,00011 Below is the data provided by a company regarding its receipts and disbursements. 000,00S 31-Dec 1-Jan Accounts Receivable 225,000 215,000 Notes Receivable 100,000 120,000 Accounts Payable 130,000 1 10,000 Notes Payable 180,000 270,000 Prepaid Insurance 40,000 25,000 eldavey wollot s s97 Cash Sales 480,000 Collections of A/Rnet of 40,000 discounts 1,500,000 90,000 Collections of nots receivable 90,000 LecciApe alder Bank ban- 1 year. Dated Dec 31 50,000 Purchase returns and allow ances 130,000 Cash Purchases Payments of A/P net of 15,000 discounts Payments of Notes Payable 1,400,000 300.000 200,000 Insurance Other Expenses 620,000 Sales Retums and Allowances 00.000 000.00 C00,000.01 0.000 55,000

34 the Tollowing data as well as his computed balance of P2.350,000 as the gross sales of the company. As the external auditor of the firm, vou are tasked to compute whether the gross sales presented to you is understated or overstated as compared to your audited amount. How much is the understatement or overstatement? (Place 0 if there is no misstatement. If the amount represents an overstatement, place a - sign before the amount. No need to provide description.) * WITH 100,00011 Below is the data provided by a company regarding its receipts and disbursements. 000,00S 31-Dec 1-Jan Accounts Receivable 225,000 215,000 Notes Receivable 100,000 120,000 Accounts Payable 130,000 1 10,000 Notes Payable 180,000 270,000 Prepaid Insurance 40,000 25,000 eldavey wollot s s97 Cash Sales 480,000 Collections of A/Rnet of 40,000 discounts 1,500,000 90,000 Collections of nots receivable 90,000 LecciApe alder Bank ban- 1 year. Dated Dec 31 50,000 Purchase returns and allow ances 130,000 Cash Purchases Payments of A/P net of 15,000 discounts Payments of Notes Payable 1,400,000 300.000 200,000 Insurance Other Expenses 620,000 Sales Retums and Allowances 00.000 000.00 C00,000.01 0.000 55,000

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

Chapter6: Audit Evidence

Section: Chapter Questions

Problem 15RQSC

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The data is the sales of CoCo Co. The accountant of the company has provided you with the following data as well as his computed balance of P2,350,000 as the gross sales of the company. As the external auditor of the firm, you are tasked to compute whether the gross sales presented to you is understated or overstated as compared to your audited amount. How much is the understatement or overstatement?
So, owner of a trading company engaged your services as auditor. There is a discrepancy between the company’s income and the sales volume. The owner suspects that the staff is committing theft. You are to determine whether or not this is true. Your investigation revealed the following: The physical taken on December 31, 2018 under your observation showed that cost was P26,500. The inventory on January 1, 2018 showed cost of P39,000. The accounts receivable as of January 1, 2018 were P13,500. During 2018, accounts receivable written off amounted to P1,000. Accounts receivable as of December 31, 2018 were P37,500. Outstanding purchase invoices amounted to P30,000 at the end of 2018. At the beginning of 2018, they were P37,500. Receipts from customers during 2018 amounted to P300,000. Disbursement to merchandise creditors amounted to P200,000. The average gross profit rate was 40% of net sales. Required: Total Sales Total Purchases Inventory Shortage
You are reviewing the results of the Firestone audit. These are the details of the summay of identified misstatements: • Allowance for Doubtful Accounts: $60,000 misstatement (over) • Sales Revenue: $10,000 misstatement (under) • Total identified misstatements: $50,000 (impact on Assets, pre-tax income, and equity) • Performance materiality was set at $60,000 REQUIRED: a) If overall materaility for the audit was set at $30,000, what type of audit report would be issued? Why? b) If overall materiality for the audit was set at $75,000, what type of audit report would be issued? Why?
he auditor of Kent Ltd selects a sample from the file of shipping documents in order to confirm that all sales shipped are invoiced and recorded in accounting records. This test will confirm:Select one:a. Valuation and allocation assertion for sales.b. Cut-off assertion for sales.c. Occurrence assertion for sales.d. Completeness assertion for sales.
Before expressing an opinion concerning the audit of income and expenses, theauditor will best proceed with the audit of the income statement by(1) applying a rigid measurement standard designed to test for understatement ofnet income.(2) analyzing the beginning and ending balance sheet inventory amounts.(3) making net income comparisons to published industry trends and ratios.(4) auditing income statement accounts concurrently with the related balance sheetaccounts
You are the audit partner at Smart Auditors Inc. For the month of April 2020, you have received the following technical queries relating to different audit clients. Please note that the matters below are not related. Matter 1: In terms of the basic evidence gathered on the audit of We Fix (Pty ) Ltd, the auditor noted that inventory with a cost of N$500 000 and a net realisable value of N$750 000 has been recorded at the net realisable value amount. The issue has been discussed with management and they have refused to correct the misstatement. Matter 2: On the audit of Grey Fade (Pty) Ltd, based on the audit evidence obtained, the auditor concluded that there are material uncertainty relating to events and conditions which cast significant doubt on the company’s ability to continue as a going concern. However, the audit committee and management had come to the same conclusion and adequate disclosure in the financial statements relating to the material uncertainty had been made. The…
Various Completion Matters. For each of the following independent situations, describe the most appropriate course of action that the auditors should take.a. Drew Allison is conducting the audit of Anderson Inc. as of December 31, 2017. At the beginning of the evidence gathering, Allison becomes aware that one of Anderson’s major customers (Jones) is experiencing significant financial difficulties. Jones normally accounts for 5 percent of Anderson’s net sales. After performing the necessary procedures, Allison believes that $2.8 million of Jones’s receivable balance will ultimately become uncollectible. Allison further believes this amount is material to Anderson’s financial condition and results of operations.b. Nagan Carmelo is completing the December 31, 2017, audit of Nugget Company. As part of the final procedures, Carmelo has requested representations from Nugget’s management regarding their assertion as to the fairness of the financial statements and other important matters…
Indicate how the auditor could use substantive analytical procedures in resting the following accounts: a. Interest expense related to bonds outstanding. b. Natural gas expense for a public utility company. c. Supplies expense for a factory. d. Cost of goods sold for a fast-food franchisor (e.g., Wendy’s or McDonald’s). Note that cost of goods sold tends to average about 35% of sales in fast-food franchises. e. Salary expense for an office (region) of a professional services firm.
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.
TNC advertising company appointed an auditor to resolve the problem of irregular accounts that is showing in its financial reports: that the gross profit is 40% margin but its net profit is showing loss in the income statement. After comparing the budgeted figures, all the indirect expenses are under control except salaries and wages and their payment method is found to be suspicious. The company decided to hire Mr. Younus as the external auditor.Based on the above scenario:1. Design adequate audit procedures that Mr. Younus will use related to vouchers and payments. 2. Give recommendations on how to resolve the issues experienced by the company, at the moment.
Calculate materiality for the client, assuming that it is a profit-oriented company and moderate audit risk. Explain why you chose the base you did and why you chose the percentage. You may use guidelines from the textbook or the case study and should refer to the specific guidelines you used in your answer. Current Year Prior Year Sales/revenue (net) 30,381,954 26,290,518 Expenses 7,263,786 6,519,376 Gross Margin 8,378,660 7,280,887 Pre-tax Income 1,114,873 761,510 Current Assets 18,993,546 16,966,273 Current Liabilities 8,221,991 6,810,164 Total Assets 19,679,541 17,670,625
You are the audit manager for Ken-Ron Enterprises. Your firm has been the entity’s auditor for 15 years. Your firm normally uses a range of 3% to 5% of income before taxes to calculate overall materiality and 50-75% of overall materiality to calculate tolerable misstatement. Ken-Ron has reported the following financial statement data (in millions) for the last four years: (Data shown in image) Required:a. If you planned on using income before taxes as the benchmark to compute overall materiality and tolerable misstatement, how would you compute those amounts for 2018? Prepare and justify your calculations.b. Determine overall materiality and tolerable misstatement using either total assets or total revenues as the benchmark. Make the calculations by utilizing both .25% and 2%, the endpoints of the range that your firm’s guidance provides.c. Assume that during the course of the 2018 audit you discovered misstatements totaling $50 million (approximately 50% of the 2018 income before…