* Your answer is incorrect. Gladco Partners CPA Firm has been invited to consider auditing the firm of McRoss LLC, a medium sized firm and provider of outsourced payroll services. One of the CPA firms' staff associates asks you, their supervisor, what the risks surrounding inventory will be for this client. Which of the following is the most accurate response? Audit risk associated with inventory is likely to be assessed as high because the client maintains either very small amounts or no inventory. Control risk associated with inventory misstatement is likely to be assessed as low by the audit firm, upon completion of substantive testing of internal controls. • Inherent risk associated with inventory misstatement is likely to be assessed as low by the CPA firm. O Inherent risk associated with inventory misstatement is likely to be assessed as high by the CPA firm.

* Your answer is incorrect. Gladco Partners CPA Firm has been invited to consider auditing the firm of McRoss LLC, a medium sized firm and provider of outsourced payroll services. One of the CPA firms' staff associates asks you, their supervisor, what the risks surrounding inventory will be for this client. Which of the following is the most accurate response? Audit risk associated with inventory is likely to be assessed as high because the client maintains either very small amounts or no inventory. Control risk associated with inventory misstatement is likely to be assessed as low by the audit firm, upon completion of substantive testing of internal controls. • Inherent risk associated with inventory misstatement is likely to be assessed as low by the CPA firm. O Inherent risk associated with inventory misstatement is likely to be assessed as high by the CPA firm.

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:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter14: Activities Required In Completing A Quality Audit

Section: Chapter Questions

Problem 90RSCQ

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Similar questions

An auditor is examining a nonpublic company’s inventory procurement system and has decided to perform tests of controls. Under which of the following conditions do GAAS require tests of controls be performed by an auditor?a. Significant weaknesses were found in the company’s internal control.b. The auditor hopes to reduce the amount of work to be done in assessing inherent risk.c. The auditor believes that testing the controls could lead to a reduction in overall audit time and cost.d. Tests of controls are always performed when the auditor begins to assess control risk.
You are a financial auditor from a CPA Firm. One day when You audit your client, you found that your client has a weak security system for physical inventory. The client is an automotive parts company with a lot of valuable part inventory. The lack of procedures for securing inventory is shown from the evidence such as employees unrelated to inventory can enter the inventory warehouse. The company also has inventory in subcontractors. Some parts are sent to the subcontractor company, so there are many warehouses outside the main plant. Besides that, the absence of a computerized system in recording incoming and outgoing inventory flows in a subcontractor. Under these conditions, inventory theft is particularly vulnerable. According to your understanding as a financial auditor, can these conditions lead to material misstatements in the client’s financial statements? Explain your answer!
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As the lead accountant for a small company, you notice that inventory purchases from a certain vendor have increased dramatically over the past few months, whereas purchases from all other vendors have decreased. You suspect that something may not be right and that there may be a fraudulent relationship between someone in your company and the vendor that is getting increased business. question: Which theft act investigative method would you use to investigate your suspicions? state evidences that you to support suspicions.
Below are ten independent risk factors:1. The client lacks sufficient working capital to continue operations.2. The client fails to detect employee theft of inventory from the warehouse becausethere are no restrictions on warehouse access and the client does not reconcileinventory on hand to recorded amounts on a timely basis.3. The company is publicly traded.4. The auditor has identified numerous material misstatements during prior yearaudit engagements.5. The assigned staff on the audit engagement lack the necessary skills to identifyactual errors in an account balance when examining audit evidence accumulated.6. The client is one of the industry’s largest based on its size and market share.7. The client engages in several material transactions with entities owned by familymembers of several of the client’s senior executives.8. The allowance for doubtful accounts is based on significant assumptions made bymanagement.9. The audit program omits several necessary audit procedures.10.…
During the taking of physical inventory, the controller intentionally withheld several inventory tags from the employees responsible for the physical count. After the auditor left the client’s premises at the completion of the inventory observation, the controller recorded nonexistent inventory on the tags and thereby significantly over-stated earnings. How could the auditor have uncovered the misstatement, assuming that there are no perpetual records?