The accountants for a city are attempting to determine the proper reporting for a new transaction so that the financial statements are in conformity with generally accepted accounting principles. No authoritative answer can be found. What should happen next? Choose the correct.a. The city will receive a qualified audit report on its financial statements.b. The accountants can report the transaction in the way that they believe is best.c. The accountants should study other nonauthoritative sources such as GASB Concepts Statements and the official standards produced by FASB.d. The city will separate the transaction and report it separately in such a way as to draw attention to the method of reporting that was followed.

The accountants for a city are attempting to determine the proper reporting for a new transaction so that the financial statements are in conformity with generally accepted accounting principles. No authoritative answer can be found. What should happen next? Choose the correct.a. The city will receive a qualified audit report on its financial statements.b. The accountants can report the transaction in the way that they believe is best.c. The accountants should study other nonauthoritative sources such as GASB Concepts Statements and the official standards produced by FASB.d. The city will separate the transaction and report it separately in such a way as to draw attention to the method of reporting that was followed.

Contemporary Auditing

11th Edition

ISBN:9781337650380

Author:KNAPP

Publisher:KNAPP

Chapter7: Professional Issues

Section7.5: Fred Stern & Company, Inc. Stern & Company, Inc.(ultramares Corporation V. Touche Et Al.)

Problem 1Q

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The accountants for a city are attempting to determine the proper reporting for a new transaction so that the financial statements are in conformity with generally accepted accounting principles. No authoritative answer can be found. What should happen next? The city will receive a qualified audit report on its financial statements. The accountants can report the transaction in the way that they believe is best. The accountants should study other nonauthoritative sources such as GASB Concepts Statements and the official standards produced by FASB. The city will separate the transaction and report it separately in such a way as to draw attention to the method of reporting that was followed.
City government officials are analyzing a complicated financial transaction. A GASB Implementation Guide seems to provide one reporting answer and a GASB Concepts Statement seems to provide a different answer. What reporting is most appropriate? The government can use either method and still be in conformity with GAAP. Government officials should follow the guidance provided by the GASB Implementation Guide. The city’s financial statements must be in conformity with the GASB Concepts Statement. The city’s accountants should seek some type of compromise that takes both of these pronouncements into consideration.
Prior to accepting a new audit engagement, a public accounting firm shoulda. Attempt to contact the predecessor auditors.b. Evaluate the integrity of management.c. Assess the firm’s resources to ensure that they are sufficient to permit the firm to accept the engagement.d. All of the above.
KPMG is the auditor for an IESBA public interest entity audit client. Which non-audit service is permitted for this type of audit client? Designing a technology system for financial reporting that generates information significant to the accounting records. Preparing annual tax returns subject to review by the client and appropriate assessment of threats and safeguards. Valuations that might create a self-review threat. Tax calculations for the purpose of preparing the accounting entries included in the financial statements on which the firm will express an opinion.
Answer the following multiple-choice questions. GAAP stands for:(a) governmental auditing and accounting practices.(b) generally accepted attest principles.(c) government audit and attest policies.(d) generally accepted accounting principles
Which of the following is not a purpose of financial statement analysis: Multiple Choice Assuring that the company will avoid an IRS audit. Providing information for managing and operating the company. Helping the board of directors monitor management's performance. Helping external users make investing and lending decisions. Providing information to improve efficiency and effectiveness.
a. Why do you think it is so difficult to find an actual report?b. If you found an auditor’s report, were any deficiencies noted? If so, what were they?c. Why would a service organization publicize the results of its auditor’s report?
When accountants agree to perform a compilation or review of unaudited financial statements, the best way to avoid clients’ misunderstanding the nature of the work is to describeit completely ina. An engagement letter.b. The auditors’ opinion.c. A report to the clients’ board of directors at the close of the engagement.d. A management letter to the board of directors’ audit committee.
An important task ¡n the audit of the revenue cycle is determining whether a client has appropriately recognized revenue. a. What is the five-step process that companies should use in recognizing revenue? Why might the auditor need to do additional research and consider additional criteria on revenue recognition? b. The following are situations in which the auditor will make decisions about the amount of revenue to be recognized. For each of the following scenarios, labeled (1) through (6): . Identify the key issues to address in determining whether or not revenue should he recognized. . Identify additional information the auditor may want to gather in making a decision on revenue recognition. . Based only on the information presented, develop a rationale for either the recognition or nonrecognition of revenue. 1. AOL sells software that is unique as a provider of Internet services. The software contract includes a service fee of $19.95 for up to 500 hours of Internet service each month. The minimum requirement is a one-year contract. The company proposes to immediately recognize 30% of the first-year’s contract as revenue from the sale of software and 70% as Internet services on a monthly basis as fees are collected from the customer. 2. Modis Manufacturing builds specialty packaging machinery for other manufacturers. All of the products are high end and range in sales price from $5 million to $25 million. A major customer is rebuilding one of its factories and has ordered three machines with total revenue for Modis of $45 million. The contracted date to complete the production was November, and the company met the contract dare. The customer acknowledges the contract and confirms the amount. However, because the factory is not yet complete, it has asked Modis to hold the products in the ware house as a courtesy until its building is complete. 3. Standish Stoneware has developed a new low-end line of baking products that will be sold directly to consumers and to low-end discount retailers. The company had previously sold high-end silverware products to specialty stores and has a track record of returned items for the high-end stores. The new products tend to have more defects, but the defects are not necessarily recognizable ¡n production. For example, they are more likely to crack when first used in baking. The company does not have a history of returns from these products, but because the products are new, it grants each customer the right to return the merchandise for a full refund or replacement within one year of purchase. 4. Omer Technologies is a high-growth company that sells electronic products to the custom copying business. It is an industry with high innovation, but Omer’s technology is basic. In order to achieve growth, management has empowered the sales staff to make special deals to increase sales in the fourth quarter of the year. The sales deals include a price break and an increased salesperson commission but not an extension of either the product warranty or the customer’s right to return the product. 5. Electric City is a new company that has the exclusive right to a new technology that saves municipalities a substantial amount of energy for large-scale lighting purposes (e.g., for ball fields, parking lots, and shop ping centers). The technology has been shown to be very cost effective in Europe. In order to get new customers to try the product, the sales force allows customers to try the product for up to six months to prove the amount of energy savings they will realize. The company is so confident that customers will buy the product that it allows this pilot-testing period. Revenue is recognized at the time the product is installed at the customer location, with a small provision made for potential returns. 6. Jackson Products decided to quit manufacturing a line of its products and outsourced the production. However, much of its manufacturing equipment could be used by other companies. In addition, it had over $5 million of new manufacturing equipment on order in a noncancelable deal. The company decided to become a sales representative to sell the new equipment ordered and its existing equipment. All of the sales were recorded as revenue.
What is the primary objective of assurance services? To provide expert advice and recommendations for improving business processes. To assist in the preparation and filing of tax returns. O To evaluate and provide an opinion on the reliability of information. O To ensure compliance with legal and regulatory requirements.
Matt Gunlock, CPA, is performing an audit of the City of Ryan in accordance with AICPA generally accepted auditing standards. Required: a. Must Matt be concerned with the city’s compliance with laws and regulations? Explain. b. How should Matt decide on the nature and extent of the tests of compliance that should be performed in the audit?
(a) What are the key audit matters? How do these affect the format of the audit report? b) Stewart Jones is reviewing the results of the subsequent events audit procedures. Stewart iswriting a report for his audit partner based on these results and will be attending a meetingtomorrow with the partner and representatives of the company to discuss them. The issue will bewhether the financial report should be amended, or additional notes included for thesesubsequent events.Many of the items are not material and Stewart will recommend that no action be taken withrespect to these. However, there are several items that Stewart believes are material and shouldbe discussed at the meeting. These are as follows.(a) The board is planning to issue shares in a private placement on 15 August. (b) The share issue is to fund the purchase of a 60 percent stake in another company. Thenegotiations are in the final stages and although the contract is not yet signed it will be signedby 15 August. (c) A…