Task 1: The senior accountant has identified three misstatements that have been carried forward onto the summary of proposed audit adjustments. Determine the impact of the identified misstatements on the financial statement ratios noted below.   For each of the identified misstatements below, indicate the impact on the financial ratio identified. In columns D and E, select the impact, if any, that the misstatement has on the financial ratio from the option list. Selections used once, more than once, or are not at all. Consider each misstatement independently. Choices for Columns D and E:  decrease increase no impact A B C D E 1 Account Debit Credit Impact on current ratio Impact on profit margin 2 Payroll expense 72,000           3 Accrued payroll   72,000 4   5 Depreciation expense 125,000           6 Accumulated depreciation   125,000 7   8 Prepaid insurance 15,000           9 Insurance expense   15,000

A client uses percentages of aging categories to calculate the allowance for doubtful accounts.  When auditing the allowance for doubtful accounts, the auditor must…   Question 4 options:   Ensure that the client’s aging categories are consistent with industry averages.   Ensure that the client has calculated the allowance for the current and all prior years using the same percentages for uncollectible accounts.   Perform tests to ensure that the aging categories are accurate.   Perform tests to ensure that management has not exercised judgment when calculating the allowance for doubtful accounts.

S1: Most of the audit procedures in examining the financial statement components are performed by the junior or associate auditors. S2: At the completion stage, the reviewer of working papers should check if the approved adjusting journal entries have been properly posted and the amounts in the working trial balance agree with the amounts shown in the lead schedules.    a. BOTH STATEMENTS ARE TRUE b. BOTH STATEMENTS ARE FALSE c. ONLY S1 IS TRUE d. ONLY S2 IS TRUE

As a result of analytical procedures an auditor determines that gross profit has declined from 30% to 15% in the current year.  The auditor should.. A. Document manamgent intentions with respect to reversing the trend. B. Evaluate managment's performance in causing the deline C. Require a footnote disclosure D. Consider the possibility of an error in the financial statements.