Neon Company, a CPA firm, conducted an audit for the 2020 financial statements of Gold Corporation. The auditors checked the vendors'. invoices for particular information. This is an example of: * O Confirmation O Inspection of documents O Inquiry

Neon Company, a CPA firm, conducted an audit for the 2020 financial statements of Gold Corporation. The auditors checked the vendors'. invoices for particular information. This is an example of: * O Confirmation O Inspection of documents O Inquiry

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

Chapter14: Activities Required In Completing A Quality Audit

Section: Chapter Questions

Problem 48MCQ

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The 2021 financial statement audit of OMG company began when the trial balance was received from management. You were assigned to audit the accounts payable of the entity. The schedule of liabilities to vendor showed that the company has only five suppliers which account for 90% of the total accounts payable balance. Thus, the audit team has decided to send confirmation letters to those vendors. Upon your further review, you have noted that the amounts provided in the schedule and the trial balance does not balance, but you have noted that the difference is below the materiality threshold. Considering the facts provided, which of the following statements is true? Group of answer choices A. Since the difference is below materiality, there is no need to change samples. B. The sampling technique used by the audit associate is invalid because it involves bias. C. There is a sampling risk associated with the audit sampling procedure performed by the audit associate D. Negative…
The 2021 financial statement audit of OMG company began when the trial balance was received from management. You were assigned to audit the accounts payable of the entity. The schedule of liabilities to vendor showed that the company has only five suppliers which account for 90% of the total accounts payable balance. Thus, the audit team has decided to send confirmation letters to those vendors. Upon your further review, you have noted that the amounts provided in the schedule and the trial balance does not balance, but you have noted that the difference is below the materiality threshold. Considering the facts provided, which of the following statements is true? Choices Since the difference is below materiality, there is no need to change samples. Negative confirmation letters may be sent to the suppliers even if we did not rely on controls. The sampling technique used by the audit associate is invalid because it involves bias. There is a sampling risk associated with the audit…
The 2021 financial statement audit of OMG company began when the trial balance was received from management. You were assigned to audit the accounts payable of the entity. The schedule of liabilities to vendor showed that the company has only five suppliers which account for 90% of the total accounts payable balance. Thus, the audit team has decided to send confirmation letters to those vendors. Upon your further review, you have noted that the amounts provided in the schedule and the trial balance does not balance, but you have noted that the difference is below the materiality threshold. Considering the facts provided, which of the following statements is true? A. Negative confirmation letters may be sent to the suppliers even if we did not rely on controls. B. There is a sampling risk associated with the audit sampling procedure performed by the audit assaciate C. The sampling technique used by the audit associate is invald because it involves bias. D. Since the difference is below…
Lana Company, a CPA firm, conducted an audit for the 2020 financial statements of Yara Corporation. The auditors inquired the management about the business operations and changes occurred in 2020. The auditors noticed that the turnover rate of senior accountants and other managers in the Finance Department was high during the year. This event would most probably: Affect the materiality amount Have no effect on the overall audit risk Decrease overall audit risk Increase overall audit risk None of the above
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…
Murray & Co., CPAs completed the audit of Classic, Inc., a non-issuer, on March 1, 2018 for a January 31, 2018 fiscal year end. The audit team encountered no significant issues and found no material misstatements. Murray & Co. has audited Classic, Inc. for several years and past audits did not reveal any significant issues or material misstatements. The audit team partner determined that a standard (unmodified) report on Classic, Inc.'s financial statements was appropriate. The auditors’ report, drafted by I.M. Nu, a staff assistant, is provided below. Independent Auditor’s Report To the Board of Directors and Shareholders Classic, Inc. Report on the Audit of the Financial Statements OpinionWe have audited the financial statements of Classic Inc., which comprise the balance sheet as of January 31, 2021 and the related statements of changes in shareholders' equity and cash flows for the year then ended, and the related notes to the financial statements. In our opinion, the…
During the course of the year 2 audit of Smithsone Company, the auditor discovered the following situations that may or may not require an adjusting journal entry. Each audit finding is independent of any of the other findings. Select the account or accounts that would comprise the adjusting journal entry, if required, to correct the audit finding. Accounts may be used once, more than once, or not at all. Audit finding The bank’s confirmation reply regarding the company’s line of credit indicated that the December, year 2, interest was unpaid at year-end. Accruals for monthly interest expense have been made for 11 months in year 2 by the company. Employee overtime pay for hours worked before year-end, but paid in the following year, were not recorded in year 2. In the last week of year 2, the company recorded revenue for services rendered to some clients in year 3. During year 2, a former client sued the company for inappropriate work. Legal counsel has advised that it is…
Sorrell, CPA, is auditing the financial statements of Van Dyke as of December 31, 2017. Sorrell’s substantive procedures and other tests indicated that Van Dyke’s financial statements were prepared in accordance with generally accepted accounting principles and, accordingly, Sorrell expressed an unqualified opinion on those financial statements. Because Van Dyke’s securities are registered with the Securities and Exchange Commission, Van Dyke is subject to the reporting requirements of AS 2201. During its assessment of internal control over financial reporting, Van Dyke’s management identified material weaknesses relatedto (1) the method of accounting for sales commissions and (2) separation of duties related to purchase transactions. Sorrell was able to gather sufficient evidence and did not encounter limitations with respect to the evaluation of Van Dyke’s internal control over financial reporting. Sorrell prepared the following draft report on Van Dyke’s internal control…
The board of directors of Danson Company limited asked Jameel & Soften, a Private AuditingFirm to audit Danson’s financial statements for the year ended 31st December 2019. Jameel &Soften explained the need to make an enquiry of the predecessor auditor and requestedpermission to do so. Danson’s board of directors refused to honor the request on the grounds thatrelations with the predecessor had deteriorated so significantly that Jameel & Soften wouldreceive biased and defamatory information from the predecessor. a. What is the purpose of the communication between the successor and the predecessorauditor?b. How does communication aid in assessing audit risk?c. What position should Jameel & Soften assume in the present situation? How should theyrespond to Danson’s refusal to permit communication with the predecessor auditor?
During the course of the audit, the following additional information was obtained: a. The trading securities were acquired on December 31, 2011. The securities have a fair value of P67,000 at December 31, 2012. b. In discussion with the company officials, it was determined that the doubtful accounts expense rate based on net sales should be reduced to 2% from 3%, effective January 1, 2012. c. As a result of errors in the physical count, inventories were overstated by P12,000 at December 31, 2011 and by P17,500 at December 31, 2012. d. On January 1, 2011, the cost of equipment purchased for P30,000 was debited to repairs and maintenance. PRTC depreciates equipment of this type by the straight-line method over a five-year life with no residual value. e. On July 1, 2012, fully depreciated equipment purchased for P21,000, was sold as scrap for P2,500. The only entry PRTC made was to debit cash and credit property and equipment for the scrap proceeds. The property and equipment (net) had a…
On February 17, 2024, a CPA completed all the evidence gathering procedures on the audit of the financial statements for the Buckheizer Technology Corporation for the year ended December 31, 2023. The audit is satisfactory in all respects except for the existence of a change in accounting principles from FIFO to LIFO inventory valuation, which results in an explanatory paragraph on consistency. On February 26, the auditor completed the tax return and the draft of the audit report. The final audit report was com-pleted, attached to the financial statements, and delivered to the client on March 7. What is the appropriate date on the auditor's report?
For each situation, identify the appropriate audit report and briefly explain the rationale for selecting the report. During the course of the audit of Sail-Away Company, the auditor noted that the current ratio has dropped to 1.75. the company’s loan covenant requires the maintenance of a current ratio of 2.0, or the company’s det is all immediately due. The auditor and the company have contacted the bank, which is not willing to waive the loan covenant because the company has been experiencing operating losses for the past few years and has an inadequate capital structure. The auditor has substantial doubt that the company can find adequate financing elsewhere and may encounter difficulties staying in operation. Management, however, is confident that it can overcome the problem. The company does not deem it necessary to include any additional disclosure because management members are confident that an alternative source of funds will be found by pledging their personal assets. The…