ACC
410 Entire Course Material- Auditing
Follow Link Below To
Get Tutorial
Description:
Internal vs. External Audit Staffs. Spacecraft, Inc., is a large corporation that is audited
regularly by a public accounting firm but also maintains an internal auditing
staff. Explain briefly how the relationship of the public accounting firm to
Spacecraft differs from the relationship of the internal auditing staff to
Spacecraft. Do not forget to show the necessary steps and explain how you
attained that outcome. Respond to at least two of your classmates’ postings
Audit Reports. Evaluate the following question: “If a CPA firm completes
a nonpublic company audit of Adam Company’s financial statements following
IACPA generally accepted auditing standards and is satisfied with the results
of an audit, an unmodified report may be issued. On the other hand, if no audit
is performed of the current year’s financial statements, but the CPA firm has
performed satisfactory audits in prior years, has confidence in the management
of the company, and makes a quick review of the current year’s financial
statements, a qualified report may be issued.” Do you agree? Give reasons to
support your answer. Do not forget to show the necessary steps and explain how
you attained that outcome. Respond to at least two of your classmates’
postings.
Generally Accepted Auditing
Standards. Complete problem below and submit
to your instructor. Write under the generally accepted auditing standards
column the specific standard that was violated and how the action of Jones
resulted in a failure to comply with each standard. Organize your answer as
shown below; specifically with a column for the standard that was violated and
a column for the required action. The paper should be 2-3 pages.
Problem:
John Clinton, owner of Clinton
Company, applied for a bank loan and was informed by the banker that audited
financial statements of the business had to be submitted before the bank could
consider the loan application. Clinton then retained Arthur Jones, CPA, to
perform an audit. Clinton informed Jones that audited financial statements were
required by the bank and that the audit must be completed within three weeks.
Clinton also promised to pay Jones a fixed fee plus a bonus if the bank
approved the loan. Jones agreed and accepted the engagement.
The first step taken by Jones was to
hire two accounting students to conduct the audit. He spent several hours
telling them exactly what to do. Jones told the students not to spend time
reviewing controls but instead to concentrate on proving the mathematical
accuracy of the ledger accounts and summarizing the data in the accounting
records that support Clinton Company’s financial statements. The students
followed Jone’s instructions and after two weeks gave Jones the financial
statements, which did not include any notes. Jones reviewed the statements and
prepared an unqualified audit report. The report, however, did not refer to
generally accepted accounting principles.
Required:
List on the left side of a sheet of
paper the generally accepted auditing standards that were violated by Jones,
and indicate how the actions of Jones resulted in a failure to comply with each
standard. Organize your answers as follows: Generally Accepted Auditing Standards
Actions by Jones Resulting in
Failure to Comply with Generally Accepted Auditing Standards
General Standards
(1) The auditor must have adequate
technical training and proficiency to perform the audit.
(1)
Balance Sheet Verification. “The best means of verification of cash, inventory, office
equipment, and nearly all other assets is a physical count of the units; only a
physical count gives the auditors complete assurance as to the accuracy of the
amounts listed on the balance sheet.” Evaluate this statement. Remember to
complete all parts of the problems. Do not forget to show the necessary steps
and explain how you attained that outcome. Respond to at least two of your
classmates’ postings
Accounting Principles. Discuss what is meant by the phrase “shopping for
accounting principles.” What mechanisms have served to prevent this practice by
management? Remember to complete all parts of the problems. Do not forget to
show the necessary steps and explain how you attained that outcome. Respond to
at least two of your classmates’ postings.
Analytical Procedures. In a 2-3 page paper, complete the case below and submit to
instructor. Review the income statement for Uden Supply Company and answer the
following:
a. Describe the purpose of
analytical procedures performed in the planning stage of the audit.
b. Uden Supply has projected its
2004 gross profit at 31% of sales despite expectation for some shrinkage in
margins. On the basis of Uden’s operating performance in years 2001 – 2003
project your best guess for 2004. Project 2004 based on the incremental changes
for each line item over the last three years.
c. Uden’s unaudited financial
statements for the current year show a 31 percent gross profit rate. Assuming that
this represents a misstatement from the amount that you developed as an
expectation, calculate the estimated effect of this misstatement on net income
before taxes for 20X4.
d. Indicate whether you believe
that the difference calculated in part (c) is material. Explain your answer.
(50-100 words).
Comparative income statement
information for Uden Supply Company is presented in the accompanying table. UDEN SUPPLY COMPANY
Comparative Income Statement
Years Ended December 20X1, 20X2, and
20X3
(Thousands)
20X1 Audited
20X2 Audited
20X3 Audited
20X4 Expected
Sales
8,700
9,400
10,100
Cost of goods sold
6,000
6,500
7,000
Gross profit
2,700
2,900
3,100
Sales Commissions
610
660
710
Advertising
175
190
202
Salaries
1,061
1,082
1,103
Payroll taxes
184
192
199
Employee benefits
167
174
181
Rent
60
61
62
Depreciation
60
63
66
Supplies
26
28
30
Utilities
21
22
23
Legal and accounting
34
37
40
Miscellaneous
12
13
14
Interest expense
210
228
240
Net income before taxes
80
150
230
Incomes taxes
18
33
50
Net income
62
117
180
Audit Programs. “All experienced auditors would design exactly the same
audit program for a particular audit engagement.” Do you agree? Explain.
Remember to complete all parts of the problems. Do not forget to show the
necessary steps and explain how you attained that outcome. Respond to at least
two of your classmates’ postings.
Internal Control Procedures. Describe what is meant by a “walk-through.” Must
walk-throughs be performed during audits of internal control over financial
reporting? May the client perform a walk-through and the auditors then review
the client’s work? Remember to complete all parts of the problems. Do not
forget to show the necessary steps and explain how you attained that outcome.
Respond to at least two of your classmates’ postings.
Internal Control Case. Complete Case 18-37 (p. 724-725) and submit to instructor.
For each of the following independent cases state the highest level of
deficiency that you believe the circumstances represent–a control deficiency, a
significant deficiency, or a material weakness. Explain your decision in each
case.
Legal Case. Compare the rights of plaintiffs under common law with the
rights of persons who purchase securities registered under the Securities Act
of 1933 and sustain losses. In your answer, emphasize the issue of who must
bear the burden of proof. Remember to complete all parts of the problems. Do
not forget to show the necessary steps and explain how you attained that
outcome. Respond to at least two of your classmates’ postings.
Ethics Case. Harris Fell, CPA and member of the AICPA, was engaged to
audit the financial statements of Wilson Corporation. Fell had half-completed
the audit when he had a dispute with the management of Wilson Corporation and
was discharged. Hal Compton, CPA, was promptly engaged to replace Fell. Wilson
Corporation did not compensate Fell for his work to date; therefore, Fell
refused to allow Wilson Corporation’s management to examine his working papers.
Some of the working papers consisted of adjusting journal entries and
supporting analysis. Wilson Corporation’s management had no other source for
this information. Did Fell violate the AICPA Code of Professional Conduct?
Explain fully. Remember to complete all parts of the problems. Do not forget to
show the necessary steps and explain how you attained that outcome. Respond to
at least two of your classmates’ postings.
Program Comprehensive Exam. Complete the comprehensive exam, which will take
approximately one to two hours and
will be graded based on your score. The full instructions for the exam
are posted in the classroom.
Audit Reporting. Wade Corporation has been your audit client for several
years. At the beginning of the current year, the company changed its method of
inventory valuation from average cost to last in, first out (LIFO). The change,
which had been under consideration for some time, was in your opinion a logical
and proper step for the company to take. What effect, if any, will this
situation have on your audit report for the current year? Remember to complete
all parts of the problems. Do not forget to show the necessary steps and
explain how you attained that outcome. Respond to at least two of your
classmates’ postings.
Audit Reports. The auditors do not believe that certain lease obligations
have been reflected in conformity with generally accepted accounting principles
in the client’s financial statements. What type of opinion should the auditors
issue if they decide that the exceptions are immaterial? Material? Very
material? Remember to complete all parts of the problems. Do not forget to show
the necessary steps and explain how you attained that outcome. Respond to at
least two of your classmates’ postings.
Audit Report Modifications. Complete problem below. List a represents the types of
opinions the auditor ordinarily would issue and List B represents the report
modifications [if any] that would be necessary. Select as the best answer for
each situation [items 1 to 6] the type of opinion and modifications, if any,
the auditor would normally select. The types of opinions in List A and the
report modifications in List B may be selected once, more than once, or not at
all. The paper should be 2-3 pages.
Problem:
Items 1 through 6 present various
independent factual situations an auditor might encounter in conducting an
audit. For each situation assume:
Assume:
·The
auditor is independent.
·The
auditor previously expressed an unqualified opinion on the prior year’s
financial statements.
·Only
single-year (not comparative) statements are presented for the current year.
·The
conditions for an unqualified opinion exist unless contradicted in the factual
situations.
·The
conditions stated in the factual situations are material.
· No report modifications are to
be made except in response to the factual situation.
Situations:
1. In auditing the long-term
investments account, an auditor is unable to obtain audited financial
statements for an investee located in a foreign country. The auditor concludes
that sufficient appropriate audit evidence regarding this investment cannot be
obtained.
2. Due to recurring operating losses
and working capital deficiencies, an auditor has substantial doubt about an
entity’s ability to continue as a going concern for a reasonable period of
time. However, the financial statement disclosures concerning these matters are
adequate.
3. A principal auditor decides to
take responsibility for the work of another CPA who audited a wholly owned
subsidiary of the entity and issued an unqualified opinion. The total assets
and revenues of the subsidiary represent 17 percent and 18 percent,
respectively, for the total assets and revenues of the entity being audited.
4. An entity issues financial
statements that present financial position and results of operations but omits
the related statement of cash flows. Management discloses in the notes to the
financial statements that it does not believe that statement of cash flows to
be a useful financial statement.
5. An entity changes its
depreciation method for production equipment from straight-line to a units-of-production
method based on hours of utilization. The auditor concurs with the change,
although it has a material effect on the comparability of the entity’s
financial statements.
6. An entity discloses certain lease
obligations in the notes to the financial statements. The auditor believes that
the failure to capitalize these leases is a departure from generally accepted
accounting principles.
Required:
List A represents the types of
opinions the auditor ordinarily would issue and List B represents the report
modifications (if any) that would be necessary. Select as the best answer for
each situation (items 1 through 6) the type of opinion and modifications, if
any, the auditor would normally select. The types of opinions in List A and the
report modifications in List B may be selected once, more than once, or not at
all.
(AICPA, adapted) List A
List B
Types of Opinions
Report Modifications
A. An “except for” qualified opinion
H. Describe the circumstances in a
explanatory paragraph preceding the opinion paragraph without modifying the
three standard paragraphs.
B. An unqualified opinion
I. Describe the circumstances in an
explanatory paragraph following the opinion paragraph without modifying the
three standard paragraphs.
C. An adverse opinion
J. Describe the circumstances in an
explanatory paragraph preceding the opinion paragraph, and modify the opinion
paragraph.
D. A disclaimer of opinion
K. Describe the circumstances in an
explanatory paragraph following the opinion paragraph, and modify the opinion
paragraph.
E. Either an “except for” qualified
opinion or an adverse opinion.
L. Describe the circumstances in an
explanatory paragraph preceding the opinion paragraph, and modify the scope and
opinion paragraphs.
F. Either a disclaimer of opinion or
an “except for” qualified opinion.
M. Describe the circumstances in an
explanatory paragraph following the opinion paragraph, and modify the scope and
opinion paragraphs.
G. Either an adverse opinion or a
disclaimer of opinion
N. Describe the circumstances within
the scope paragraph without adding an explanatory paragraph.
O. Describe the circumstances within
the opinion paragraph without adding an explanatory paragraph.
P. Describe the circumstances within
the scope and opinion paragraphs without adding an explanatory paragraph.
The final paper will be based on
Appendix 6C Illustrative Audit Case: Keystone Computers at pages 237-244 in
your text. Write, in outline format but in complete sentences, a 6 to 10 page
audit plan. It is recommended that you look at Figure 18.8 on page 708, which
shows the control objectives related to accounts receivable.
In your audit plan cover the steps
necessary to determine if you should select the client, the internal control
procedures which need to be reviewed, the substantive tests [using accounts
receivable a guide], and the final reporting steps. Based on the actual facts
in the case determine the emphasis you want to place on various accounts. Also
reflect back over your entire accounting program and think about how the accounts
are interrelated. For example, when allowance for doubtful accounts is credited
the offset is to bad debt expense. Therefore one of the steps should be to
trace the debit side of the entry to the balance for bad debt expense.
Make your comments as specific as
possible. Rather than say look for unusual entries, say look for entries from
unusual sources and rounded amounts with focus on those near an accounting cut
off. Use precise language. Rather than saying you “vouched accounts payable,”
say that you looked at the item to determine that it was a bona fide business
expense. Remember to focus on the key audit objectives and support needed after
applying the audit risk model.
Remember, the purpose of the Final
Paper is for you to culminate the learning achieved in the course by describing
your understanding and application of knowledge in the field of accounting.
The Final Paper should focus on real
life, real time application of topics covered in this course; the uses you have
seen and the uses you can envision. The paper must be submitted to your
instructor no later than the last day of class. Earlier submittal is
appreciated.
No comments:
Post a Comment