Romeo Ltd is a listed public company that manufactures IT equipment. The company's financial year-end was 30thMarch 2022 and the statutory accounts are due to be signed one week after the board of directors meeting on 12th May2022. During the course of the audit you become aware that the government has reviewed its budget in an effort toreduce spending. As a result, IT expenditure had major cuts. One of the major projects to be scrapped as a result of thesecuts is the planned upgrading of the system protection software. You are aware that the company's budget for this yearincludes a major subcontract to the Department of Defence for this system. The company has been experiencing cashflow difficulties and has recently applied for a significant increase to a borrowing facility that is already fully drawn.Management is adamant that the company will continue to be viable. If necessary, it claims it can resort to cutbacks in itsfuture capital expenditure programme, seek additional off-balance sheet financing and or reschedule existing debtagreements. State the audit procedures that may be carried out to try and determine whether or not Romeo Ltd is agoing concern.

The objective of the question is to identify the audit procedures that can be used to assess whether…

Answered: Romeo Ltd is a listed public company…

Individual Income Taxes

43rd Edition

ISBN:9780357109731

Author:Hoffman

Publisher:Hoffman

Chapter18: Accounting Periods And Methods

Section: Chapter Questions

Problem 50P

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It is February 16, 2020, and you are auditing Davenport Corporation's financial statements for 2019 (which will be issued in March 2020). You read in the newspaper that Travis Corporation, a major customer of Davenport, is in financial difficulty. Included in Davenports accounts receivable is 50,000 (a material amount) owed to it by Travis. You approach Jim Davenport, president, with this information and suggest that a reduction of accounts receivable and recognition of a loss for 2019 might be appropriate. Jim replies, Why should we make an adjustment? Ted Travis, the president of Travis Corporation, is a friend of mine; he will find a way to pay us, one way or another. Furthermore, this occurred in 2020, so lets wait and see what happens; we can always make an adjustment later this year. Our 2019 income and year-end working capital are not that high; our creditors and shareholders wouldnt stand for lower amounts than they already are. Required: From financial reporting and ethical perspectives, prepare a response to Jim Davenport regarding this issue.
When the IASB issues new standards, the implementation date is usually twelve months from the date of issuance, with early implementation encouraged. Becky Hoger, controller, discusses with her financial vice president the need for early implementation of a standard that would result in fair presentation of the company’s financial condition and earnings. When the financial vice president determines that early implementation of the standard will adversely affect the reported net income for the year, he discourages Hoger from implementing the standard until it is required. What, if any, is the ethical issue involved in this case? Is the financial vice president acting improperly or immorally? What does Hoger have to gain by advocacy of early implementation? Who might be affected by the decision against early implementation
Ann Johnson has audited the financial report of Quick Ltd for the year ended 30 June 2020. Although Ann’s audit fieldwork was completed on 14 August 2020, her auditor’s report was signed on 20 August 2020 and sent to management that day. The management of Quick Ltd advised Ann that their annual report, which will be mailed to shareholders on 10 October 2020, will also include an unaudited financial report for the first quarter ended 30 September 2020. Under the circumstances, Ann is responsible for undertaking subsequent events audit procedures through to:Select one:a. 10 October 2020b. 20 August 2020c. 14 August 2020d. 30 September 2020
You are currently planning the audit of your client, DEF plc. Its year end is 31 December 2019 and the forecast profit before tax is £15.5 million.DEF has a small internal audit (IA) department. During the year, IA started a programme of physically verifying the company’s assets and comparing the results to the non-current assets register, as this type of reconciliation had not occurred for some time. To date only 15% of assets have had their existence confirmed as IA has experienced significant staff shortages and several members of the current IA team are new to DEF plc.Inventory is held in six locations and on 25 and 26 December a full inventory count will be held with adjustments for movements to the year end. This is due to a lack of available staff on 31 December. The number of audit team members are not enough to attend the counts in all the locations. In November, there was a fire in one of the inventory warehouses; inventory of £5 million was damaged and this has been written…
Company has implemented a new “bonus scheme” during the year, whereby the directors would be awarded a bonus of a percentage of the profits for the current year if they could exceed the previous year’s profit by 25%. Required: i). Which component of the Audit Risk Model (ARM) would be affected, and how? ii). Discuss how your audit plan would be affected.
Your audit client, PEW Company, followed up on its plan to expand its operations in 2018. The entity’s plan was to start the construction of its new building beginning of March and start its operations in the new site beginning of November. PEW, however, projected at the beginning of the year that its funds will not be enough to start the construction come March. So, on January 1, 2018, the entity obtained a loan from Bank for $50 million, specifically to fund the construction. The loan is due December 31, 2020, and the entity will be paying 12% interest every December 31. Since the construction will not commence until beginning of March, and the construction will not require a one-time outflow of cash, the entity decided to invest the unused proceeds in an investment facility that yields 0.5% return monthly. The unused proceeds will be invested at the beginning of each month. The first investment was made on January 1, 2018. Construction started on March 1, 2018 and ended on October…
Your audit client, PEW Company, followed up on its plan to expand its operations in 2018. The entity’s plan was to start the construction of its new building beginning of March and start its operations in the new site beginning of November. PEW, however, projected at the beginning of the year that its funds will not be enough to start the construction come March. So, on January 1, 2018, the entity obtained a loan from Bank for $50 million, specifically to fund the construction. The loan is due December 31, 2020, and the entity will be paying 12% interest every December 31. Since the construction will not commence until beginning of March, and the construction will not require a one-time outflow of cash, the entity decided to invest the unused proceeds in an investment facility that yields 0.5% return monthly. The unused proceeds will be invested at the beginning of each month. The first investment was made on January 1, 2018. Construction started on March 1, 2018 and ended on October…
Patrick is a senior public servant employed to the Ministry of Local Government for over twenty-years.Prior to this Patrick was employed to the audit firm PriceWaterhouseCoopers where he worked as a seniorauditor for over 10 years. In the final quarter of 2019 while performing his duties, which includes themonitoring of budgetary allocations from the Ministry of Finance and the Consolidated Fund, Patrickbecomes aware that the public’s funds are being used inappropriately, which includes: being used to paypersonal expenses of other Ministers and their families from other government Ministries, and paymentsto phantom workers for road projects that were approved by the Ministry of Finance’s ProcurementCommittee in 2019.While he is not directly responsible for this aspect of the budget, he raised his concerns about the use ofthe funds for these questionable payments to John, the head of Department.Patrick subsequently learnt that not only is John aware of these practices, but also that he…
You are the audit senior responsible for the audit of Sampson Limited. You are currently planning the audit for the year ended 31 December 2019. During your initial planning meeting held with the financial controller, he told you of the following changes in the company’s operations. Due to the financial controller’s workload, the company has employed a treasurer. The financial controller is excited about the appointment because in the two months that the treasurer has been with the company, he has realized a small profit for the company through foreign-exchange transactions in dollars. explain how the components of audit risk (inherent, control or detection risk) are affected.
XYZ Corp. is a manufacturer of generators. The domestic market for this products is currently not doing well, and therefore many entities in this business are switching to export. As per audited financial statements for the year ended December 31, 2021, the entity had a net loss of P 2,000,000. At December 31, 2021, its current assets aggregate to P 20,000,000 and current liabilities aggregate to P 25,000,000. Due to expected favorable changes in the government policies for this industry, the entity is projecting profits to the coming year. Furthermore, the shareholders of the entity have arranged alternative additional sources of financing for its expansion plans and to support its working capital requirements in the next 12 months. Should ABC Corp. prepare its financial statements under the going concern assumption? Explain.
In June 2020, the board of directors for McElroy Enterprises Inc. authorized the sale of $10,000,000 of corporate bonds. Jennifer Grayson, treasurer for McElroy Enterprises Inc., is concerned about the date when the bonds are issued. The company really needs the cash, but she is worried that if the bonds are issued before the company's year-end (December 31, 2020) the additional liability will have an adverse effect on a number of important ratios. In July, she explains to company president William McElroy that if they delay issuing the bonds until after December 31 the bonds will not affect the ratios until December 31, 2021. They will have to report the issuance as a subsequent event which requires only footnote disclosure. Grayson expects that with expected improved financial performance in 2021, ratios should be better. Instructions What are the ethical issues involved? Should McElroy agree to the delay?
Coronado Industries, a manufacturer of household paints, is preparing annual financial statements at December 31, 2020. Because of a recently proven health hazard in one of its paints, the government has clearly indicated its intention of having Coronado recall all cans of this paint sold in the last six months. The management of Coronado estimates that this recall would cost $ 810000. What accounting recognition, if any, should be accorded this situation? Appropriation of retained earnings of $ 810000 Operating expense of $ 810000 and liability of $ 810000 No recognition Note disclosure only

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