II. IDENTIFY THE EFFECT OF THE FOLLOWING TRANSACTIONS TO THE RISK OF MATERIAL MISSTATEMENT TO FINANCIAL STATEMENTS. INCREASE DECREASE NO EFFECT The company has shown an ability to generate a positive cash flow from operations, while reporting earnings and earnings growth. The employees of the company are being paid on a weekly basis. The accounting department has experienced a low turnover rate of key personnel. The internal audit reports to the chairman of the board who is a minority stockholder. The company recently opened up

II. IDENTIFY THE EFFECT OF THE FOLLOWING TRANSACTIONS TO THE RISK OF MATERIAL MISSTATEMENT TO FINANCIAL STATEMENTS. INCREASE DECREASE NO EFFECT The company has shown an ability to generate a positive cash flow from operations, while reporting earnings and earnings growth. The employees of the company are being paid on a weekly basis. The accounting department has experienced a low turnover rate of key personnel. The internal audit reports to the chairman of the board who is a minority stockholder. The company recently opened up

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter14: Corporation Accounting

Section: Chapter Questions

Problem 24MC: Most analysts believe which of the following is true about EPS? A. Consistent improvement in EPS...

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A study investigated the relationship between audit delay (the length of time from a company’s fiscal year-end to the date of the auditor’s report) and variables that describe the client and the auditor. Some of the independent variables that were included in this study follow: Industry A dummy variable coded 1 if the firm was an industrial company or 0 if the firm was a bank, savings and loan, or insurance company. Public A dummy variable coded 1 if the company was traded on an organized exchange or over the counter: otherwise coded 0. Quality A measure of overall quality of internal controls, as judged by the auditor, on a 5-point scale ranging from “virtually none” (1) to “excellent” (5). Finished A measure ranging from 1 to 4, as judged by the auditor, where 1 indicates “all work performed subsequent to year-end” and 4 indicates “most work performed prior to year-end.” A sample of 40 companies provided the following data: Develop the estimated regression equation using all of the independent variables included in the data. How much of the variation in the sample values of delay does this estimated regression equation explain? What other independent variables could you include in this regression model to improve the fit? Test the relationship between each independent variable and the dependent variable at the 0.05 level of significance, and interpret the relationship between each of the independent variables and the dependent variable. On the basis of your observations about the relationships between the dependent variable Delay and the independent variables Quality and Finished, suggest an alternative model for the regression equation developed in part (a) to explain as much of the variability in Delay as possible.
Identify the applicable qualitative characteristics referred to in the Conceptual Framework for Financial Reporting that is not adhered in the scenario below and indicate the respective group to which each characteristic belongs to. You are also required to indicate the sub-category (if applicable) to which the qualitative characteristic belong to. A company discovered at the end of the fiscal year that credit sales transactions from the last 2 months of the period were not recorded as the accountant was waiting for a transfer of cash or equivalent to settle the outstanding amounts. a. Faithful Representation; completeness; Enhancing b. Faithful Representation; completeness; Fundamental c. Faithful Representation; neutral; Fundamental d. Faithful Representation; free from error; Fundamental
An analyst assessed a company and determined the company reported a "high quality of earnings." This implies that management issued a press release indicating it was not aware of any fraud during the current year. the company’s management exercised little or no discretionary influence in reporting financial statement information to shareholders. management has used its influence in determining the dollar amounts reported on financial statements. income statement items reported during the current period can be expected to reflect future income levels.
A company is experiencing a period of strong fi nancial performance. In order to increasethe likelihood of exceeding analysts’ earnings forecasts in the next reporting period, thecompany would most likely undertake accounting choices that:A . infl ate reported revenue in the current period.B . delay expense recognition in the current period.C . accelerate expense recognition in the current period.
Which of the following does NOT explain the distinction between financial statements andmanagement accounts?A Financial statements are primarily for external users and management accounts areprimarily for internal usersB Financial statements are normally produced annually and management accounts arenormally produced monthlyC Financial statements are more detailed than management accountsD Financial statements are audited by an external auditor and management accounts do notnormally have an external audit
The auditor is likely to accumulate more evidence when the audit is for a company: 1. Which has large amounts of debt. II. Which is to be sold in the near future. c. Both I and II O a. I only d. Neither I nor II O b. ll only
During the risk assessment procedures, while understanding the client's financial position, the auditor observed that the receivable turnover of the client which was 10 times is significantly lower than that of the industry which was 15 times. This information is significant in designing audit procedures in validating which financial statement assertion for accounts receivable? a. Existenceb. Completenessc. Valuationd. Rights and Obligatione. None of the above
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a. Compute the following ratios for Crazy Eddie during the period 1984-1987. See balance sheet and income statement. (Show working) Gross profit ratio Inventory Turnover Day’s sales in inventory Accounts receivable turnover Day’s sales in accounts receivable Accounts Payable Turnover Ratio Long-Term Debt to Assets Ratio b. Identify and briefly explain the red flags in Crazy Eddie's financial statements which suggested that the firm posed a higher-than-normal level of audit risk.
After completing a horizontal and vertical analysis of the Balance Sheet and Income Statement. It is noticed that the companies Accounts Receivables is rising faster than both sales and revenue. This brings up concerns of fraud. What type of documentation and information should the auditors request to further evaluate for potential fraud? What might explain this increase in AR?
As a result of analytical procedures an auditor determines that gross profit has declined from 30% to 15% in the current year. The auditor should.. A. Document manamgent intentions with respect to reversing the trend. B. Evaluate managment's performance in causing the deline C. Require a footnote disclosure D. Consider the possibility of an error in the financial statements.
which of the following application would an auditor apply to determine the probability of a corporation's account balance being in error? A) overinvolvement rations B) probability rules C) bayes theorem D) emprical formula