You are an auditor of the company ABC. During the audit of the accounting statements it is found that ABC has recognized in its assets the following elements: a) goods which are immovable for a period of 3 years and which are valued at their acquisition price b) goods owned by XIZ that it has to sell on its behalf with a commission of 10%; and c) the remuneration of the lawyer who represented the company in a legal dispute. Based on the conceptual framework of accounting, comment on the above.

You are an auditor of the company ABC. During the audit of the accounting statements it is found that ABC has recognized in its assets the following elements: a) goods which are immovable for a period of 3 years and which are valued at their acquisition price b) goods owned by XIZ that it has to sell on its behalf with a commission of 10%; and c) the remuneration of the lawyer who represented the company in a legal dispute. Based on the conceptual framework of accounting, comment on the above.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter13: Auditing Debt, Equity, And Long-term Liabilities Requiring Management Estimates

Section: Chapter Questions

Problem 15RQSC

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You are an auditor of the company ABC. During the audit of the accounting statements it is found that ABC has recognized in its assets the following elements:a) goods which are immovable for a period of 3 years and which are valued at their acquisition priceb) goods owned by XIZ that it has to sell on its behalf with a commission of 10%; andc) the remuneration of the lawyer who represented the company in a legal dispute. Based on the conceptual framework of accounting, comment on the above.
Jares Investments Global Limited is a listed company which manufactures stationery products. The company’s profit before tax for the year ended 31 December 2020 is GH¢16·3m and total assets as at that date are GH¢66·8m. You are an audit supervisor of Jeremiah & Associate and you are currently finalizing the audit program for the year-end audit of your existing client Jares Investments Global Limited. You attended a meeting with your audit manager where the following matters were discussed: Trade payables and accruals Jares Investments Global Limited purchases its raw materials from a large number of suppliers. The company’s policy is to close the purchase ledger just after the year end and the financial controller is responsible for identifying goods which were received pre year-end but for which no invoice has yet been received. An accrual is calculated for goods received but not yet invoiced (GRN) and is included within trade payables and accruals. The audit strategy has…
Jares Investments Global Limited is a listed company which manufactures stationery products. The company’s profit before tax for the year ended 31 December 2020 is GH¢16·3m and total assets as at that date are GH¢66·8m. You are an audit supervisor of Jeremiah & Associate and you are currently finalizing the audit program for the year-end audit of your existing client Jares Investments Global Limited. You attended a meeting with your audit manager where the following matters were discussed: Trade payables and accrualsJares Investments Global Limited purchases its raw materials from a large number of suppliers. The company’s policy is to close the purchase ledger just after the year end and the financial controller is responsible for identifying goods which were received pre year-end but for which no invoice has yet been received. An accrual is calculated for goods received but not yet invoiced (GRN) and is included within trade payables and accruals. The audit strategy has…
You are auditing Crown Corporation for the year ended 2022, Its reported net income for the year 2021 and 2022 were P 3,000,000 and P 4,000,000, respectively. During your audit, the following errors were revealed: 1. The inventory at the end of 2022 and 2023 were P 20,000 understated and P 18,000 overstated, respectively. 2. Recalculating the depreciation charges for 2023, you found out it was short by P 4,000. 3. The 15,000 insurance premium for three years was recorded using the income statement approach on January 1, 2021. No expense amount was extracted from the balance at the end 2021 and 2022. 4. An equipment was sold on December 31, 2022 for P 32,000. Its related cost was P 200,000 with zero carrying value on date of sale. The sale transaction was recorded on January 10, 2023. QUESTIONS: What is the correct net income for the year 2022? What is the correct net income for the year 2023?
You are auditing the financial records of a company, and you are aware that it has grown quickly in the last few years by acquiring other companies. You look up the disclosure in last year’s annual report which states, “The company amortizes its intangibles over periods ranging from 3 to 15 years.” As you review the company’s records, you find that the company made an acquisition of a “high-tech” company 3 years ago and has not recognized any impairment on the related goodwill. In the last 6 years, the company has made five other acquisitions and has not recognized any impairment related to them. Included in the acquisitions are several patents that are amortized over 9 years and some intangibles with indefinite lives. Required: From financial reporting and ethical perspectives, discuss the issues raised by this situation.
IMPORTANT: PLEASE ANSWER CORRECTLY AND I WILL MAKE SURE TO LIKE. THE QUESTION IS IN THE IMAGE ATTACHED. I ONLY NEED PART C. The following information was disclosed during the audit of Whispering Inc. 1. Year Amount Dueper Tax Return 2020 $129,100 2021 108,600 2. On January 1, 2020, equipment costing $579,300 is purchased. For financial reporting purposes, the company uses straight-line depreciation over a 5-year life. For tax purposes, the company uses the elective straight-line method over a 5-year life. (Hint: For tax purposes, the half-year convention as discussed in Appendix 11A must be used.) 3. In January 2021, $214,500 is collected in advance rental of a building for a 3-year period. The entire $214,500 is reported as taxable income in 2021, but $143,000 of the $214,500 is reported as unearned revenue in 2021 for financial reporting purposes. The remaining amount of unearned revenue is to be recognized equally in 2022 and 2023. 4. The…
. Discuss the appropriate treatment in the financial statements of each of the following. a. Gain on sale of investment securities. b. A profit-sharing bonus to employees computed as a percentage of net income. c. Additional depreciation on factory machinery because of an error in computing depreciation for the previous year. d. Rent received from subletting a portion of the office space. e. A patent infringement suit, brought 2 years ago against the company by another company, was settled this year by a cash payment of $725,000. f. A reduction in the Allowance for Doubtful Accounts balance because the account appears to be considerably in excess of the probable loss from uncollectible receivables.
Week 1You are the audit manager of Overseas Explorer Ltd (OEL), which acquired the small proprietarycompany Local Pty Ltd (Local) on 30 June 2018. The price of the acquisition was agreed at $5 million,on the condition that OEL is satisfied with the financial records of Local. As Local is a small proprietarycompany, it has not prepared statutory financial reports or undergone an audit since its incorporationin 2016. However, Local has agreed to allow your firm, which is the auditor of OEL, to access its booksand records. The CEO of OEL, Wendy Champion, has requested that your firm provide assurance onthe following three items: The management accounts for the year ended 30 June 2017 All transactions occurring from the date negotiations commenced until the settlement date, toensure that all transactions were within the normal course of operations The financial report prepared at the acquisition date of 30 June 2018In order to clarify your responsibilities, you requested that OEL…
In order to expand its operations, Barton Corp. raised $5million in a public offering of common stock, and also negotiated a $2 million loanfrom First National Bank. In connection with this financing, Barton engaged Hanover &Co., CPAs, to audit Barton’s financial statements. Hanover knew that the sole purpose ofthe audit was so that Barton would have audited financial statements to provide to FirstNational Bank and the purchasers of the common stock. Although Hanover conductedthe audit in conformity with its audit program, Hanover failed to detect material actsof embezzlement committed by Barton Corp.’s president. Hanover did not detect theembezzlement because of its inadvertent failure to exercise due care in designing theaudit program for this engagement.After completing the engagement, Hanover issued an unqualified opinion on Barton’sfinancial statements. The financial statements were relied upon by the purchasers ofthe common stock in deciding to purchase the shares. In…
On September 1, year 1, for $4,000,000 cash and $2,000,000 notes payable, Norbend Corporation acquired the net assets of Crisholm Company, which had a fair value of $5,496,000 on that date. Norbend’s management is of the opinion that the goodwill generated has an indefinite life. During the year-end audit for year 3 after all adjusting entries have been made, the goodwill is determined to be worthless. The amount of the write-off as of December 31, year 3 should be a. $504,000. b. $478,800. c. $466,200. d. $474,600.
2. You, are the senior auditor assigned to the True Ltd. audit file. You are reviewing Truestar’s financial statements and note that the only items included on True’s balance sheet that have temporary differences for future income taxes are: intangible assets relating to deferred development costs of $20,000, a leased asset of $80,000, and a lease obligation of $69,000. True’s tax rate is 20% and the company uses the future income tax method to account for income taxes. At the end of last year, True’s future income tax liability was $7,000. Calculate True’s future tax expense/recovery for the current year? a. $4800 recovery b. $6200 expense c. $3000 recovery d. $800 recovery
After conducting a thorough review of the company’s fi nancial statements, Martinez concludes the following:Conclusion 1 Although Stellar’s fi nancial statements adhere to generally accepted accounting principles (GAAP), Stellar understates earnings in periods whenthe company is performing well and overstates earnings in periods whenthe company is struggling.Conclusion 2 Stellar most likely understated the value of amortizable intangibles whenrecording the acquisition of Solar, Inc. last year. No goodwill impairmentcharges have been taken since the acquisition.Conclusion 3 Over time, the accruals component of Stellar’s earnings is large relative tothe cash component.Conclusion 4 Stellar reported an unusually sharp decline in accounts receivable in thecurrent year, and an increase in long-term trade receivables.1 . Based on Martinez’s conclusions, Stellar’s fi nancial statements are best categorized as:A . non-GAAP compliant.B . GAAP compliant, but with earnings management.C . GAAP…