Connect Access Card for Principles of Auditing & Other Assurance Services
21st Edition
ISBN: 9781260299366
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
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Chapter 6, Problem 5RQ
To determine
Criticize the statement given, “Throughout this audit, for all purposes, we will define a ‘material amount’ as $500,000.”
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For the following independent situations, assume that you are the audit partner on the engagement:
1. The client recorded impairment of goodwill for $40,000 last year. It recorded reversal of impairment in goodwill for $20,000 this year after considering the carrying amount and recoverable amount of the cash generating unit. Net income is $10,000 in current year.
Discuss the most appropriate type of opinion the auditor should issue. Explain briefly the reason for the opinion.
For every of the following independent situation, discuss the issue and describe the impact on the audit record with provide examples
i. During the audit, the crew discovers that one of the five improvement projects, valued at RM880,000 and included as intangible assets, does no longer meet the criteria for capitalisation. The finance director does not intend to alternate the accounting remedy adopted as she considers this an immaterial quantity.
Assume that a continuing audit client has recorded Accounts Receivable and Equipment both in the amount of $1,000,000. In a typical audit, which account would take more time to audit?
Chapter 6 Solutions
Connect Access Card for Principles of Auditing & Other Assurance Services
Ch. 6 - Prob. 1RQCh. 6 - Prob. 2RQCh. 6 - Prob. 3RQCh. 6 - Discuss what is meant by the phrase shopping for...Ch. 6 - Prob. 5RQCh. 6 - Prob. 6RQCh. 6 - Prob. 7RQCh. 6 - Prob. 8RQCh. 6 - Prob. 9RQCh. 6 - Prob. 10RQ
Ch. 6 - Prob. 11RQCh. 6 - Prob. 12RQCh. 6 - Prob. 13RQCh. 6 - Prob. 14RQCh. 6 - Prob. 15RQCh. 6 - What is meant by making a proper year-end cutoff?...Ch. 6 - Prob. 17RQCh. 6 - Prob. 18RQCh. 6 - Prob. 19RQCh. 6 - Prob. 20RQCh. 6 - Auditing standards require the auditors to have a...Ch. 6 - Prob. 22RQCh. 6 - Prob. 23RQCh. 6 - Prob. 24QRACh. 6 - Prob. 25QRACh. 6 - Prob. 26QRACh. 6 - Prob. 27QRACh. 6 - Prob. 28QRACh. 6 - Prob. 29QRACh. 6 - Prob. 30QRACh. 6 - Prob. 31QRACh. 6 - Prob. 32QRACh. 6 - Prob. 33QRACh. 6 - Prob. 34QRACh. 6 - Prob. 35QRACh. 6 - Prob. 36QRACh. 6 - Prob. 37QRACh. 6 - Prob. 38AOQCh. 6 - Prob. 38BOQCh. 6 - Prob. 38COQCh. 6 - Prob. 38DOQCh. 6 - Prob. 38EOQCh. 6 - Prob. 38FOQCh. 6 - Prob. 38GOQCh. 6 - Prob. 38HOQCh. 6 - Prob. 38IOQCh. 6 - Prob. 38JOQCh. 6 - Prob. 38KOQCh. 6 - Prob. 38LOQCh. 6 - Prob. 39OQCh. 6 - Prob. 40OQCh. 6 - Prob. 41OQCh. 6 - Prob. 42AOQCh. 6 - Prob. 42BOQCh. 6 - Prob. 42COQCh. 6 - Tracing from source documents to journals most...Ch. 6 - Vouching from journals (or ledgers) to source...Ch. 6 - For each definition (or portion of a definition)...Ch. 6 - Prob. 44PCh. 6 - Prob. 45PCh. 6 - Tammy Potter, a new partner with the regional CPA...
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- In considering materiality for planning purposes, an auditor believes that misstatements aggregating 1% of the total assets, where total assets is P1,000,000 would have a material effect on an entity’s balance sheet, but that misstatements would have to aggregate 5% of gross margin, where gross margin is P4,000,000 to materially affect the income statement. Ordinarily, it would be appropriate to design auditing procedures that would be expected to detect misstatements that aggregate Group of answer choices P300,000 P150,000 P100,000 P200,000arrow_forwardYou were assigned to audit the financial statements of Swansea Corporation as at and for the year ended December 31, 2021. Your senior asked you to draft a memo on materiality and tolerable error for your client. Swansea Corporation has incurred substantial net losses due to COVID-19 pandemic. Up to 2019, it has been profitable. Which of the following is least likely to be your starting point in computing materiality? Group of answer choices Normalized net income Net loss Total assets Normalized revenuearrow_forwardWhich of the following circumstances would most likely pose the greatest risk inaccepting a new audit engagement?(1) Staff will need to be rescheduled to cover this new client.(2) There will be a client-imposed scope limitation.(3) The firm will have to hire a specialist in one audit area.(4) The client’s financial reporting system has been in place for 10 yearsarrow_forward
- You are currently planning the audit of your client, DEF plc. Its year end is 31 December 2019 and the forecast profit before tax is £15.5 million.DEF has a small internal audit (IA) department. During the year, IA started a programme of physically verifying the company’s assets and comparing the results to the non-current assets register, as this type of reconciliation had not occurred for some time. To date only 15% of assets have had their existence confirmed as IA has experienced significant staff shortages and several members of the current IA team are new to DEF plc.Inventory is held in six locations and on 25 and 26 December a full inventory count will be held with adjustments for movements to the year end. This is due to a lack of available staff on 31 December. The number of audit team members are not enough to attend the counts in all the locations. In November, there was a fire in one of the inventory warehouses; inventory of £5 million was damaged and this has been written…arrow_forwardYou are evaluating audit results for assets in the audit ofRoberts Manufacturing. You set the preliminary judgment about materiality at $50,000.The account balances, performance materiality, and estimated overstatements in theaccounts are shown next.Account Performance Estimate of TotalAccount Balance Materiality OverstatementsCash $ 50,000 $ 5,000 $ 1,000Accounts receivable 1,200,000 30,000 20,000Inventory 2,500,000 50,000 ?Other assets 250,000 15,000 12,000Total $4,000,000 $100,000 ? a. Assume you tested inventory amounts totaling $1,000,000 and found $10,000 inoverstatements. Ignoring sampling risk, what is your estimate of the total misstatement in inventory?b. Based on the audit of the assets accounts and ignoring other accounts, are the overallfinancial statements acceptable? Explain.c. What do you believe the auditor should do in the circumstances?arrow_forwardThe auditors have determined that each of the following objectives will be a part of the audit of SSC Corporation. While several procedures will ordinarily address an audit objective, select the procedure most directly related to the audit objective. Each procedure may be used once, more than once, or not at all. 1. All receivables that should be recorded are recorded as of year-end. 2. Recorded receivables are at appropriate net realizable values. 3. Recorded receivables exist. 4. The client has rights to recorded year-end receivables. 5. The presentation and disclosure of receivables are adequate. Trace a sample of sales invoiced from late in December to the sales journal and to postings in accounts receivable and sales amounts. Review the aged trial balance for significant past due accounts. Review board of director minutes and underlying contracts and sales terms with customers. Vouch year-end accounts…arrow_forward
- For each of the procedures described in the table below, identify the audit procedure performed and classification of the audit procedure using the following: Audit Procedures: (1) Analytical procedure (2) Confirmation (3) Inquiry (4) Inspection of records or documents (5) Inspection of tangible assets (6) Observation (7) Recalculation (8) Reperformance Classification of Audit Procedure: (9) Substantive procedures (10) Test of controls Procedure Audit Procedure Classification of Audit Procedure a. Requested responses directly from customers as to amounts due. b. Compared total bad debts this year with the totals for the previous two years. c. Questioned management about likely total uncollectible accounts. d. Watched the accounting clerk record the daily deposit of cash receipts. e. Examined invoice to obtain evidence in support of the ending recorded balance of a customer. f. Compared a sample…arrow_forwardWhile auditing the financial statements of Petty Corporation, the certified publicaccounting firm of Trueblue and Smith discovered that its client’s legal expense accountwas abnormally high. Further investigation of the records indicated the following:Since the beginning of the year, several disbursements totaling $15,000 had been madeto the law firm of Swindle, Fox, and Kreip.Swindle, Fox, and Kreip were not Petty Corporation’s attorneys. A review of thecanceled checks showed that they had been written and approved by Mary Boghas, thecash disbursements clerk. Boghas’s other duties included performing the end-of-monthbank reconciliation.Subsequent investigation revealed that Swindle, Fox, and Kreip are representing MaryBoghas in an unrelated embezzlement case in which she is the defendant. The checkshad been written in payment of her personal legal fees.Requireda. What control procedures could Petty Corporation have employed to prevent thisunauthorized use of cash? Classify each…arrow_forwardYou are the audit manager of Matfine & Co and are reviewing the key issues identified in the files of two audit clients as follows: 1) Pito Industries Co (Pito) Pito’s year-end was 31 March 2019 and the draft financial statements show revenue of $32·2 million, receivables of $6·1 million and profit before tax of $3.4 million. The fieldwork stage for this audit has been completed. A customer of Pito owed an amount of $375,000 at the year-end. Testing of receivables in April highlighted that no amounts had been paid to Pito from this customer as they were disputing the quality of certain goods received from Pito. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance. 2) Albo Trading Co (Albo) Albo is a new client of Matfine & Co, its year-end was 31 January 2019 and the firm was only appointed auditors in February 2019, as the previous auditors were suddenly unable to undertake the audit. The fieldwork…arrow_forward
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