The errors below were noted after the books of CalMart Corporation were audited at the close of 2021Indicate the effects of each of the following errors with an O for overstatement, U for understatement and N forno effect in the appropriate column.20202021RetaineRetainedRetaineddEarnings,befo Re,Earnings, befo Earnings, afterclosingNetNetIncomreafterIncomreAsset Liability closingclosingAssetLiability closingeFailure to record purchasesof merchandiseon account ofP2,000 at the end of 2020.Sale of merchandise on account onDecember 30,2020 amounting to P2,000was not recorded until the customerpaid his account on january 2021.Depreciation expense on equipmentin 2020 was overstated by P1,000.Paid one year insurance premium ofP2,000 effective April 1,2020.The entire amount was debited toexpense account and no adjustmentwas made at the end of 2020.On December 31,2020, theCompany acquired a parcel of landand a building at a total cost ofP5,000,000. The entire amount paidwas debited to land account. Areasonable estimate of the costthat should have been allocated tothe building was P,2000,000. Thebuilding has an estimated lifeof 20 years.

We will analyse each transaction's effect on income, assets, liabilities, retained…

Answered: The errors below were noted after the…

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

Chapter15: Audit Reports For Financial Statement Audits

Section: Chapter Questions

Problem 12RQSC

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You were assigned to audit the financial statements of Swansea Corporation as at and for the year ended December 31, 2021. Your senior asked you to draft a memo on materiality and tolerable error for your client. Swansea Corporation has incurred substantial net losses due to COVID-19 pandemic. Up to 2019, it has been profitable. Which of the following is least likely to be your starting point in computing materiality? Group of answer choices Normalized net income Net loss Total assets Normalized revenue
The fieldwork for the December 31, 2018 audit of Schmidt Corporation ended on March 17, 2019. The financialstatements and auditor's report were issued on March 29, 2019. In each of the material situations (1 through 5)below, indicate the appropriate action (a, b, c). The possible actions are as followsa. Adjust the December 31, 2018 financial statements.b. Disclose the information in a footnote in the December 31, 2018 financial statements.c. No action is required.The situations are as follows:________ 1. On March 1, 2019, one of Schmidt Corporation's major customers declared bankruptcy. The customer'sfinancial condition in 2018 was deteriorating and they owed Schmidt Corporation a large sum of money as of thebalance sheet date.________ 2. On February 17, 2019, Schmidt Corporation sold some machinery for its book value.________ 3. On February 20, 2019 a flood destroyed the entire uninsured inventory in one of Schmidt'swarehouses.________ 4. On January 5, 2019, there was a significant…
Ambrose is auditing the financial statements of Mays (dated December 31, 2017). The date of the auditor’s report is February 17, 2018, and the audit report release date is February 20, 2018. For which of the following matters would Ambrose have the least responsibility?a. The obsolescence of inventory held on December 31, 2017, that was identified on January 20, 2018.b. A customer’s deteriorating financial condition that was identified on February 19, 2018.c. A merger that was announced by Mays and known by Ambrose on February 12, 2018.d. A major loss due to a catastrophe that occurred and was known by Ambrose on March 1, 2018.
You were first appointed auditor of the RST Corporation in 2020. You completed the audit for 2020 and prepared audited financial statements directly from the audit working papers. You have returned to make the 2021 audit and discovered that the client's bookkeeper failed to record the adjusting entries you made in 2020 audit working papers, which entailed adjustments for the following items The December 31, 2020 inventory was understated by P5,000. No entry was made for accrued utilities expense of P2,500 as of year-end. Ordinary motor repairs of P3,200 were charged to Accumulated Depreciation during 2020. The company failed to record the provision for uncollectible accounts in the amount of P6,000. Your examination of the 2021 entries in the accounts uncovered the following: An expenditure of P10,000 for repairs of office equipment had been charged to furniture and Equipment. The company records depreciation at 10% of the December 31 balance of the Property and Equipment accounts.…
When interim financial information is presented in a footnote to annual financial statements,the standard audit report on the annual financial statements shoulda. Not mention the interim information unless there is an exception that the auditors need toinclude in the report.b. Contain an audit opinion paragraph that specifically mentions the interim financial information if it is not in conformity with GAAP.c. Contain an explanatory paragraph that gives negative assurance on the interim information if it has been reviewed.d. Contain an explanatory paragraph if the interim information note is labeled “Unaudited.”
For the following independent events, assume that each has a material effect on the financial statements. The financial year of your audit client BLQ Ltd ended on 31 December 2018. Your audit report was signed on 20 February 2019 and the financial statements were issued on 4 March 2019. Listed below are events that have taken place. (a) On 14 February 2019: You discovered that 30% of BLQ Ltd’s inventory is destroyed by a fire on 7 January 2019. (b) On 10 March 2019, you discovered that BLQ Ltd had settled a class action lawsuit for $2 million on 30 January 2019. The class action was initiated by discontent customers in December 2017 for faulty products. The legal cost was disclosed as a provision worth $500,000 on the balance sheet. Required: For each of the events above, explain 1) the auditor’s responsibilities, 2) the appropriate accounting treatments and 3) the impact on audit report.
As a result of analytical procedures, the auditor determines that the gross profitpercentage has declined from 30% in the preceding year to 20% in the current year.The auditor should(1) express a qualified opinion due to inability of the client company to continue asa going concern.(2) evaluate management’s performance in causing this decline.(3) require footnote disclosure.(4) consider the possibility of a misstatement in the financial statements.
Required: For each of the following independent scenarios a) Indicate the type of auditor’s report to be issued. Include the type of opinion and any other modifications. b) Justify your conclusion by describing the conditions and nature of the issue that is affecting the type of the audit report to be issued Scenario 1 Skyway Hardware and Electronic Inc. (SHEI), a publicly listed entity, has a material unsecured loan receivable balance owing from Parts Supply Ltd. (PSL). SHEI has an October 31st year end. PSL declared bankruptcy on November 28, 2021. The auditors completed their field work for the audit of SHEI on December 12th and it is the auditors’ judgement that the loan receivable is impaired and should be written down. Management of SHEI disagree with this assessment and have refused to write-off the debt. SHEI is otherwise a profitable entity and the future outlook for the company is positive as it has recently secured 4 new customers. Indicate the type of audit…
Assume you are the partner in charge of the 2019 audit of Becker Corporation, a private company. The audit reporthas not yet been prepared. In each independent situation following (1-8), indicate the appropriate action (a-g) tobe taken. The possible actions are as follows:a. Issue an unmodified opinion audit report.b. Qualify both the scope and opinion paragraphs.c. Qualify the opinion paragraph.d. Issue an unmodified opinion with an explanatory paragraph.e. Issue an unmodified opinion with revised wording (no explanatory paragraph).f. Issue an adverse opinion.g. Disclaim an opinion.The situations are as follows:________ 1. Becker Corporation carries its property, plant, and equipment accounts at current market values.Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughoutthe financial statements.________ 2. Management of Becker Corporation refuses to allow you to observe, or make, any counts of inventory.The recorded book…
The 2021 financial statement audit of OMG company began when the trial balance was received from management. You were assigned to audit the accounts payable of the entity. The schedule of liabilities to vendor showed that the company has only five suppliers which account for 90% of the total accounts payable balance. Thus, the audit team has decided to send confirmation letters to those vendors. Upon your further review, you have noted that the amounts provided in the schedule and the trial balance does not balance, but you have noted that the difference is below the materiality threshold. Considering the facts provided, which of the following statements is true? Group of answer choices A. Since the difference is below materiality, there is no need to change samples. B. The sampling technique used by the audit associate is invalid because it involves bias. C. There is a sampling risk associated with the audit sampling procedure performed by the audit associate D. Negative…
The 2021 financial statement audit of OMG company began when the trial balance was received from management. You were assigned to audit the accounts payable of the entity. The schedule of liabilities to vendor showed that the company has only five suppliers which account for 90% of the total accounts payable balance. Thus, the audit team has decided to send confirmation letters to those vendors. Upon your further review, you have noted that the amounts provided in the schedule and the trial balance does not balance, but you have noted that the difference is below the materiality threshold. Considering the facts provided, which of the following statements is true? Choices Since the difference is below materiality, there is no need to change samples. Negative confirmation letters may be sent to the suppliers even if we did not rely on controls. The sampling technique used by the audit associate is invalid because it involves bias. There is a sampling risk associated with the audit…
The 2021 financial statement audit of OMG company began when the trial balance was received from management. You were assigned to audit the accounts payable of the entity. The schedule of liabilities to vendor showed that the company has only five suppliers which account for 90% of the total accounts payable balance. Thus, the audit team has decided to send confirmation letters to those vendors. Upon your further review, you have noted that the amounts provided in the schedule and the trial balance does not balance, but you have noted that the difference is below the materiality threshold. Considering the facts provided, which of the following statements is true? A. Negative confirmation letters may be sent to the suppliers even if we did not rely on controls. B. There is a sampling risk associated with the audit sampling procedure performed by the audit assaciate C. The sampling technique used by the audit associate is invald because it involves bias. D. Since the difference is below…

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