Describe the most appropriate course of action that the auditors should take – What should they require of the client
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- Casey Emberton is conducting the audit of Jackson Inc. as of December 31, 2020. At the beginning of the evidence gathering, Emberton becomes aware that one of Jackson’s major customers (Perry) has been experiencing significant financial difficulties since November 2020 and there is doubt about their continued survival. Perry normally accounts for 5 percent of Jackson’s net sales. After performing the necessary procedures, Emberton believes that $2.8 million of Perry’s receivable balance will ultimately become uncollectible. Emberton further believes this amount is material to Jackson’s financial condition and results of operations. Describe the most appropriate course of action that the auditors should take – What should they require of the client?).
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- Yaso plc is a manufacture company and its financial year ended at 31st December 2019. Total assets are £40m and net profit before tax is £12m. Yaso plc’s trade receivables ledger includes a large number of customers. The year-end trade receivables balance is £4m (comparable to £2m in 2018) and the allowance for trade receivables is £400,000 (comparable to £600,000 in 2018). • Describe substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to Yaso plc’s trade receivables.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…You are the audit senior working on the audit of Reef Building Supplies Limited (RBS), a large supplier of building materials, for the year ended 30 June 2020. While completing your risk assessment of RBS, you know that the company appears to have a significant debt recovery problem. The majority of RBS’s accounts receivable were outstanding for more than 60 days. RBS’s provision for doubtful debts is currently calculated at 1% of Accounts Receivable at month end. In the previous two financial years, RBS wrote off $760,000 and $1,050,00 worth of Accounts Receivable, respectively. In those years sales were $7,000,000 and $11,200,000, respectively. Required: Describe the substantive procedures you will carry out at year-end in order to obtain sufficient audit evidence regarding the assertions of valuation and existence in relation to Accounts Receivable
- LG Co. has recently hired a new independent auditor, Jeff Clan, CPA, who says he wants "to get everything straightened out." Consequently, he has proposed the following accounting changes in connection with LG Co.'s 2022 financial statements. 1. At December 31, 2021, the client had a receivable of P820,000 from Blue Stones Inc. on its statement of financial position. Blue Stones has gone bankrupt, and no recovery is expected. The client proposes to write off the receivable as a prior period item. 2. The client proposes the following changes in depreciation policies. * For office furniture and fixtures, it proposes to change from a 10-year useful life to an 8-year life. If this change had been made in prior years, retained earnings at December 31, 2021, would have been P250,000 less. The effect of the change on 2022 income alone is a reduction of P60,000. * For its equipment in the leasing division, the client proposes to adopt the sum-of-the years'-digits depreciation method. The…You are in the course of auditing a trading company for the year ended 31 March 2020. You are that the client appears to have accounts receivable collection problem. It is the client's policy to allow a 30-day credit to each of its customers and to provide a general provision for bad debt as 1 per cent of the year-end accounts receivable balance. However, you observe that most of the client's customers have been outstanding for more than 60 days at the year ended 31 March 2020. According to past experience with the client, you noted that the client had written off of bad debt amounted to $378,000 and 423,500 for the year ended 31 March 2019 and 31 March 2018, respectively. In those years, accounts receivable balances as at 31 March 2019 was $3,450,000 and as at 31 March 2018 was $5,650,000. It is industrial practice to provide 1 per cent of the year-end accounts receivable balance as provision for bad debts. a) Perform (i) an industry analysis and (ii) a trend analysis based on the…You are the audit manager of Matfine & Co and are reviewing the key issues identified in the files of two audit clients as follows: Pito Industries Co (Pito) Pito’s year-end was 31 March 2019 and the draft financial statements show revenue of $32·2 million, receivables of $6·1 million and profit before tax of $3.4 million. The fieldwork stage for this audit has been completed. A customer of Pito owed an amount of $375,000 at the year-end. Testing of receivables in April highlighted that no amounts had been paid to Pito from this customer as they were disputing the quality of certain goods received from Pito. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance. Albo Trading Co (Albo) Albo is a new client of Matfine & Co, its year-end was 31 January 2019 and the firm was only appointed auditors in February 2019, as the previous auditors were suddenly unable to undertake the audit. The fieldwork…
- You are the audit manager of Matfine & Co and are reviewing the key issues identified in the files of two audit clients as follows: Pito Industries Co (Pito) Pito’s year-end was 31 March 2019 and the draft financial statements show revenue of $32·2 million, receivables of $6·1 million and profit before tax of $3.4 million. The fieldwork stage for this audit has been completed. A customer of Pito owed an amount of $375,000 at the year-end. Testing of receivables in April highlighted that no amounts had been paid to Pito from this customer as they were disputing the quality of certain goods received from Pito. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance. Albo Trading Co (Albo) Albo is a new client of Matfine & Co, its year-end was 31 January 2019 and the firm was only appointed auditors in February 2019, as the previous auditors were suddenly unable to undertake the audit. The fieldwork…You are the audit manager of Matfine & Co and are reviewing the key issues identified in the files of two audit clients as follows: Pito Industries Co (Pito) Pito’s year-end was 31 March 2019 and the draft financial statements show revenue of $32·2 million, receivables of $6·1 million and profit before tax of $3.4 million. The fieldwork stage for this audit has been completed. A customer of Pito owed an amount of $375,000 at the year-end. Testing of receivables in April highlighted that no amounts had been paid to Pito from this customer as they were disputing the quality of certain goods received from Pito. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance. Albo Trading Co (Albo) Albo is a new client of Matfine & Co, its year-end was 31 January 2019 and the firm was only appointed auditors in February 2019, as the previous auditors were suddenly unable to undertake the audit. The fieldwork…You are the audit manager of Matfine & Co and are reviewing the key issues identified in the files of two audit clients as follows: Pito Industries Co (Pito) Pito’s year-end was 31 March 2019 and the draft financial statements show revenue of $32·2 million, receivables of $6·1 million and profit before tax of $3.4 million. The fieldwork stage for this audit has been completed. A customer of Pito owed an amount of $375,000 at the year-end. Testing of receivables in April highlighted that no amounts had been paid to Pito from this customer as they were disputing the quality of certain goods received from Pito. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance. Albo Trading Co (Albo) Albo is a new client of Matfine & Co, its year-end was 31 January 2019 and the firm was only appointed auditors in February 2019, as the previous auditors were suddenly unable to undertake the audit. The fieldwork…
- You are the audit manager of Matfine & Co and are reviewing the key issues identified in the files of two audit clients as follows: 1) Pito Industries Co (Pito) Pito’s year-end was 31 March 2019 and the draft financial statements show revenue of $32·2 million, receivables of $6·1 million and profit before tax of $3.4 million. The fieldwork stage for this audit has been completed. A customer of Pito owed an amount of $375,000 at the year-end. Testing of receivables in April highlighted that no amounts had been paid to Pito from this customer as they were disputing the quality of certain goods received from Pito. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance. 2) Albo Trading Co (Albo) Albo is a new client of Matfine & Co, its year-end was 31 January 2019 and the firm was only appointed auditors in February 2019, as the previous auditors were suddenly unable to undertake the audit. The fieldwork…You are currently planning the audit of your client, DEF plc. Its year end is 31 December 2019 and the forecast profit before tax is £15.5 million.DEF has a small internal audit (IA) department. During the year, IA started a programme of physically verifying the company’s assets and comparing the results to the non-current assets register, as this type of reconciliation had not occurred for some time. To date only 15% of assets have had their existence confirmed as IA has experienced significant staff shortages and several members of the current IA team are new to DEF plc.Inventory is held in six locations and on 25 and 26 December a full inventory count will be held with adjustments for movements to the year end. This is due to a lack of available staff on 31 December. The number of audit team members are not enough to attend the counts in all the locations. In November, there was a fire in one of the inventory warehouses; inventory of £5 million was damaged and this has been written…For the 2021 audit of the financial statements, you are tasked to audit EMPLEO Corporation’s liabilities. The following information relates to the obligations of EMPLEO Corporation as of December 31, 2021: Accounts payable for goods and services purchased on open account amounted to P350,000 on December 31, 2021. This amount was gross of a supplier’s debit balance of P30,000. On the other hand, the testing of the accounts receivable account revealed that a customer’s credit balance of P50,000 was netted against the balance of the accounts receivable. At December 31, 2021, EMPLEO declared a cash dividend at P0.50 per share on its P10 par value ordinary share capital, payable at January 12, 2022, to shareholders as of December 31, 2022. At December 31, 2021, EMPLEO had 1,000,0000 issued ordinary shares and 800,000 oustanding ordinary shares. The company financed its receivables, dated November 1, 2021, by discounting its 180-day P400,000 accounts receivable to a bank on a with…
