Diane Smith, CPA, performed tests of controls and substantivetests of transactions for sales for the month of March in an audit of the financialstatements for the year ended December 31, 2013. Based on the excellent results of boththe tests of controls and the substantive tests of transactions, she decided to significantlyreduce her substantive tests of details of balances at year-end. Evaluate this decision.
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Diane Smith, CPA, performed tests of controls and substantive
tests of transactions for sales for the month of March in an audit of the financial
statements for the year ended December 31, 2013. Based on the excellent results of both
the tests of controls and the substantive tests of transactions, she decided to significantly
reduce her substantive tests of details of balances at year-end. Evaluate this decision.
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- Marilyn Terrill is the senior auditor for the audit of Uden Supply Company for the year ended December 31, 20X4. In planning the audit, Marilyn is attempting to develop expectations for planning analytical procedures based on the financial information for prior years and her knowledge of the business and the industry, including these: Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend. Based on her knowledge of industry trends, she believes that the gross profit percentage for 20X4 should be about 2 percent less than the percentage for 20X3. Based on her knowledge of regulations, she is aware that the effective tax rate for the company for 20X4 has been reduced by 5 percent from that in 20X3. Based on a review of the general ledger, she determined that average depreciable assets have increased by 10 percent. Purchases of equipment occurred relatively evenly throughout the year. Based on her knowledge of…An auditor decided to render sales cut-off as part of auditing an audit client's accounts receivable. Entries in the Sales Journal from December 16, 2016 to the subsequent period January 15, 2017 were vouched to the supporting documents. Which of the following is correct regarding the January entries? *a. January sales journal entries vouched back to the sales invoice shall help uncover possible overstatement of Sales/Accounts receivable.b. January sales journal entries vouched back to the delivery receipts shall help uncover possible understatement of Sales/Accounts receivable.c. December sales journal entries vouched back to the delivery receipts shall help uncover possible overstatement of Sales/Accounts Receivables.d. December sales journal entries vouched back to the sales invoice shall help uncover possible understatement of Sales/Accounts receivable.e. None of the above.During your annual audit of Walker Distributing Company, your assistant, Jane Williams, reports to you that, although a number of entries were made during the year in the general ledger account Notes Payable to Officers, she decided that it was not necessary to audit the account because it had a zero balance at year-end. Required: Do you agree with your assistant’s decision? Discuss.
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- An auditor decided to render sales cut-off as part of auditing an audit client's accounts receivable. Entries in the Sales Journal from December 16, 2016 to the subsequent period January 15, 2017 were vouched to the supporting documents. Which of the following is correct regarding the December entries? a. December sales journal entries vouched back to the sales invoice provide evidence about the occurrence/existence of Sales/Accounts Receivables.b. December sales journal entries vouched back to the delivery receipts provide evidence about the occurrence/existence of Sales/Accounts Receivables.c. December sales journal entries vouched back to the sales invoice provide evidence about the completeness of Sales/Accounts Receivables.d. December sales journal entries vouched back to the delivery receipts provide evidence about the valuation of Sales/Accounts Receivables.e. None of the above.You have been assigned to the first audit of the Chicago Companyfor the year ending March 31, 2013. Accounts receivable were confirmed on December 31,2012, and at that date the receivables consisted of approximately 200 accounts withbalances totaling $956,750. Fifty of these accounts with balances totaling $650,725 wereselected for confirmation. All but 10 of the confirmation requests have been returned; 24were returned without any exceptions, 6 had minor differences that have been clearedsatisfactorily, and 10 confirmations had the following information and comments:1. We are sorry, but we cannot answer your request for confirmation of our accountas the PDQ Company uses an accounts payable voucher system and can onlyconfirm individual invoices.2. The balance of $1,050 was paid on December 28, 2012.3. The balance of $7,750 was paid on January 5, 2013.4. The balance of $2,975 was paid on December 13, 2012.5. We do not owe you anything at December 31, 2012, as the goods, represented…Five months after issuing an unqualified audit opinionand an unqualified opinion on internal controls for the audit of the year ended December31, 2013, for a large publicly traded client, the client and the auditor become aware of amaterial misstatement in sales revenue for the year in question, which was the resultof a material weakness in internal controls. Is this a subsequent event or a subsequentdiscovery of facts? What are the auditor’s responsibilities related to the audit opinion andthe opinion on internal controls?
