Principles Of Auditing & Other Assurance Services
21st Edition
ISBN: 9781259916984
Author: WHITTINGTON, Ray, Pany, Kurt
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 16, Problem 35QRA
To determine
Describe the course of action by the auditor in the given situation.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Monicker Co. engaged the audit firm of Gasner & Gasner to audit its financial statements that Monicker was going to use in connection with a public offering of its securities. Monicker's stock regularly trades on the NASDAQ. The audit was completed and the auditor issued an unqualified opinion on the financial statements, which Monicker submitted to the SEC along with the registration statement. Three hundred thousand shares of Monicker common stock were sold to the public at $13.50 per share. Eight months later, the stock fell to $2 per share when it was disclosed that several large loans to two "paper" companies owned by one of the directors were worthless. The loans were secured by the stock of the borrowing corporation and by Monicker stock owned by the director. These facts were not disclosed in the financial statements. The director and the two corporations are insolvent. Considering these facts, indicate whether each of the following statements is true or false, and briefly…
Monicker Co. engaged the audit firm of Gasner & Gasner to audit its financial statements that Monicker was going to use in connection with a public offering of its securities. Monicker's stock regularly trades on the NASDAQ. The audit was completed and the auditor issued an unqualified opinion on the financial statements, which Monicker submitted to the SEC along with the registration statement. Three hundred thousand shares of Monicker common stock were sold to the public at $13.50 per share. Eight months later, the stock fell to $2 per share when it was disclosed that several large loans to two "paper" companies owned by one of the directors were worthless. The loans were secured by the stock of the borrowing corporation and by Monicker stock owned by the director. These facts were not disclosed in the financial statements. The director and the two corporations are insolvent. Considering these facts, indicate whether each of the following statements is true or false, and briefly…
On October 21, Rank & Brink, a CIA firm, was retained by Suncraft Appliance Corporation to perform an audit for the year ended December 31. A month later, James Minor, president of the corporation, invited the CIA firm’s partners, George Rand and Alice Brink, to attend a meeting off all officers of the corporation. Mr. Minor opened the meeting with the following statement:
“All of you know that we are not in a very liquid position, and our October 31 balance sheet show it. We need to raise some outside capital in January, and our December 31 financial statements (both balance sheet and income statement) must look reasonably good if we’re going to make a favorable impression upon lenders or investors. I want every officer of this company to do everything possible during the next month to ensure that, at December 31, our financial statements look as strong as possible, especially our current position and our earnings.”
“I have invited our auditors to attend this meeting so…
Chapter 16 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 16 - Prob. 1RQCh. 16 - Prob. 2RQCh. 16 - Identify three items often misclassified as...Ch. 16 - Prob. 4RQCh. 16 - Prob. 5RQCh. 16 - Prob. 6RQCh. 16 - Prob. 7RQCh. 16 - Prob. 8RQCh. 16 - Prob. 9RQCh. 16 - What safeguards should be employed when the...
Ch. 16 - You are asked by a client to outline the...Ch. 16 - Prob. 12RQCh. 16 - Prob. 13RQCh. 16 - Prob. 14RQCh. 16 - Prob. 15RQCh. 16 - What are loss contingencies? How are such items...Ch. 16 - Prob. 17RQCh. 16 - Prob. 18RQCh. 16 - Prob. 19RQCh. 16 - What is the meaning of the term commitment? Give...Ch. 16 - Prob. 21RQCh. 16 - What are subsequent events?Ch. 16 - Describe the manner in which the auditors evaluate...Ch. 16 - Prob. 24RQCh. 16 - Prob. 25RQCh. 16 - Prob. 26RQCh. 16 - In your audit of the financial statements of Wolfe...Ch. 16 - Prob. 28QRACh. 16 - Prob. 29QRACh. 16 - Prob. 30QRACh. 16 - Prob. 31QRACh. 16 - The auditors opinion on the fairness of financial...Ch. 16 - Prob. 33QRACh. 16 - Prob. 34QRACh. 16 - Prob. 35QRACh. 16 - Prob. 36QRACh. 16 - Prob. 37AOQCh. 16 - Prob. 37BOQCh. 16 - Prob. 37COQCh. 16 - When auditing the statement of cash flows, which...Ch. 16 - The search for unrecorded liabilities for a public...Ch. 16 - The aggregated misstatement in the financial...Ch. 16 - Prob. 37GOQCh. 16 - Prob. 37HOQCh. 16 - Prob. 37IOQCh. 16 - Prob. 37JOQCh. 16 - Prob. 37KOQCh. 16 - Which of the following events occurring on January...Ch. 16 - Prob. 38OQCh. 16 - Prob. 39OQCh. 16 - Prob. 40OQCh. 16 - Match the following terms to the appropriate...Ch. 16 - Prob. 42OQCh. 16 - Prob. 43PCh. 16 - Prob. 44PCh. 16 - Prob. 45PCh. 16 - Prob. 46PCh. 16 - Prob. 47PCh. 16 - Prob. 48PCh. 16 - The audit staff of Adams, Barnes Co. (ABC), CPAs,...Ch. 16 - Prob. 50RDC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Dandy Container Corporation engaged the accounting firm of Adams and Adams to audit financial statements to be used in connection with a public offering of securities. The audit was completed, and an unqualified opinion was expressed on the financial statements that were submitted to the Securities and Exchange Commission along with the registration statement. Two hundred thousand shares of Dandy Container common stock were offered to the public at $11 a share. Eight months later, the stock fell to $2 a share when it was disclosed that several large loans to two "paper" corporations owned by one of the directors were worthless. The loans were secured by the stock of the borrowing corporation that was owned by the director. These facts were not disclosed in the financial statements. The director involved and the two corporations are insolvent. Select whether each of the below statements is true or false under statutory law. 1. The Securities Act of 1933 applies to the above-described…arrow_forwardRoss & Ross, CPAS, performed an audit of the financial statements of Ruby Manufacturing for the year ended December 31, 20X7 and issued their report on March 2, 20X8. As of April 1, 20X8, due to various circumstances, Ross & Ross was no longer independent from Ruby Manufacturing and did not perform any further audits of the company's financial statements. On June 15, 20X8, Ross & Ross was asked to re-sign the audited financial statements of Ruby Manufacturing for the year ended December 31, 20x7. Which of the following is TRUE regarding this situation? Since Ross & Ross, CPAS are no longer independent of Ruby Manufacturing, they may not re-sign the audit report. If post audit work was performed after March 2, 20X8, Ross & Ross, CPAs would not be able to re-sign the report. If post audit work was performed from April 1, 20X8 until June 15, 20X8, Ross & Ross, CPAs would not be able to re-sign the report. Since Ross & Ross, CPAS was independent at the time the report was issued, there is…arrow_forwardCommon Stock and Treasury Stock: Substantive Audit Procedures. You are the continuing auditor of Sussex Inc. and are beginning the audit of the common stock and treasury stock accounts. You have decided to design substantive procedures with reliance on internal controls.Sussex has no-par, no-stated-value common stock and acts as its own registrar and transfer agent. During the past year, Sussex both issued and reacquired shares of its own common stock, some of which the company still owned at year-end. Additional common stock transactions occurred among the shareholders during the year.Common stock transactions can be traced to individual shareholders’ accounts in a subsidiary ledger and to a stock certificate book. The company has not paid any cash or stock dividends. There are no other classes of stock, stock rights, warrants, or option plans.Required:What substantive procedures should you apply in examining the common stock and treasury stock accounts? Organize your answer as a list…arrow_forward
- A. Griffin audited the financial statements of Dodger Magnificat Corporation for the yearended December 31, 2017. She completed gathering sufficient appropriate evidence onJanuary 30 and later learned of a stock split voted by the board of directors on February 5.The financial statements were changed to reflect the split, and she now needs to dual datethe report on the entity’s financial statements. Which of the following is the proper form?a. December 31, 2017, except as to Note X, which is dated January 30, 2018.b. January 30, 2018, except as to Note X, which is dated February 5, 2018.c. December 31, 2017, except as to Note X, which is dated February 5, 2018.d. February 5, 2018, except for the date of the auditor’s report, for which the date isJanuary 30, 2018.arrow_forwardYou are the audit partner of John& Co., a large audit firm that is operating in sydney. Your firm audited ABC Ltd, a custom-made products manufacturing company. ABC Ltd declared bankruptcy within six months of receiving an unqualified auditor's opinion on its financial statements for the year ended 31 December 2018. The XYZ bank initiated a court challenge against your firm on the grounds that the bank disbursed a $2,500,000 loan to ABC Ltd in May 2019, but ABC went bankrupt shortly afterwards. The plaintiff alleged that your firm's 2018 audit of ABC was deficient and argued that the auditors failed to uncover that the value of ABC's inventories were substantially lower than reported on the balance sheet. Your audit firm did not issue privity letters to any third party in the past four years. With reference to the principles established in common law, explain whether the XYZ bank is likely to be successfularrow_forwardStockholders’ Equity. You are a CPA engaged in an audit of the financial statements of Pate Corporation for the year ended December 31. The financial statements and records of Pate Corporation have not been audited by a CPA in prior years. The stockholders’ equity section of Pate Corporation’s balance sheet at December 31 follows: Pate Corporation was founded in 1985. The corporation has 10 stockholders and serves as its own registrar and transfer agent. No capital stock subscription contracts are in effect.Required:a. Prepare the detailed audit plan for the examination of the three accounts composing the stockholders’ equity section of Pate Corporation’s balance sheet. Organize the audit plan under broad financial statement assertions. (Do not include in the audit plan the audit ofthe results of the current-year operations.)b. After every other figure on the balance sheet has been audited, it might appear that the retained earnings figure is a balancing figure and requires no further…arrow_forward
- You are engaged in the audit of Phoenix Corp., a new client, at the close of its first fiscal year, April 30, 20X1. The accounts had been closed before the time you began your year-end fieldwork.You review the following stockholders€™ equity accounts in the general ledger: other information in your working papers include the following: 1. Phoenix's articles of incorporation filed April 17, 20X0, authorized 100,000 shares of non-par-value capital stock. 2. Directors minutes include the following resolutions: 4/18/X0 Established $50 per share stated value for capital stock. 4/30/X0 Authorized issue of 10,000 shares to an underwriting syndicate for $75 per share. 9/13/X0 Authorized acquisition of 1,000 shares from a dissident holder at $80 per share. 2/1/X1 Authorized reissue of 500 treasury shares at $85 per share. 4/28/X1 Declared 10 percent stock dividend, payable May 18, 20X1, to stockholders of record May 4, 20X1. 3. The following costs of the May 1, 20X0, and February 2, 20X1,…arrow_forwardAs an auditor for the CPA firm of Hinkson and Calvert, you encounter the following situations in auditing different clients Novak Corp. is a closely held corporation whose stock is not publicly traded. On December 5, the corporation acquired land by issuing 3,000 shares of its $20 par value common stock. The owners asking price for the land was $130,000, and the fair value of the land was $115,500. 1. 2 Prepare the journal entries for each of the situations above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts) Account Titles and Explanation No. 1. Crane Company is a publicly held corporation whose common stock is traded on the securities markets. On June 1, it acquired land by issuing 20,000 shares of its $10 par value stock. At the time of the exchange, the land was advertised for sale at $271,500. The stock was selling at $11 per share. 2.…arrow_forwardIn an audit of the Marco Corporation as of December 31, 2013,the following situations exist. No entries have been made in the accounting records inrelation to these items.1. During the year 2013, the Marco Corporation was named as a defendant in a suit fordamages by the Dalton Company for breach of contract. An adverse decision to theMarco Corporation was rendered and the Dalton Company was awarded $4,000,000damages. At the time of the audit, the case was under appeal to a higher court.2. On December 23, 2013, the Marco Corporation declared a common stock dividendof 1,000 shares with a par value of $1,000,000 of its common stock, payableFebruary 2, 2014, to the common stockholders of record December 30, 2013.3. The Marco Corporation has guaranteed the payment of interest on the 10-year, firstmortgage bonds of the Newart Company, an affiliate. Outstanding bonds of theNewart Company amount to $5,500,000 with interest payable at 5% per annum, dueJune 1 and December 1 of each year. The…arrow_forward
- Chelsea Bank provided overdraft facilities to Liverpool Ltd and Manchester & Co. were Liverpool’s auditors. The relevant overdraft facility letters between Chelsea Bank and Liverpool Ltd contained a clause requiring Manchester & Co. to send Chelsea Bank, each year, a copy of the annual audited financial statements.In 2018 Liverpool Ltd was put into receivership with approximately $23.5M owing to Chelsea Bank. Chelsea Bank claimed that, due to massive fraud, Liverpool’s financial statements for the previous years had misstated the financial position of Liverpool and Manchester & Co. had been negligent in not detecting the fraud. Chelsea Bank contended that it had continued to provide the overdraft facilities in reliance on Manchester’s unqualified opinions.Manchester & Co. applied to the court for an order striking out the claim on the grounds that, even if all the facts alleged by Chelsea Bank were true, the claim could not succeed in law because Manchester & Co.…arrow_forwardChelsea Bank provided overdraft facilities to Liverpool Ltd and Manchester & Co. were Liverpool’s auditors. The relevant overdraft facility letters between Chelsea Bank and Liverpool Ltd contained a clause requiring Manchester & Co. to send Chelsea Bank, each year, a copy of the annual audited financial statements.In 2018 Liverpool Ltd was put into receivership with approximately $23.5M owing to Chelsea Bank. Chelsea Bank claimed that, due to massive fraud, Liverpool’s financial statements for the previous years had misstated the financial position of Liverpool and Manchester & Co. had been negligent in not detecting the fraud. Chelsea Bank contended that it had continued to provide the overdraft facilities in reliance on Manchester’s unqualified opinions.Manchester & Co. applied to the court for an order striking out the claim on the grounds that, even if all the facts alleged by Chelsea Bank were true, the claim could not succeed in law because Manchester & Co.…arrow_forwardBrown Investments Ltd, is a company based in East London. It has a financial year end of 30 April.At its annual general meeting (that took place in March 2023), the shareholders of Brown Investments Ltd appointed Eagle-Eye Inc. as its external auditor. During the current audit of Brown Investments Ltd.’s financial statements one of the audit team members discovered that taxable income is understated by the Senior Accountant Mr. Hustler, due to a certain amount of the sales having been fraudulently not recorded. Further investigations conducted pointed out that Mr. Hustler deliberately failed to report output tax and he was also underreporting input tax.Mr Hustler was also in the habit of underpaying tax as he thought the government was corrupt and paying tax was a waste of valuable company resources, he opted to increase the salaries of his employees as he felt it was the moral thing to do. The auditors felt that Mr. Hustler’s actions resulted in material understating of the VAT…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...
Accounting
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:South-Western College Pub