Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN: 9781305080577
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: South-Western College Pub
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Chapter 9, Problem 43RSCQ
To determine
Introduction: Replacement cost is the value that an organization pays to replace an important asset whose value is same. Depending upon the market value of the asset, the cost to replace the asset can change. Before replacement made by the company, the
The problems can occur during sales return and allowances are not designed and operating efficiently
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Which of the following arguments supports the view that regulation is not necessary, particularly to the extent that it currently exists?
Select one:
a. Markets for information are not efficient and therefore produce a sub-optimum amount of information, given the problem of 'free riders'.
b. Accounting information is like any other good, and people will be prepared to pay for it to the extent that it has a use.
c. Investors need protection from fraudulent organisations that may produce misleading information.
d. Information asymmetry exists because not everyone has the same power over resources to obtain the information they need.
The following situations represent errors and frauds that could occur in financial statements.Required:State how the ratio in question would compare (higher, equal, or lower) to what the ratio should have been had the error or fraud not occurred.a. The company recorded fictitious sales with credits to sales revenue accounts and debits to accounts receivable. Inventory was reduced, and cost of goods sold was increased for the profitable “sales.” Is the current ratio higher than, equal to, or lower than what it should have been?b. The company recorded cash disbursements by paying trade accounts payable but held the checks past the year-end date, meaning that the “disbursements” should not have been shown as credits to cash and debits to accounts payable. Is the current ratio higher than, equal to, or lower than what it should have been? Consider cases in which the currentratio before the improper “disbursement” recording was (1) higher than 1:1, (2) equal to 1:1, and (3) lower than…
Given that a breakeven sales level is not a sales prediction, explain why it is so widely used in business situations where accurate sales predictions would be helpful.
Chapter 9 Solutions
Auditing: A Risk Based-Approach to Conducting a Quality Audit
Ch. 9 - Prob. 1TFQCh. 9 - Prob. 2TFQCh. 9 - Prob. 3TFQCh. 9 - Prob. 4TFQCh. 9 - Prob. 5TFQCh. 9 - Prob. 6TFQCh. 9 - Prob. 7TFQCh. 9 - Prob. 8TFQCh. 9 - Prob. 9TFQCh. 9 - Prob. 10TFQ
Ch. 9 - Prob. 11TFQCh. 9 - Prob. 12TFQCh. 9 - Prob. 13TFQCh. 9 - Prob. 14TFQCh. 9 - Prob. 15TFQCh. 9 - Prob. 16TFQCh. 9 - Which of the following statements is true...Ch. 9 - Prob. 18MCQCh. 9 - Prob. 19MCQCh. 9 - Prob. 20MCQCh. 9 - Prob. 21MCQCh. 9 - Prob. 22MCQCh. 9 - Prob. 23MCQCh. 9 - Prob. 24MCQCh. 9 - Which of the following statements is false...Ch. 9 - Prob. 26MCQCh. 9 - Prob. 27MCQCh. 9 - Prob. 28MCQCh. 9 - Prob. 29MCQCh. 9 - Prob. 30MCQCh. 9 - Prob. 31MCQCh. 9 - Prob. 32MCQCh. 9 - Refer to Exhibit 9.1. Which accounts are relevant...Ch. 9 - Prob. 34RSCQCh. 9 - Prob. 35RSCQCh. 9 - An important task ¡n the audit of the revenue...Ch. 9 - Prob. 37RSCQCh. 9 - Prob. 38RSCQCh. 9 - Prob. 39RSCQCh. 9 - Prob. 40RSCQCh. 9 - Prob. 41RSCQCh. 9 - Prob. 42RSCQCh. 9 - Prob. 43RSCQCh. 9 - Prob. 45RSCQCh. 9 - Prob. 46RSCQCh. 9 - Prob. 47RSCQCh. 9 - Stainless Steel Specialties (SSS) is a...Ch. 9 - Prob. 49RSCQCh. 9 - Prob. 50RSCQCh. 9 - Prob. 51RSCQCh. 9 - Prob. 52RSCQCh. 9 - Prob. 53RSCQCh. 9 - Prob. 54RSCQCh. 9 - Prob. 55RSCQCh. 9 - Prob. 56RSCQCh. 9 - Prob. 57RSCQCh. 9 - Prob. 58RSCQCh. 9 - Prob. 59RSCQCh. 9 - Prob. 60RSCQCh. 9 - Prob. 61RSCQCh. 9 - Prob. 62RSCQCh. 9 - Prob. 63RSCQCh. 9 - Prob. 64RSCQCh. 9 - Prob. 65RSCQCh. 9 - Prob. 66RSCQCh. 9 - Prob. 67RSCQCh. 9 - Prob. 68RSCQCh. 9 - Prob. 69RSCQCh. 9 - Prob. 70RSCQCh. 9 - Prob. 71RSCQCh. 9 - Read the following scenario about Strang...Ch. 9 - Prob. 73RSCQCh. 9 - Prob. 74RSCQCh. 9 - ZYNGA (LO Z 3, 4, 5, 6, 8) Refer to the Why It...Ch. 9 - Prob. 76FFCh. 9 - UTSTARCOM, INC. (LO 2, 3, 4, 5, 6, 8) UTStarcom is...Ch. 9 - Prob. 78FFCh. 9 - Prob. 79FF
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Similar questions
- Discuss the merits of the following objections to the sales basis of revenue recognition; 1.It is too conservative because revenues are earned throughout the production process. 2.It is not conservative enough becase accounts eceivable do not represent disposabe funds,sales returns and allowances may be made,doubtful accounts maybe incurred in a later period.arrow_forwardWhich of the following is not a managerial planning or control report? Effectiveness of advertising and promotionAnalysis of bad debt and credit policies Sales analysis and profitability analysisInventory availabilityarrow_forwardUnder what circumstances would an auditor choose to confirminformation such as the right of return or special sales terms in addition to the customerbalance?arrow_forward
- A serious exposure in the revenue cycle is customer dissatisfaction. What is the related threat and applicable control procedure that address this exposure? A. failure to bill; separation of billing and shipping functions B. failure to bill; bar-codes and RFID technology C. billing errors; reconciliation of shipping documents to sales order D. theft of cash; using ETFsarrow_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_forward1. Which of the following is a control procedure to address the threat of purchasing goods or services at inflated prices? A. Requiring multiple approvals for purchases B. Performing regular physical inventory counts C. Conducting vendor audits D. Implementing encryption for sensitive data 2. Which of the following is not a common error in the expenditure cycle? A. Recording the wrong purchase order number B. Recording the wrong vendor name for goods received C. Recording the wrong quantity of goods received D. Recording the wrong price for goods received 3. The primary objective of internal controls in the expenditure cycle is to: A. Ensure the accuracy and completeness of financial transactions B. Streamline the procurement process C. Minimize the cost of purchases D. Increase the speed of payment processingarrow_forward
- Sadaf Oman Co. is using internal control procedures to mitigate the risks to which it is exposed. Listed below are some internal control procedures applicable to Sadaf Oman Co's revenues and receivable system. Match the most appropriate one of the following risks mitigated to the correct internal control procedure stated below. Risks mitigated: (A) Sales staff misappropriate sales receipts then write off bad debts in the general ledger (B) Sales are made to customers who cannot pay (C) Sales are not made to existing customers (D) Sales staff do not communicate with the accounts staff regularly, so the debt uncollected at the end of the period are written off in the ledger by the accounts staff (E) Customer refuses to pay for goods allegedly not received (F) Customer orders are not being fulfilled. (G) Revenues on books are overstated and exceed actual revenues in bank (H) Posting a sale that is beyond the credit limit of the customers ) Company employees steal collections (U) Without…arrow_forwardWhich of the following is not one of the criteria for revenue recognition? (Assume the company reports using ASPE.) a.Economic benefits will probably flow to the seller. b.Significant risks and rewards of ownership have been transferred. c.Continuing managerial involvement does not exist. d.Customers have an excellent credit rating.arrow_forwardYou will have the opportunity in this discussion to recommend adequate internal controls over sales invoices and receivables. If controls are not in place over these functions, companies are susceptible to errors, fraud, and losses. In the following scenarios, recommend internal controls that need to be in place to eliminate the problems described: An inexperienced clerk does not have the knowledge to prepare sales invoices properly. They are confused about the actual items shipped. As a result, the clerk has been preparing invoices at prices below the company's sales prices. During your audit, the controller approaches you about a problem with missing invoices. They think that these missing invoices were never recorded in the system, which results in the accompanying receivables not being recorded either. They read the monthly sales data and calculates that the company has faced significant losses as a result.arrow_forward
- Explain the problems of adverse selection and moral hazard caused by asymmetricinformation. How can financial intermediaries alleviate those problems?arrow_forwardExamples of systematic risk include a new competitor in the marketplace with the potential to take significant market share from the company invested in, a regulatory change(which could drive down company sales), a shift in management, or a product TRUE OR FALSE?arrow_forward
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