tate the appropriate audit opinion that the auditor would require. The Auditors of ROME, a high-profile bank, were unable to obtain sufficient and appropriate audit evidence concerning the carrying amount of ROME’s investment in ITA Pty Ltd as at 30 June 20X8. ITA Pty Ltd is a small firm of five financial planners in total. The auditors were denied access to the financial information of ITA, and they were not allowed to interview ITA’s Management. Consequently, the auditors were unable to determine the correct valuation of ITA Pty Ltd.
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State the appropriate audit opinion that the auditor would require.
The Auditors of ROME, a high-profile bank, were unable to obtain sufficient and appropriate audit evidence concerning the carrying amount of ROME’s investment in ITA Pty Ltd as at 30 June 20X8. ITA Pty Ltd is a small firm of five financial planners in total. The auditors were denied access to the financial information of ITA, and they were not allowed to interview ITA’s Management. Consequently, the auditors were unable to determine the correct valuation of ITA Pty Ltd.
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- Kay & Lee LLP was retained as the auditor for Holligan Industries to audit the financial statements required by prospective banks as a prerequisite to extending a loan to the client. The auditor knows whichever bank lends money to the client is likely to rely on the audited statements. After the audit report is issued, the bank that ultimately made the loan discovers that the audit client’s inventory and accounts receivable were overstated. The client subsequently went bankrupt and defaulted on the loan. The bank alleged that the auditor failed to communicate about the inadequacy of the client’s internal recordkeeping and inventory control. Moreover, the bank claims that the auditors were grossly negligent in not discovering the overvaluation of inventory and accounts receivable. The auditors asserted that there was no way for them to know that the client included in the inventory account $1 million of merchandise in transit to a customer on December 31, 2015. The shipping terms…Kay & Lee LLP was retained as the auditor for Holligan Industries to audit the financial statements required by prospective banks as a prerequisite to extending a loan to the client. The auditor knows whichever bank lends money to the client is likely to rely on the audited statements. After the audit report is issued, the bank that ultimately made the loan discovers that the audit client’s inventory and accounts receivable were overstated. The client subsequently went bankrupt and defaulted on the loan. The bank alleged that the auditor failed to communicate about the inadequacy of the client’s internal recordkeeping and inventory control. Moreover, the bank claims that the auditors were grossly negligent in not discovering the overvaluation of inventory and accounts receivable. The auditors asserted that there was no way for them to know that the client included in the inventory account $1 million of merchandise in transit to a customer on December 31, 2015. The shipping terms…Kay & Lee LLP was retained as the auditor for Holligan Industries to audit the financial statements required by prospective banks as a prerequisite to extending a loan to the client. The auditor knows whichever bank lends money to the client is likely to rely on the audited statements. After the audit report is issued, the bank that ultimately made the loan discovers that the audit client’s inventory and accounts receivable were overstated. The client subsequently went bankrupt and defaulted on the loan. The bank alleged that the auditor failed to communicate about the inadequacy of the client’s internal recordkeeping and inventory control. Moreover, the bank claims that the auditors were grossly negligent in not discovering the overvaluation of inventory and accounts receivable. The auditors asserted that there was no way for them to know that the client included in the inventory account $1 million of merchandise in transit to a customer on December 31, 2015. The shipping terms…
- Golden bank recently appointed the accounting firm Sanford,Son and Golrich as the banks auditors. The Bank quickly became one of Sanford,Son and Golrich’s largest clients. Subject to Reserve bank regulations,Golden Bank must provide for any expected losses on Accounts Receivable that the bank might not collect in full. During the course of the audit ,Sanford,Son and Golrich determined that the collectability of three large accounts of Golden bank seemed questionable. The auditors discussed this with Debbie Lee, the Financial controller . She assured the auditors that the loans were good and the debtors will be able to pay them in full once the economy recovers. Due to the effect of the covid 19 pandemic on the economy ,what the controller says is unlikely. Therefore Sanford,Son and Golrich must record a loss for the portion of the Accounts Receivable that might not be collectible.The controller objected and threatened to dismiss the auditors if they keep on insisting that the bank…The auditor should ordinarily send confirmation requests to all banks with whichthe client has conducted any business during the year, regardless of the year-endbalance, because(1) this procedure will detect kiting activities that would otherwise not be detected.(2) the confirmation form also seeks information about indebtedness to the bank.(3) the sending of confirmation requests to all such banks is required by auditingstandards.(4) this procedure relieves the auditor of any responsibility with respect to nondetection of forged checks.Lehman Brothers, as well as many other investment banks, failed as a result of an extremely risky business model. Auditors are required under PCAOB standards to evaluate internal controls surrounding financial reporting. In the wake of the banking failure, many commentators asked, “Where were the auditors?” and questioned why the auditors did not also evaluate risk management controls. Do you believe auditors should have responsibility for evaluating a client’s internal controls in areas not directly related to financial reporting?
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- Which of the following substantive procedures would auditors most likely perform to obtain evidence about the occurrence of subsequent events?a. Recompute a sample of large-dollar transactions occurring after the date of the financial statements for arithmetic accuracy.b. Investigate changes in shareholders’ equity occurring after the date of the financial statements.c. Send confirmations to vendors with whom the client normally does business but for which no balance in accounts payable is noted.d. Confirm bank accounts established after the date of the financial statements.Upon the completion of the audit of UPSY Company Ltd, the Engagement Partner reviewed the audit working papers and came across the following: There was material inconsistency between the financial information and other information in documents containing the financial statements and the auditor’s report The material inconsistency has been traced to the financial information but management has refused to effect any change when requested to do so. Stocks worth GH¢5 million were valued at cost in the financial statements. The review of the post balance sheet events indicated that not all the stocks could be sold in the normal course of business. Some were damaged and some have become obsolete and slow The total assets of the company is GH¢20 million. If the stocks were valued at net realizable value, the value would have reduced by GH¢2.0 million. The Directors have refused to allow the stocks to be valued at lower of cost and net realizable value and valued all the stocks at cost.…Which of the following is NOT among the conditions that give rise to a demand by external users for independent audits of financial statements? a. The users of the financial statement do not have a background knowledge about accounting and tax matters b. There is an issue of agency problem between the management and the stockholders of the company c. Reliance on unaudited financial information may have adverse economic consequences d. The users of financial statements cannot directly access the company’s books and records