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- While reviewing a work paper on “pre-paid expenses” an auditor noticed that the schedule prepared by the audit team gave the opening balance, debits to the account, credits to the account and closing balance. Is the same sufficient documentation?asap Identify the primary audit objectives that auditors hope to accomplish by confirming a client's year-end accounts receivable. Explain the difference between "positive" and "negative" confirmation requests and discuss the quality of audit evidence yielded by each.The auditor is MOST likely to learn of retirements of equipment through which of the following? a. Review of the purchase and allowance account. b. Review of the sales discount account. c. Analysis of the credits to the accumulated depreciation account. d. Review of insurance policy riders. e. Confirmation of recorded credits to the accounts payable account.
- asap F Identify the primary audit objectives that auditors hope to accomplish by confirming a client's year-end accounts receivable. Explain the difference between "positive" and "negative" confirmation requests and discuss the quality of audit evidence yielded by each.Which of the following is the best audit procedure for determining the existence of unrecorded liabilities?a. Examine confirmation requests returned by creditors whose accounts are on a subsidiary trial balance of accounts payable.b. Examine a sample of cash disbursements in the period subsequent to year-end.c. Examine a sample of invoices a few days prior to and subsequent to the year-end to ascertain whether they have been properly recorded.d. Examine unusual relationships between monthly accounts payable and recorded purchases.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…
- Which of the following would provide an auditor with the most reliable evidence reguarding the existence of accounts receivable? A. A copy of the invoice sent to the customer. B. Acopy of the customer's sales order held by the client. C. An accounts receivable confirmation received by the auditor from the client's customer. D. An aging schedule showing the composition of the year-end-accounts receivable balance.Determine the following as a result of your audit:a. The proposed adjusting journal entries for the year ended December 31, 2022 includes a net debit (credit) to retained earnings of? b. The proposed adjusting journal entries for the year ended December 31, 2022 includes a net debit (credit) to accumulated depreciation of?The auditor generally decides whether the inventory count can be taken before year-end primarily on the basis of: audit efficiency. accuracy of the perpetual inventory master files. client convenience. audit staff availability.
- The following are typical questions that might appear on an internal control questionnaire for accounts payable. 1. Are monthly statements from vendors reconciled with the accounts payable listing? 2. Are vendors’ invoices matched with receiving reports before they are approved for payment? Describe the manner in which each of the above procedures might be tested.Determine the following as a result of your audit: subquestion a. How much is the correct amount of interest expense that should be reported in its Statement of Comprehensive Income for the period ending December 31, 2023? subquestion b. As an audit manager, you review the working papers of your audit staff and senior auditor and summarized the proposed adjusting entries (PAJE’s): Your proposed adjusting journal entry will include a credit to premium on note payable of? please show solution.An important task ¡n the audit of the revenue cycle is determining whether a client has appropriately recognized revenue. a. What is the five-step process that companies should use in recognizing revenue? Why might the auditor need to do additional research and consider additional criteria on revenue recognition? b. The following are situations in which the auditor will make decisions about the amount of revenue to be recognized. For each of the following scenarios, labeled (1) through (6): . Identify the key issues to address in determining whether or not revenue should he recognized. . Identify additional information the auditor may want to gather in making a decision on revenue recognition. . Based only on the information presented, develop a rationale for either the recognition or nonrecognition of revenue. 1. AOL sells software that is unique as a provider of Internet services. The software contract includes a service fee of $19.95 for up to 500 hours of Internet service each month. The minimum requirement is a one-year contract. The company proposes to immediately recognize 30% of the first-year’s contract as revenue from the sale of software and 70% as Internet services on a monthly basis as fees are collected from the customer. 2. Modis Manufacturing builds specialty packaging machinery for other manufacturers. All of the products are high end and range in sales price from $5 million to $25 million. A major customer is rebuilding one of its factories and has ordered three machines with total revenue for Modis of $45 million. The contracted date to complete the production was November, and the company met the contract dare. The customer acknowledges the contract and confirms the amount. However, because the factory is not yet complete, it has asked Modis to hold the products in the ware house as a courtesy until its building is complete. 3. Standish Stoneware has developed a new low-end line of baking products that will be sold directly to consumers and to low-end discount retailers. The company had previously sold high-end silverware products to specialty stores and has a track record of returned items for the high-end stores. The new products tend to have more defects, but the defects are not necessarily recognizable ¡n production. For example, they are more likely to crack when first used in baking. The company does not have a history of returns from these products, but because the products are new, it grants each customer the right to return the merchandise for a full refund or replacement within one year of purchase. 4. Omer Technologies is a high-growth company that sells electronic products to the custom copying business. It is an industry with high innovation, but Omer’s technology is basic. In order to achieve growth, management has empowered the sales staff to make special deals to increase sales in the fourth quarter of the year. The sales deals include a price break and an increased salesperson commission but not an extension of either the product warranty or the customer’s right to return the product. 5. Electric City is a new company that has the exclusive right to a new technology that saves municipalities a substantial amount of energy for large-scale lighting purposes (e.g., for ball fields, parking lots, and shop ping centers). The technology has been shown to be very cost effective in Europe. In order to get new customers to try the product, the sales force allows customers to try the product for up to six months to prove the amount of energy savings they will realize. The company is so confident that customers will buy the product that it allows this pilot-testing period. Revenue is recognized at the time the product is installed at the customer location, with a small provision made for potential returns. 6. Jackson Products decided to quit manufacturing a line of its products and outsourced the production. However, much of its manufacturing equipment could be used by other companies. In addition, it had over $5 million of new manufacturing equipment on order in a noncancelable deal. The company decided to become a sales representative to sell the new equipment ordered and its existing equipment. All of the sales were recorded as revenue.