Answered: the auditor decided to render…

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 90RSCQ

See similar textbooks

Related questions

Concept explainers

Question

the auditor decided to render analytical procedure in testing the reasonableness of the inventory balances of the client as of December 31. The auditor used the retail method in projecting the expected inventory balance. Which of the following is incorrect?

Group of answer choices

Under the retail method, any abnormal shortages or overages shall be deducted from cost of goods available for sale both at retail and at cost in determining the cost percentages to be used.

No further audit procedure is necessary if the difference between the projected inventory balance resulting the inventory estimation (retail method) and the balance reported per books is within the auditor’s tolerable error for the account balance.

The auditor is allowed to heavily rely on analytical procedure under the assumption that the internal control over inventories are strong thus the assessment of control risk is at below the maximum level.

If the observed difference between the estimated inventory as a result of the audit and the reported inventory per books is considered material, the auditor should propose to the client the necessary adjustment to follow the auditor’s estimate.

Expert Solution

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Audit procedures for items of Financial Statement

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions