accounts payable assertions
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Johnny Kang, CPA, is the auditor of the Felix Lee Ltd. Johnny Kang, CPA is considering the audit work to be performed in the accounts payable area for the current year’s engagement. The prior year papers show that confirmation requests were mailed to one hundred of the client’s one thousand suppliers. The selected suppliers were based on Johnny Kang’s sampling, which was designed to select high value items in the accounts payable balance. Johnny Kang and Felix Lee Ltd.’s accountant, DY Anderson spent substantial number of hours resolving relatively minor differences between the confirmation replies and accounting records. Alternative
Required:
1. Identify the accounts payable assertions that Johnny Kang must consider in determining the substantive tests to be followed.
2. Identify situations for which Johnny Kang should use accounts payable confirmations and discuss whether he is required to use them.
3. Discuss why Johnny Kang’s use of large-peso balances as the basis for selecting accounts payable for confirmation might not be the most efficient for selecting accounts payable for confirmation.
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- ABC Manufactures is a manufacturing company, and your audit team is conducting the annual audit of its financial statements. As part of the audit procedures, you are tasked with testing the accounts receivable balance. ABC Manufactures has a significant accounts receivable balance owing to its diverse customer base. Upon initiating the audit procedures, your team sends out accounts receivable confirmations to one of ABC Manufactures largest customers with a material accounts receivable balance outstanding. However, several weeks have passed, and the confirmation has not been returned. The audit team has made follow-up attempts via phone calls and emails, but there has been minimal response. Considering the lack of responsiveness, the audit team is becoming increasingly skeptical about the effectiveness of the confirmation process in this particular situation. Describe two alternative audit procedures that the audit team may conduct that may assist them in gathering sufficient…As you are planning the annual audit of Norton Corporation, you note at the company has a number of user operated computers in use in various locations. One of the machines has been installed in the stores department, which has the responsibility for disbursing stock items and for maintaining stores records. In your audit, you find that one employee receives the requisitions for stores, disburses the stock, maintains the records, operates the computer, and authorizes adjustments to the total amounts of stock recorded by the computer. When you discuss the applicable controls with the department manager, you are told that the user operated computer is assigned exclusively to that department. Therefore, the manager contends that it does not require the same types of controls applicable to large IT systems. b. Discuss five types of control that would apply to this microcomputer application.Daisy CPAS are auditing the accounts of Focus Inc., a regional power cooperative. The audit team assigned to the audit of accounts receivable has noted from prior audit experience that the majority of clients pay their bills on time and in the correct amount. One of the audit team has also noted that the cooperative has hundreds of thousands of customers. Based on this information, what might be a prudent approach to substantive testing by Daisy CROS?
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- Roland Company, a retail store, has utilized your services as independent auditor for several years. During the current year, the company opened a new store, and in the course of your annual audit, you verify the cost of the fixtures installed in the new store by examining purchase orders, invoices, and other documents. This audit brings to light an understated invoice nearly a year old in which a clerical error by the supplier, Western Showcase, Inc., caused the total of the invoice to read $28,893.62 when it should have read $82,893.62. The invoice was paid immediately upon receipt without any notice of the error, and subsequent statements and correspondence from Western Showcase, Inc., showed that the account with Roland Company had been paid in full. Assume that the amount in question is material in relation to the financial position of both companies. Assuming that you were later retained to make an audit of Western Showcase, Inc., would you utilize the information gained in…Moranda and Sills, LLP, has served for over 10 years as the auditor of the financialstatements of Highland Credit Union. The firm is conducting its audit planning for the currentfiscal year and is in the process of performing risk assessment procedures. Based on inquiries andother information obtained, the auditors learned that the credit union is finalizing an acquisitionof a smaller credit union located in another region of the province. Management anticipatesthat the transaction will close in the third quarter, and, while there will be some challenges inintegrating the IT systems of the acquired credit union with Highland systems, the bank shouldrealize a number of operational cost savings over the long term.During the past year, the credit union has expanded its online service options for customers, who can now remotely deposit funds into and withdraw funds from chequing and savingsaccounts. The system has been well received by customers and the credit union hopes to continue…The following are three situations, all involving private companies, in whichthe auditor is required to develop an appropriate overall audit strategy and approach:1. The client has inventory at approximately 50 locations in a three-province region. Theinventory is difficult to count and can be observed only by travelling by automobile. Theinternal controls over acquisitions, cash disbursements, and perpetual records are considered effective. This is the fifth year that you have done the audit, and audit results in pastyears have always been excellent. The client is in excellent financial condition.2. This is the first year of an audit of a medium-sized company that is considering selling itsbusiness because of severe underfinancing. A review of the acquisition and payment cycleindicates that controls over cash disbursements are excellent but controls over acquisitions cannot be considered effective. The client lacks receiving reports and a policy asto the proper timing to record…