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All Textbook Solutions for Auditing: A Risk Based-Approach to Conducting a Quality Audit

70RSCQ 71RSCQ Read the following scenario about Strang Corporation and identify the substantive procedures that the CPA (Elaine Stanley) should perform to determine whether lapping exists. Do not discuss deficiencies in the system of internal control. During the year, Strang Corporation began to encounter cash flow difficulties, and a cursory review by management revealed receivable collection problems. Strang’s management engaged Elaine Stan ley, CPA, to perform a special investigation. Stanley studied the billing and collection cycle and noted the following: The accounting department employs one bookkeeper who receives and opens all incoming mail. This bookkeeper is also responsible for depositing receipts, filing daily remittance advices, recording receipts in the cash receipts journal, and posting receipts in the individual customer accounts and the general ledger accounts. There are no cash sales. The bookkeeper prepares and controls the mailing of monthly statements to customers. The concentration of functions and the receivable collection problems caused Stanley to suspect that a systematic theft of customers’ payments through a delayed posting of remittances (lapping of accounts receivable) is present.73RSCQ 74RSCQ ZYNGA (LO Z 3, 4, 5, 6, 8) Refer to the Why It Matters feature “How to Account for Virtual Sales at Zynga.” a. What are the inherent risks associated with the revenue transactions at Zynga? b. What are management’s incentives to fraudulently misstate revenue transactions? c. What controls should Zynga management have in place to mitigate the risks associated with revenue transactions? d. How might auditors use planning analytical procedures to identify any potential concerns with Zynga’s revenue? e. What might be considered sufficient appropriate evidence when auditing Zynga’s revenue transactions?76FF UTSTARCOM, INC. (LO 2, 3, 4, 5, 6, 8) UTStarcom is a global leader in the manufacture, integration, and support of networking and telecommunications systems. The company sells broadband wireless products and a line of handset equipment to operators in emerging and established telecommunications markets worldwide. The following excerpt was obtained from the 2004 10-K of UTStarcom. Inc., which reported material weaknesses in the company’s internal controls. In describing the company’s remediation efforts, the company stated that “planned remediation measures are intended to address material weaknesses related to revenue and deferred revenue accounts and associated cost of sales.” These material weaknesses were evidenced by the identification of six separate transactions aggregating approximately $5 million in which revenue was initially included in the company’s fourth-quarter 2004 financial statements before all criteria for revenue recognition were met. In addition, there were other transactions for which there was insufficient initial documentation for revenue recognition purposes but which did not result in any adjustments to the company’s fourth-quarter 2004 financial statements. If unremediated, these material weaknesses have the potential of misstating revenue in future financial periods. The company’s planned remediation measures include the following: “The Company plans to design a contract review process in China requiring financial and legal staff to provide input during the contract negotiation process to ensure timely identification and accurate accounting treatment of nonstandard contracts.” “In March 2005, the Company conducted a training seminar regarding revenue recognition, including identification of nonstandard contracts, in the United States and, in April 2005, the Company conducted a similar seminar in China. Starting in May 2005, the Company plans to conduct additional training seminars in various international locations regarding revenue recognition and the identification of nonstandard contracts.” “At the end of 2004, the Company began requiring centralized retention of documentation evidencing proof of delivery and final acceptance for revenue recognition purposes.” a. What features of this case should have indicated to the auditor a potentially heightened risk of fraudulent financial reporting? b. Using the previous disclosures as a starting point, identify challenges regarding internal controls that a company may face in doing business internationally. c. The company had disclosed its planned remediation efforts for 2004. How might the auditor have used that information in planning the 2005 audit? d. Considering potential analytical procedures relevant to the revenue cycle, identify analytics that the auditor might use in 2005 to provide evidence that the problems detected in 2004 have been remedied. e. Considering potential substantive tests of revenue, identify procedures that might be applied in 2005 to provide evidence that the problems detected in 2004 have been remedied.78FF 79FF 1TFQ 2TFQ 3TFQ 4TFQ 5TFQ 6TFQ 7TFQ 8TFQ 9TFQ 10TFQ 11TFQ 12TFQ 13TFQ 14TFQ 15TFQ 16TFQ 17TFQ 18TFQ 19MCQ Which of the following assertions is relevant to whether the cash balances reflect the true underlying economic value of those assets? a. Existence/occurrence. b. Completeness. c. Rights and obligations. d. Valuation or allocation. e. All of the above.21MCQ 22MCQ 23MCQ 24MCQ 25MCQ 26MCQ 27MCQ 28MCQ 29MCQ 30MCQ 31MCQ 32MCQ 33MCQ 34MCQ 35MCQ 36MCQ 37RSCQ 38RSCQ Match the following assertions with their associated description: (a) existence/occurrence, (b) completeness. (c) rights and obligations, (d) valuation or allocation, (e) presentation and disclosure. 1. Cash accounts arc properly classified on the balance sheet and disclosed in the notes to the financial statements. 2. Cash balances exist at the balance sheet date. 3. The recorded balances reflect the true underlying economic value of those assets. 4. The company has title to the cash accounts as of the balance sheet date. 5. Cash balances include all cash transactions that have taken place during the period.40RSCQ 41RSCQ 42RSCQ 43RSCQ 44RSCQ 45RSCQ 46RSCQ 47RSCQ 48RSCQ 49RSCQ 50RSCQ 51RSCQ 52RSCQ 53RSCQ 54RSCQ 55RSCQ 56RSCQ 57RSCQ 58RSCQ 59RSCQ 60RSCQ 61RSCQ 62RSCQ 63RSCQ 64RSCQ 65RSCQ 66RSCQ 67RSCQ 68RSCQ 69RSCQ 70FF 71FF 72FF 1TFQ 2TFQ 3TFQ 4TFQ 5TFQ 6TFQ 7TFQ 8TFQ 9TFQ 10TFQ 11TFQ 12TFQ 13TFQ 14TFQ 15TFQ 16TFQ 17MCQ 18MCQ 19MCQ 20MCQ 21MCQ 22MCQ 23MCQ 24MCQ 25MCQ 26MCQ 27MCQ 28MCQ 29MCQ 30MCQ 31MCQ 32MCQ 33RSCQ 34RSCQ 35RSCQ 36RSCQ 37RSCQ 38RSCQ 39RSCQ 40RSCQ 41RSCQ 42RSCQ 43RSCQ 44RSCQ 45RSCQ 46RSCQ 47RSCQ 48RSCQ 49RSCQ 50RSCQ 51RSCQ 52RSCQ 53RSCQ 54RSCQ 55RSCQ 56RSCQ 57RSCQ 58RSCQ 59RSCQ 60RSCQ 61RSCQ 62RSCQ 63RSCQ 64RSCQ 65RSCQ 66RSCQ 67RSCQ 68RSCQ 69RSCQ 70RSCQ 71RSCQ 72RSCQ 73FF 74FF 75FF 76FF 83AP 1TFQ 2TFQ 3TFQ 4TFQ 5TFQ 6TFQ 7TFQ 8TFQ 9TFQ 10TFQ 11TFQ 12TFQ 13TFQ 14TFQ 15TFQ 16TFQ 17MCQ 18MCQ 19MCQ 20MCQ 21MCQ 22MCQ 23MCQ 24MCQ 25MCQ 26MCQ 27MCQ 28MCQ 29MCQ 30MCQ 31MCQ 32MCQ 33RSCQ 34RSCQ Identify the five management assertions and describe how they are relevant to long-lived assets.36RSCQ 37RSCQ 38RSCQ 39RSCQ 40RSCQ 41RSCQ 42RSCQ 43RSCQ 44RSCQ 45RSCQ 46RSCQ 47RSCQ 48RSCQ 49RSCQ 50RSCQ 51RSCQ 52RSCQ 53RSCQ 54RSCQ 55RSCQ 56RSCQ 57RSCQ 58RSCQ 59RSCQ 60RSCQ 61FF 62FF 63FF 1TFQ 2TFQ 3TFQ 4TFQ 5TFQ 6TFQ 7TFQ 8TFQ 9TFQ 10TFQ 11TFQ 12TFQ 13TFQ 14TFQ 15TFQ 16TFQ 17MCQ 18MCQ 19MCQ 20MCQ 21MCQ 22MCQ 23MCQ 24MCQ 25MCQ 26MCQ 27MCQ 28MCQ 29MCQ 30MCQ 31MCQ 32MCQ 33RSCQ 34RSCQ 35RSCQ 36RSCQ 37RSCQ 38RSCQ 39RSCQ 40RSCQ 41RSCQ 42RSCQ 43RSCQ 44RSCQ 45RSCQ 46RSCQ 47RSCQ 48RSCQ 49RSCQ 50RSCQ 51RSCQ 52RSCQ 53RSCQ 54RSCQ 55RSCQ 56RSCQ 57RSCQ 58RSCQ 59RSCQ 60RSCQ 61RSCQ 62FF 63FF 67AP 1TFQ 2TFQ 3TFQ 4TFQ 5TFQ 6TFQ 7TFQ 8TFQ 9TFQ 10TFQ 11TFQ 12TFQ 13TFQ 14TFQ

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