Introduction:
The reports generated by a company that exhibit the financial performance during a particular period of time and show the financial position at a point of time.
Requirement 1
To describe:
For the disclosed risk factor, identify the relevant account that may have an effect on the balance. And for each such account, point out the effect on the audit evidence, and also the specific assertion that the auditor is primarily concerned about.
Introduction:
The reports generated by a company that exhibit the financial performance during a particular period of time and show the financial position at a point of time.
Requirement 2
To describe:
For the disclosed risk factor, identify the relevant account that may have an effect on the balance. And for each such account, point out the effect on the audit evidence, and also the specific assertion that the auditor is primarily concerned about.
Introduction:
The reports generated by a company that exhibit the financial performance during a particular period of time and show the financial position at a point of time.
Requirement 3
To describe:
For the disclosed risk factor, identify the relevant account that may have an effect on the balance. And for each such account, point out the effect on the audit evidence, and also the specific assertion that the auditor is primarily concerned about.
Introduction:
The reports generated by a company that exhibit the financial performance during a particular period of time and show the financial position at a point of time.
Requirement 4
To describe:
For the disclosed risk factor, identify the relevant account that may have an effect on the balance. And for each such account, point out the effect on the audit evidence, and also the specific assertion that the auditor is primarily concerned about.
Introduction:
The reports generated by a company that exhibit the financial performance during a particular period of time and show the financial position at a point of time.
Requirement 5
To describe:
For the disclosed risk factor, identify the relevant account that may have an effect on the balance. And for each such account, point out the effect on the audit evidence, and also the specific assertion that the auditor is primarily concerned about.
Introduction:
The reports generated by a company that exhibit the financial performance during a particular period of time and show the financial position at a point of time.
Requirement 6
To describe:
For the disclosed risk factor, identify the relevant account that may have an effect on the balance. And for each such account, point out the effect on the audit evidence, and also the specific assertion that the auditor is primarily concerned about.
Introduction:
The reports generated by a company that exhibit the financial performance during a particular period of time and show the financial position at a point of time.
Requirement 7
To describe:
For the disclosed risk factor, identify the relevant account that may have an effect on the balance. And for each such account, point out the effect on the audit evidence, and also the specific assertion that the auditor is primarily concerned about.
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Chapter 6 Solutions
Auditing: A Risk Based-Approach to Conducting a Quality Audit
- Investors and MNCs exporting or importing goods and services or making foreign investments throughout the global economy are faced with an exchange rate risk,which can have severe financial consequences on firms profitability,cash flows,and their market value,if not managed appropriately. MNC's use a number of external techniques of risk(exposure)management and resort to contractual relationships outside thier companies in order to reduce (or redistribute)the risk of foreign exchange losses.What are the determinants of hedging currency risk or foreign exchange exposures which pose risks to MNC's cashflows,competitiveness,marker value and financial reporting.arrow_forwardHow would each of the following factors affectratio analysis? (a) The firm’s sales are highly seasonal. (b) The firm uses some type of windowdressing. (c) The firm issues more debt and usesthe proceeds to repurchase stock. (d) The firmleases more of its fixed assets than most firmsin its industry. (e) In an effort to stimulate sales,the firm eases its credit policy by offering 60-daycredit terms rather than the current 30-day terms.How might one use sensitivity analysis to helpquantify the answers?arrow_forwardCompanies go global for various reasons. Although becoming a multinational corporation provides prospects for high returns and diversification, it makes financial management more complicated for financial executives and managers. Based on your understanding of the factors that complicate financial management in multinational firms, complete the following statement: Compared to domestic corporations, multinational corporations have (increased or reduced) risk from exchange rate fluctuations.arrow_forward
- What are the measures that can be set in place by Fast Moving Consumer Goods Companies to manage foreignexchange rate risk?arrow_forwardHow would you expect this situation to affect the assessment of Eastern’s financial condition and performance? Its low barriers to entry expose Eastern to increased risk of competition, which could negatively affect the predictability of its expected future sales revenues. Although nonquantitative factors may be relevant to a company’s financial evaluation in general terms, the details of this specific situation are not relevant to the firm’s financial condition or performance. Its low barriers to entry expose Eastern to decreased risk of competition, which could improve the predictability of its expected future sales revenues.arrow_forwardIs it an entity inherent risk for a president of a company to review product costs and adjusts the authorized selling prices of products, as necessary? He makes the selling price adjustments based on his assessment of what his competitors will do with pricing and what is required to provide competitive profits to the owners of Marco. If it is an inherent risk, describe the feature of the firm that will possibly affect inherent risk and explain how and why; that is whether it increases or decreases inherent risk. Please address a specific risk to the accuracy of the financial statements with the "how" and whether audit effort should be increased or decreased for specific accounts or related groups of accounts if possible.arrow_forward
- Which of the following decreases the cash holding A.The rising commodity prices increases the value of law material inventoriesby 10% B.A manufacturer decreases production in anticipation of a decrease in demand C.THe frim repurchases its own stocks D.THe corporation has decided to give their customer less time in paying their purchasesarrow_forwardExplain intuitively how a manager could tweak the salvage value of machinery to benefit from an expected reduction in the corporate tax rate taking place towards the end of an investment. What are the shortcomings of the payback period criterion? Which of these shortcomings are accounted for in the dynamic payback period criterion? Which are not? “If a stock had high returns so far, it will have low returns in the future”. Discuss whether this statement is true or false, based on the knowledge of the different theories and models out there.arrow_forwardan entity that operates under a hyperinflationary economy is required to present information on the effect of changing prices in a. The auditor's report b. The body of financial statements c. The management report submitted to the company's shareholders d. The notes to financial statementsarrow_forward
- Which of the following does NOT refer to the ways of how a multinational company can reduce political risk? Taking a conservative approach to investment and adjusting NPV of the project by reducing expected cash flows or by increasing the cost of capital in accordance with existing trends. Purchasing insurance policy against political risks. Acquiring minor shares in foreign corporations. Creating a joint venture with local partners or a consortium with other multinational companies.arrow_forwardWhich of the following statements is most correct? JUST EXPLAIN ONE ANSWER WHICH IS INCORRECT. a. It is possible for a firm to overstate profits by offering very lenient credit terms which encourage additional sales to financially "weak" firms. A major disadvantage of such a policy is that it is likely to increase uncollectible accounts. A firm with excess production capacity and relatively low variable costs would not be inclined to extend more liberal credit terms to its customers than a firm with similar costs that is operating close to capacity. Seasonal dating with terms 2/15, net 30 days, with April 1 dating, means that if the original sale took place on February 1st, the customer can take the discount up until March 15th, but must pay the net invoice amount by April 1st.arrow_forwardDevelop a good contingency plan to each of the following situations: 1. If a major competitor withdraws from particular markets as intelligence reports indicate, what actions should our firm take? 2. If our sales objectives are not reached, what actions should our firm take to avoid profit losses? 3. If demand for our new product exceeds plans, what actions should our firm take to meet the higher demand? 4. If certain disasters occur, what actions should our firm take? 5. If a new technological advancement makes our new product obsolete sooner than expected, what actions should our firm take?arrow_forward
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