For the audit of Radline Manufacturing Company, the audit partnerasks you to carefully read the new mortgage contract with the First National Bank andabstract all pertinent information. List the information in a mortgage that is likely to berelevant to the auditor.

For the audit of Radline Manufacturing Company, the audit partnerasks you to carefully read the new mortgage contract with the First National Bank andabstract all pertinent information. List the information in a mortgage that is likely to berelevant to the auditor.

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter16: Advanced Topics Concerning Complex Auditing Judgments

Section: Chapter Questions

Problem 20MCQ

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During the audit of Albert Eistein, what relevant assertion should be used to record loans receivable net of an allowance for loan losses when allowance should adequately cover any estimated losses inherent in the loan portfolio but not excessive losses? a. Existence or occurrenceb. Valuation or allocationc. Cutoffd. Rights or obligations Among the prescribed audit activities provided below, which of the following would effectively help Metro bank determine its proper allowance for loan losses? a. Make visits to the borrower's commercial business site periodically.b. Have procedures in place to identify problem loans in a timely fashion.c. Identify any weaknesses in the institution's lending process.d. Obtain additional collateral for a loan. When assessing the reasonableness of Metro Bank's allowance for loan losses as a whole, you discovered that his estimate differs from the recorded allowance and that the difference is immaterial. How should you address this finding in your audit?…
Among the prescribed audit activities provided below, which of the following would effectively help Metro bank determine its proper allowance for loan losses?a. Make visits to the borrower's commercial business site periodically.b. Have procedures in place to identify problem loans in a timely fashion.c. Identify any weaknesses in the institution's lending process.d. Obtain additional collateral for a loan. When assessing the reasonableness of PNB's allowance for loan losses as a whole, you discovered that his estimate differs from the recorded allowance and that the difference is immaterial. How should you address this finding in your audit?a. Reconsider the precision of his estimateb. Record it on the summary of audit differences.c. Propose an adjustment.
You are an audit manager at Foyer & Associates and have been assigned to the audit of Modern Electrical Limited (MEL) for the year ending 30 June 2021. During the planning stage of the audit, you become aware of the following matters: a.MEL has significant loans from its bank. The bank has Indicated that it is concerned about MEL'S ability to meet specific loan covenants, particularly the return on total assets (net b. The aped trade accounts receivable listing indicates that the percentage of accounts receivable exceeding 90 days has jumped from 15 per cent to 37.5 per cent during the last 12 months. The credit manager hasindicated that the is because some of MEL'S Customers are currently'experiencing financial difficulty. This question.includos Part A and B part- a for each of the following scenerio describe briefly how this matter is a fraud audit risk factor in relation to mel's financial report.
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.…
The auditors should insist that a representative of the client be present during the inspection and count of securities toa. Lend authority to the auditors’ directives.b. Detect forged securities.c. Coordinate the return of all securities to proper locations.d. Acknowledge the receipt of securities returned.
For each situation, identify the appropriate audit report and briefly explain the rationale for selecting the report. Audit Situations: An audit client has a significant amount of loans receivable outstanding (40% of assets), but has an inadequate internal control system over the loans. The auditor cannot locate sufficient information to prepare an aging of the loans or to identify the collateral for about 75% of the loans, even though the client states that all loans are collateralized. The auditor sent out confirmations to verify the existence of the receivables, but only 10 of the 50 sent out were returned. The auditor attempts to verify the other loans by looking at subsequent payments, but only 8 had remitted payments during the month of January, and the auditor wants to wrap up the audit by February 15. The auditor estimates that if only 10 of the 50 loans were correctly recorded, loans would need to be written down by 7.5 million. During the audit of a large manufacturing…
The following are independent audit situations for which you are to recommend an appropriate audit report. For each situation, identify the appropriate audit report and briefly explain the rationale for selecting the report. Audit Situations: An audit client has a significant amount of loans receivable outstanding (40% of assets), but has an inadequate internal control system over the loans. The auditor cannot locate sufficient information to prepare an aging of the loans or to identify the collateral for about 75% of the loans, even though the client states that all loans are collateralized. The auditor sent out confirmations to verify the existence of the receivables, but only 10 of the 50 sent out were returned. The auditor attempts to verify the other loans by looking at subsequent payments, but only 8 had remitted payments during the month of January, and the auditor wants to wrap up the audit by February 15. The auditor estimates that if only 10 of the 50 loans were correctly…
The following are independent audit situations for which you are to recommend an appropriate audit report. For each situation, identify the appropriate audit report and briefly explain the rationale for selecting the report. Audit Situations: An audit client has a significant amount of loans receivable outstanding (40% of assets), but has an inadequate internal control system over the loans. The auditor cannot locate sufficient information to prepare an aging of the loans or to identify the collateral for about 75% of the loans, even though the client states that all loans are collateralized. The auditor sent out confirmations to verify the existence of the receivables, but only 10 of the 50 sent out were returned. The auditor attempts to verify the other loans by looking at subsequent payments, but only 8 had remitted payments during the month of January, and the auditor wants to wrap up the audit by February 15. The auditor estimates that if only 10 of the 50 loans were correctly…
In the audit of loans payable, which of the following audit procedure would be most likely performed to validate the existence assertion? Group of answer choices A. Vouching of subsequent payments of loans B. Sending loan confirmations C. Performing analytical procedures D. Review loan contracts
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.
A client has a large and active investment portfolio that is kept in a bank safe deposit box. If the auditors are unable to count securities at the balance sheet date, they most likely willa. Request the bank to confirm to the auditors the contents of the safe deposit box at the balance-sheet date.b. Examine supporting evidence for transactions occurring during the year. c. Count the securities at a subsequent date and confirm with the bank whether securities were added or removed since the balance-sheet date.d. Request the client to have the bank seal the safe deposit box until the auditors can count the securities at a subsequent date.