Bankers usually insist that prospective business borrowers submit audited financial statements along with a loan application. Why should financial statements be audited by a CPA?
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Bankers usually insist that prospective business borrowers submit audited financial statements along with a loan application. Why should financial statements be audited by a CPA?
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- Typically, bankers require potential borrowers to provide audited financial documents with their loan application.Why is it necessary for a CPA to audit financial statements?Typically, banks require potential company borrowers to provide audited financial accounts with their loan application. Why should financial statements be audited by a certified public accountant?Bankers who are processing loan applications from companies seeking large loans willprobably ask for financial statements audited by an independent CPA becausea. Financial statements are too complex for the bankers to analyze themselves.b. They are too far away from company headquarters to perform accounting and auditingthemselves.
- Which of the following procedures would a CPA most likely perform in planning a financial statement audit?a. Make inquiries of the client’s lawyer concerning pending litigation.b. Perform cutoff tests of cash receipts and disbursements.c. Compare financial information with nonfinancial operating data.d. Recalculate the prior-years’ accruals and deferrals.Explain three types of good financial analysis that must be conducted by the credit officer in the bank while performing their periodic review against their business customer.Which of the following types of documentary evidence should the auditor consider the most reliable?a. Sales invoice created by the client with the support of proof of delivery from an outside delivery serviceb. Confirmation of debt balances sent and returned directly to the auditorc. Check made by the company and includes a sign of approval of the party receiving the money, which is included in the bank statement sent directly to the auditord. An audit list prepared by the client controller and reviewed by the client treasurer.
- In order to make sure that loans are properly classified, the auditor would: a. Examine due dates on duplicate copies of loan agreements to determine whether all or part are a non-current liability. b. Examine the loan agreements to determine whether the company has obligations for payment. c. Trace the totals on the loans list to the general ledger. d. Examine corporate minutes for loan approval.Assertions are expressed or implied representations by management that are reflected in the financial statement components. The auditor performs audit procedures to gather evidence to test those assertions. Required: Your client is All's Fair Appliance Company, an appliance wholesaler. Select the most appropriate audit procedure from the following list and enter the number in the appropriate place on the grid. (An audit procedure may be selected once, more than once, or not at all.) Audit Procedure: 1. Review of bank confirmations and loan agreements. 2. Review of drafts of the financial statements. 3. Select a sample of shipping documents, match them with related sales invoices, and determine that they have been included in the sales journal and accounts receivable subsidiary ledger. 4. Select a sample of shipping documents for a few days before and after year-end. 5. Confirmation of accounts receivable. 6. Review of aging of accounts receivable with the credit manager. Assertion a.…Analyze the risks associated with auditing accounts payable. Explain the process of auditing accounts payable using confirmations. Determine why third parties are important to the audit of debt and equity. How do auditors interact with third parties to gain audit evidence when auditing debt and equity? Why is it important that auditors determine if the client is complying with debt provisions?
- When auditing contingent liabilities, which of the following procedures would be MOST effective? a. Reviewing the allowance for doubtful accounts. b. Reviewing the bank cutoff statement. c. Examining customer confirmation replies. d. Examining invoices for repairs expense. e. Abstracting the minutes of the board of directors.Recall your study of selected financial audit reports of banks.a. Give two risks associated with banking activities and discuss their audit significance. b. Identify 2 unique accounts or accounting practices particular to banks. Describe briefly.You've just completed an audit of receivables. What are your impressions of the findings? How important are receivables to the business? Are you familiar with auditing or handling receivables in your personal, commercial, or professional life?
