Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
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Chapter 11, Problem 19RQ
To determine
Explain the significance of an unusually large volume of sales transactions recorded just before the end of the fiscal year.
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Detection of Errors and Fraud. For each of the following independent events, indicate the (1) effect of the error or fraud on the financial statements and (2) what auditing procedures could have detected the misstatement resulting from error or fraud.a. The physical inventory count of J. Payne Enterprises, which has a December 31 year-end, was conducted on August 31 without incident. In September, the perpetual inventory was not reduced for the cost of sales.b. Holmes Drug Stores counted its inventory on December 31, which is its fiscal year-end. The auditors observed the count at 20 of Holmes’s 86 locations. The company falsified the inventory at 20 of the locations not visited by the auditors by including fictitious goods in the counts.c. Pope Automotive inadvertently included in its inventory automobiles that it was holding on consignment for other dealers.d. Peffer Electronics Inc. overstated its inventory by pricing wiring at $200 per hundred feet instead of $200 per thousand…
Roland Company, a retail store, has utilized your services as independent auditor for several years. During the current year, the company opened a new store, and in the course of your annual audit, you verify the cost of the fixtures installed in the new store by examining purchase orders, invoices, and other documents. This audit brings to light an understated invoice nearly a year old in which a clerical error by the supplier, Western Showcase, Inc., caused the total of the invoice to read $28,893.62 when it should have read $82,893.62. The invoice was paid immediately upon receipt without any notice of the error, and subsequent statements and correspondence from Western Showcase, Inc., showed that the account with Roland Company had been paid in full. Assume that the amount in question is material in relation to the financial position of both companies.
What action should you take in this situation?
Roland Company, a retail store, has utilized your services as independent auditor for several years. During the current year, the company opened a new store, and in the course of your annual audit, you verify the cost of the fixtures installed in the new store by examining purchase orders, invoices, and other documents. This audit brings to light an understated invoice nearly a year old in which a clerical error by the supplier, Western Showcase, Inc., caused the total of the invoice to read $28,893.62 when it should have read $82,893.62. The invoice was paid immediately upon receipt without any notice of the error, and subsequent statements and correspondence from Western Showcase, Inc., showed that the account with Roland Company had been paid in full. Assume that the amount in question is material in relation to the financial position of both companies.
What action should you take in this situation?
If the client should decline to take any action in the matter, would you insist…
Chapter 11 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 11 - Explain the difference between a customers order...Ch. 11 - Prob. 2RQCh. 11 - Prob. 3RQCh. 11 - State briefly the objective of the billing...Ch. 11 - Prob. 5RQCh. 11 - Prob. 6RQCh. 11 - Prob. 7RQCh. 11 - Prob. 8RQCh. 11 - Prob. 9RQCh. 11 - Prob. 10RQ
Ch. 11 - Prob. 11RQCh. 11 - Prob. 12RQCh. 11 - Prob. 13RQCh. 11 - Prob. 14RQCh. 11 - Prob. 15RQCh. 11 - Prob. 16RQCh. 11 - Prob. 17RQCh. 11 - Prob. 18RQCh. 11 - Prob. 19RQCh. 11 - Prob. 20RQCh. 11 - Prob. 21RQCh. 11 - Prob. 22RQCh. 11 - Give an example of a type of receivable...Ch. 11 - Prob. 24RQCh. 11 - Prob. 25QRACh. 11 - Prob. 26QRACh. 11 - Prob. 27QRACh. 11 - Prob. 28QRACh. 11 - Prob. 29QRACh. 11 - Prob. 30QRACh. 11 - Prob. 31QRACh. 11 - Prob. 32QRACh. 11 - Prob. 33QRACh. 11 - Prob. 34QRACh. 11 - Prob. 35QRACh. 11 - Prob. 36AOQCh. 11 - Which of the following would provide the most...Ch. 11 - Prob. 36COQCh. 11 - Prob. 36DOQCh. 11 - Prob. 36EOQCh. 11 - Under SEC rules, which of the following is not...Ch. 11 - Prob. 36GOQCh. 11 - Prob. 36HOQCh. 11 - Prob. 36IOQCh. 11 - Prob. 36JOQCh. 11 - Prob. 36KOQCh. 11 - Prob. 36LOQCh. 11 - Prob. 37OQCh. 11 - Prob. 38OQCh. 11 - An auditors working papers include the following...Ch. 11 - Prob. 40OQCh. 11 - Prob. 41OQCh. 11 - Prob. 42OQCh. 11 - Prob. 43OQCh. 11 - Prob. 44PCh. 11 - Prob. 45PCh. 11 - Prob. 46PCh. 11 - Prob. 47PCh. 11 - The July 31, 20X0, general ledger trial balance of...Ch. 11 - Prob. 49ITCCh. 11 - Prob. 50ECCh. 11 - Prob. 51EC
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- Roland Company, a retail store, has utilized your services as independent auditor for several years. During the current year, the company opened a new store, and in the course of your annual audit, you verify the cost of the fixtures installed in the new store by examining purchase orders, invoices, and other documents. This audit brings to light an understated invoice nearly a year old in which a clerical error by the supplier, Western Showcase, Inc., caused the total of the invoice to read $28,893.62 when it should have read $82,893.62. The invoice was paid immediately upon receipt without any notice of the error, and subsequent statements and correspondence from Western Showcase, Inc., showed that the account with Roland Company had been paid in full. Assume that the amount in question is material in relation to the financial position of both companies. If the client should decline to take any action in the matter, would you insist that the unpaid amount of $54,000 be included in…arrow_forwardABC Manufactures is a manufacturing company, and your audit team is conducting the annual audit of its financial statements. As part of the audit procedures, you are tasked with testing the accounts receivable balance. ABC Manufactures has a significant accounts receivable balance owing to its diverse customer base. Upon initiating the audit procedures, your team sends out accounts receivable confirmations to one of ABC Manufactures largest customers with a material accounts receivable balance outstanding. However, several weeks have passed, and the confirmation has not been returned. The audit team has made follow-up attempts via phone calls and emails, but there has been minimal response. Considering the lack of responsiveness, the audit team is becoming increasingly skeptical about the effectiveness of the confirmation process in this particular situation. Describe two alternative audit procedures that the audit team may conduct that may assist them in gathering sufficient…arrow_forwardDuring your annual audit of Walker Distributing Company, your assistant, Jane Williams, reports to you that, although a number of entries were made during the year in the general ledger account Notes Payable to Officers, she decided that it was not necessary to audit the account because it had a zero balance at year-end. Required: Do you agree with your assistant’s decision? Discuss.arrow_forward
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- Marilyn Terrill is the senior auditor for the audit of Uden Supply Company for the year ended December 31, 20X4. In planning the audit, Marilyn is attempting to develop expectations for planning analytical procedures based on the financial information for prior years and her knowledge of the business and the industry, including these: Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend. Based on her knowledge of industry trends, she believes that the gross profit percentage for 20X4 should be about 2 percent less than the percentage for 20X3. Based on her knowledge of regulations, she is aware that the effective tax rate for the company for 20X4 has been reduced by 5 percent from that in 20X3. Based on a review of the general ledger, she determined that average depreciable assets have increased by 10 percent. Purchases of equipment occurred relatively evenly throughout the year. Based on her knowledge of…arrow_forwardFor the audit of Carbald Supply Company, CaroleWever, CPA, is conducting a test of sales for 9 months of the year ended December 31,2013. Included among her audit procedures are the following:1. Foot and cross-foot the sales journal and trace the balance to the general ledger.2. Review all sales transactions for reasonableness.3. Select a sample of recorded sales from the sales journal and trace the customername and amounts to duplicate sales invoices and the related shipping document.4. Select a sample of shipping document numbers and perform the following tests:a. Trace the shipping document to the related duplicate sales invoice.b. Examine the duplicate sales invoice to determine whether copies of the shippingdocument, shipping order, and customer order are attached.c. Examine the shipping order for an authorized credit approval.d. Examine the duplicate sales invoice for an indication of internal verificationof quantity, price, extensions, footings, and trace the balance to the…arrow_forwardMarilyn Terrill is the senior auditor for the audit of Uden Supply Company for the year ended December 31, 20X4. In planning the audit, Marilyn is attempting to develop expectations for planning analytical procedures based on the financial information for prior years and her knowledge of the business and the industry, including these: 1. Based on economic conditions, she believes that the increase in sales for the current year should approximate the historical trend in terms of actual dollar increases. 2. Based on her knowledge of industry trends, she believes that the gross profit percentage for 20X4 should be about 2 percent less than the percentage for 20X3. 3. Based on her knowledge of regulations, she is aware that the effective tax rate for the company for 20X4 has been reduced by 5 percent from that in 20X3. 4. Based on her knowledge of economic conditions, she is aware that the effective interest rate on the company's line of credit for 20X4 was approximately 12 percent. The…arrow_forward
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