Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
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Chapter 14, Problem 30QRA
To determine
Provide a possible explanation for the trends described, especially the decrease in accounts payable while sales and inventory were constant and gross profit increased. Explain fully the relationships involved.
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Sandra: We are beginning our audit of Imex and have prepared ratio analyses to determine if there have been significant changes in financial position. This helps us guide the audit process. This analysis indicates that the inventory turnover has decreased from 5 to 2.8 and the accounts receivable turnover has decreased from 12 to 8. I was wondering if you could explain this change in operations.
Travis: There is little need for concern. The inventory represents computers that we were unable to sell during the holiday buying season. We are confident, however, that we will be able to sell these computers as we move into the next fiscal year.
Sandra: What gives you this confidence?
Travis: We will increase our advertising and provide some very attractive price concessions to move these machines. We have no choice. Newer technology is already out there, and we have to unload this inventory.
Sandra: …and the receivables?
Travis: As you may be aware, the company is under tremendous pressure…
When comparing the % of sales in the last month of the year to the total sales for the
year, the auditor notes that the percentage seems significantly higher this period
than previous periods. The auditor is aware that the management receives a bonus
for meeting certain performance metrics. The sales booked during the last month of
the year allowed the company to meet that sales metric, earning management the
bonus. Given this information, which of the following assertions with respect to
revenue would you most likely be concerned about?
Both occurrence and cutoff
Cutoff
Completeness
Occurrence
An audit client sells 15 to 20 units of product annually. A large portion of the annual sales occur in the last month of the fiscal year. Annual sales have not materially changed over the past five years. Which of the following approaches would be most effective concerning the timing of audit procedures for revenue?a. The auditor should perform analytical procedures at an interim date and discuss any changes in the level of sales with senior management.b. The auditor should inspect transactions occurring in the last month of the fiscal year and review the related sale contracts to determine that revenue was posted in the proper period.c. The auditor should perform tests of controls at an interim date to obtain audit evidence about the operational effectiveness of internal controls over sales.d. The auditor should review period-end compensation to determine whether bonuses were paid to meet earnings goals.
Chapter 14 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 14 - If a corporation overstates its earnings, are its...Ch. 14 - Prob. 2RQCh. 14 - Prob. 3RQCh. 14 - Prob. 4RQCh. 14 - Prob. 5RQCh. 14 - Prob. 6RQCh. 14 - Prob. 7RQCh. 14 - Prob. 8RQCh. 14 - List the major responsibilities of an accounts...Ch. 14 - Prob. 10RQ
Ch. 14 - Prob. 11RQCh. 14 - Prob. 12RQCh. 14 - Prob. 13RQCh. 14 - Prob. 14RQCh. 14 - Prob. 15RQCh. 14 - Prob. 16RQCh. 14 - Prob. 17RQCh. 14 - Whitehall Company records its liabilities in an...Ch. 14 - Prob. 19RQCh. 14 - Prob. 20RQCh. 14 - Prob. 21RQCh. 14 - Prob. 22RQCh. 14 - What is the purpose of the auditors review of cash...Ch. 14 - Prob. 24RQCh. 14 - Prob. 25RQCh. 14 - Prob. 26RQCh. 14 - Prob. 27QRACh. 14 - Prob. 28QRACh. 14 - Prob. 29QRACh. 14 - Prob. 30QRACh. 14 - Prob. 31QRACh. 14 - Prob. 32QRACh. 14 - Which of the following procedures is least likely...Ch. 14 - Prob. 33BOQCh. 14 - Which of the following is the best audit procedure...Ch. 14 - Prob. 33DOQCh. 14 - Prob. 33EOQCh. 14 - Prob. 33FOQCh. 14 - Prob. 33GOQCh. 14 - Prob. 33HOQCh. 14 - Ordinarily, the most significant assertion...Ch. 14 - Prob. 33JOQCh. 14 - Prob. 33KOQCh. 14 - Prob. 33LOQCh. 14 - Prob. 34OQCh. 14 - Prob. 35OQCh. 14 - Prob. 36OQCh. 14 - Prob. 37OQCh. 14 - Prob. 38PCh. 14 - Prob. 39PCh. 14 - Prob. 40PCh. 14 - Prob. 41PCh. 14 - Prob. 42PCh. 14 - Prob. 43ITC
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Similar questions
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