EP AUDITING+ASSURANCE...-MYACCT.LAB
16th Edition
ISBN: 9780134148656
Author: ARENS
Publisher: PEARSON CO
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 3, Problem 27DQP
To determine
Identify (a) condition, (b) the level of materiality and (c) the appropriate audit report for the given situation.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Subsequent to the date of the financial statements as part of his post balance sheet date auditprocedures a CPA learned that a recent fire caused heavy damage to one of a client's two plants ;the loss will not be reimursed by insurance. The newspapers described the event in detail.. thefinacial statements and footnotes as prepared by the client did not disclose the loss caused by thefire. Which of the following is a condition requiring a departure from a standard unmodified auditopinion
A.
Failure to follow GAAP
B.
Scope restriction
C.
Change in Accounting Principle
D.
None of the above
What type of auditor report would be issued in each of the following cases? Justify your choice.
Bowles Company is engaged in a hazardous trade and cannot obtain insurance coverage from any source. A material portion of the company’s assets could be destroyed by a serious accident.
Drave Company owns substantial properties that have appreciated significantly in value since the date purchase. The properties were appraised and are reported in the balance sheet at the appraised values with full disclosure. The CIAs believe that the appraised values reported in the balance sheet reasonably estimate the assets current values.
The CIA firm is auditing the financial statement that are to be included in the annual report to the stockholder of Eagle Company, A regulated company Eagle’s Financial Statement are prepared as prescribed by a regulatory agency of the Pakistan Government and some items are not presented in accordance with generally accepted accounting principles. The amounts…
For the following independent situations, assume that you are the audit partner on the engagement:
1. In reviewing of subsequent events, you learned of heavy damage to the client's warehouse due to
a fire occurred after year-end. The loss will partly be reimbursed by insurance. The newspaper
described the event in detail. The client made adjustment to related inventories and buildings to
reflect the loss.
2. All facts are the same as situation 1, but the client did not make adjustment to year end figure of
inventory.
3. During the course of examination on your audit client, you suspect that a material amount of assets
has been misappropriated through fraud. Management refuses to allow you to investigate further
to confirm the suspicions.
4. The client's financing arrangements expired and the amount outstanding was past due. The client
cannot renegotiate or obtain refinancing and is considering filing bankruptcy. Financial statements
were prepared using the going concern basis and this…
Chapter 3 Solutions
EP AUDITING+ASSURANCE...-MYACCT.LAB
Ch. 3 - Prob. 1RQCh. 3 - Prob. 2RQCh. 3 - Prob. 3RQCh. 3 - Prob. 4RQCh. 3 - Prob. 5RQCh. 3 - Prob. 6RQCh. 3 - Prob. 7RQCh. 3 - Prob. 8RQCh. 3 - Prob. 9RQCh. 3 - Prob. 10RQ
Ch. 3 - Prob. 11RQCh. 3 - Prob. 12RQCh. 3 - Prob. 13RQCh. 3 - Distinguish between a report qualified due to a...Ch. 3 - Prob. 15RQCh. 3 - Prob. 16RQCh. 3 - Prob. 17RQCh. 3 - Prob. 18RQCh. 3 - Prob. 19RQCh. 3 - Prob. 20.1MCQCh. 3 - Prob. 20.2MCQCh. 3 - Prob. 20.3MCQCh. 3 - Prob. 21.1MCQCh. 3 - Prob. 21.2MCQCh. 3 - Prob. 21.3MCQCh. 3 - Prob. 22.1MCQCh. 3 - Prob. 22.2MCQCh. 3 - Prob. 22.3MCQCh. 3 - Prob. 23DQPCh. 3 - Prob. 24DQPCh. 3 - Prob. 25DQPCh. 3 - Prob. 26DQPCh. 3 - Prob. 27DQPCh. 3 - Prob. 28DQPCh. 3 - Prob. 29DQP
Knowledge Booster
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
- In reviewing of subsequent events, you learned of heavy damage to the client’s warehouse due to a fire occurred after year-end. The loss will partly be reimbursed by insurance. The newspaper described the event in detail. The client made adjustment to related inventories and buildings to reflect the loss. Assume im a auditor, and I am giving opinion. Since the client made adjustments to related inventories and buildings to reflect the loss after a heavy damage. However, it is a non-adjustable subsequent event, the company is not supposed to adjust the entries. Also, they haven’t claimed to make any footnotes to explain the crisis, which is inadequately disclosed, which both are accounting disagreements, since it is heavy damage, so both are supposed to be highly material, so adverse opinions should be issued. If the client did disclose the footnotes to explain the crisis, adverse opinions with explanatory opinion should be issued. Is adverse opinion with explanatory paragraph…arrow_forwardFor the following independent and material situations, assume that you are the audit partner on the engagement: There was a fire that broke out a month before the year-end date. The fire has destroyed most of the accounting records and underlying receipts and invoices. Management has reconstructed the accounting records using its bank statements and other means, but they are uncertain if all material matters have been taken into account and they would like to wait until after a couple of months when subsequent receipts may assist them to compile further outstanding items. You have serious doubts as to the accuracy of the compiled figures and have been unable to verify any of the material balances. Kieko Co. Ltd has prepared financial statements but has decided to exclude the statement of cash flows. Management explains to you that the users of their financial statements find this statement confusing and prefer not to have it included. Required: state what type of audit report are…arrow_forwardIn reviewing of subsequent events, you learned of heavy damage to the client’s warehouse due to a fire occurred after year-end. The loss will partly be reimbursed by insurance. The newspaper described the event in detail. The client made adjustment to related inventories and buildings to reflect the loss. All facts are the same as situation 1, but the client did not make adjustment to year end figure of inventory. During the course of examination on your audit client, you suspect that a material amount of assets has been misappropriated through fraud. Management refuses to allow you to investigate further to confirm the suspicions. The client’s financing arrangements expired and the amount outstanding was past due. The client cannot renegotiate or obtain refinancing and is considering filing bankruptcy. Financial statements were prepared using the going concern basis and this fact is not disclosed. An equipment which was used by the client for more than 5 years is considered to…arrow_forward
- In October 2020, the head office of Joey Limited was damaged by a fire. A lot of the company's accounting records were destroyed before the audit for the year ended 31 December 2020 took place, as Joey Limited has no practice of using electronic accounting records. The company's financial accountant has prepared financial statements for the year ended 31 December 2020 on the basis of estimates and the information he has been able to salvage. You have completed the audit of these financial statements. a) Explain how your audit report would be affected by the fire at the head office of Joey Limited and the possible audit opinions in this situation. b) Compare the responsibilities of directors and auditors regarding the published financial statement of Joey Limited.arrow_forwardIn October 2020, the head office of Joey Limited was damaged by a fire. A lot of the company's accounting records were destroyed before the audit for the year ended 31 December 2020 took place, as Joey Limited has no practice of using electronic accounting records. The company's financial accountant has prepared financial statements for the year ended 31 December 2020 on the basis of estimates and the information he has been able to salvage. You have completed the audit of these financial statements. a) Explain how your audit report would be affected by the fire at the head office of Joey Limited and the possible audit opinions in this situation.Require:b) Compare the responsibilities of directors and auditors regarding the published financial statement of Joey Limited.arrow_forwardYou are the lead partner overseeing the audit for Camo Ltd, a privately owned company. The completion of the audit report is pending for the income year 2020 and you have noted several situations with possible actions. The situations are as follows: 1. Camo Corporation carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements. 2. Management of Camo Corporation refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material. 3. You were unable to confirm accounts receivable with Camo's customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures. 4. One week before the end of fieldwork, you discover that the audit manager on the Camo engagement owns a material amount of Camo's common stock. 5. You…arrow_forward
- For the following independent situations, assume that you are the audit partner on the engagement: 1. The client has changed from double declining balance to straight line depreciation for its equipment. The effect on this year’s income is material, and no information is disclosed in footnotes related to the change. You believed the change aligns with change in usage pattern of the equipment. Discuss the most appropriate type of opinion the auditor should issue. Explain briefly the reason for the opinion.arrow_forwardStewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will be whether the financial report should be amended, or additional notes included for these subsequent events.Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows.(a) The board is planning to issue shares in a private placement on 15 August. (b) The share issue is to fund the purchase of a 60 per cent stake in another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August. (c) A writ was lodged in the Supreme Court in the week after year-end claiming damages for…arrow_forwardStewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will be whether the financial report should be amended, or additional notes included for these subsequent events.Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows.(a) The board is planning to issue shares in a private placement on 15 August. (b) The share issue is to fund the purchase of a 60 per cent stake in another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August.(c) A writ was lodged in the Supreme Court in the week after year-end claiming damages for…arrow_forward
- Stewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will be whether the financial report should be amended, or additional notes included for these subsequent events. Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows.(a) The board is planning to issue shares in a private placement on 15 August.(b) The share issue is to fund the purchase of a 60 percent stake in another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August.(c) A writ was lodged in the Supreme Court in the week after year-end claiming damages for…arrow_forwardStewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will be whether the financial report should be amended, or additional notes included for these subsequent events. Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows. (a) The board is planning to issue shares in a private placement on 15 August. (: another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August. (? lodged in the Supreme Court in the week after year-end claiming damages for illness allegedly caused by chemicals used at a subsidiar y company's…arrow_forwardStewart Jones is reviewing the results of the subsequent events audit procedures. Stewart is writing a report for his audit partner based on these results and will be attending a meeting tomorrow with the partner and representatives of the company to discuss them. The issue will bewhether the financial report should be amended, or additional notes included for these subsequent events. Many of the items are not material and Stewart will recommend that no action be taken with respect to these. However, there are several items that Stewart believes are material and should be discussed at the meeting. These are as follows.(a) The board is planning to issue shares in a private placement on 15 August.(b) The share issue is to fund the purchase of a 60 per cent stake in another company. The negotiations are in the final stages and although the contract is not yet signed it will be signed by 15 August. The year-end for the company is 30 June and the audit report is due to be signed on 20…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...
Accounting
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:South-Western College Pub