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
Question
Chapter 20, Problem 26QRA
a.
To determine
Explain the content included in the examination of the financial
b.
To determine
Explain the elements of the financial forecast examination report.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
The following is attached to the company's financial statements, pay attention to the noncurrent liabilities and shareholders’ equity sections.
Questions:a. Based on the financial statements above, explain possible “debt to equity swap” scheme carried out by the client!b. What evidence do you need to collect to ensure that the client's debt to equity swap is free from material misstatement?
You are required to identify and give reasons for the appropriate classification of the debt instruments A and B below:
Part A.Macaroon holds certain debt investments to collect their contractual cash flows of interest and principle. The funding needs of the company are predictable and the maturity of such financial assets is matched to Macaroon’s estimated funding needs. Macaroon performs credit risk management activities with the objective of minimising credit losses.In the past, Macaroon has sold some of its debt investments when the credit risk of the financial assets increased beyond the acceptable levels of risk as documented in the company’s investment policy. In addition, infrequent sales have occurred as a result of unanticipated funding needs. The managers reports to key management personnel focus on the credit quality of the financial assets and the contractual return.
Part B.Macaroon holds certain debt investments with specified contractual cash flows of interest and…
Sergei Leenid, CFA, is a long-only fi xed income portfolio manager for the Parliament Funds.He has developed a quantitative model, based on fi nancial statement data, to predict changesin the credit ratings assigned to corporate bond issues. Before applying the model, Leenid fi rstperforms a screening process to exclude bonds that fail to meet certain criteria relative to theircredit rating. Existing holdings that fail to pass the initial screen are individually reviewed forpotential disposition. Bonds that pass the screening process are evaluated using the quantitative model to identify potential rating changes.Leenid is concerned that a pending change in accounting rules could aff ect the results ofthe initial screening process. One current screen excludes bonds when the fi nancial leverage ratio (equity multiplier) exceeds a given level and/or the interest coverage ratio falls below a givenlevel for a given bond rating. For example, any “A” rated bond of a company with a fi nancial…
Chapter 20 Solutions
Principles Of Auditing & Other Assurance Services
Ch. 20 - Prob. 1RQCh. 20 - Prob. 2RQCh. 20 - Prob. 3RQCh. 20 - Prob. 4RQCh. 20 - Prob. 5RQCh. 20 - Prob. 6RQCh. 20 - Prob. 7RQCh. 20 - Prob. 8RQCh. 20 - Prob. 9RQCh. 20 - Prob. 10RQ
Ch. 20 - Prob. 11RQCh. 20 - Prob. 12RQCh. 20 - Prob. 13RQCh. 20 - Prob. 14RQCh. 20 - Prob. 15RQCh. 20 - Prob. 16RQCh. 20 - Prob. 17RQCh. 20 - Prob. 18RQCh. 20 - Prob. 19RQCh. 20 - Prob. 20RQCh. 20 - Prob. 21RQCh. 20 - Prob. 22RQCh. 20 - Prob. 23RQCh. 20 - Prob. 24QRACh. 20 - Prob. 25QRACh. 20 - Prob. 26QRACh. 20 - Prob. 27QRACh. 20 - Prob. 28QRACh. 20 - Prob. 29AOQCh. 20 - Prob. 29BOQCh. 20 - Prob. 29COQCh. 20 - Prob. 29DOQCh. 20 - Prob. 29EOQCh. 20 - Prob. 29FOQCh. 20 - Prob. 29GOQCh. 20 - Prob. 29HOQCh. 20 - Prob. 29IOQCh. 20 - Prob. 29JOQCh. 20 - Prob. 29KOQCh. 20 - The assurance services that address user and...Ch. 20 - Prob. 30OQCh. 20 - Prob. 31OQCh. 20 - Prob. 32OQCh. 20 - Prob. 33OQCh. 20 - Prob. 34PCh. 20 - Prob. 35PCh. 20 - Prob. 36ITCCh. 20 - Prob. 37RDC
Knowledge Booster
Similar questions
- How do creditors assess risk when lending funds to a company? a. By establishing covenants in the borrowing agreement b. By monitoring the borrower’s debt-to-equity ratio c. By checking a prospective borrower’s credit rating before lending to it d. All of the above answers are correct.arrow_forwardChoose the correct. A company’s management has uncovered events that indicate that substantial doubt exists that the company can pay its debts as they come due over the following year. Management studies the plans created to address this risk. How can the company avoid disclosing that this substantial doubt exists?a. The plans must be reviewed by the chief financial officer. b. It must be probable that the plans will be implemented and it must be probable that the plans will mitigate the conditions that raised substantial doubt. c. Disclosure of the substantial doubt is required regardless of the availability of the plans. d. The plans must have been tested before the end of the financial year.arrow_forwardYou are the CFO of a company that is considering issuing its first bond issue to the public. You have been asked to present a few matters related to debt (bond) financing to the board of directors. Please briefly explain to the board: (1) the usual collateral position of bondholders (lenders) versus equity investors, (2) why common stockholders can demand a higher rate of return than lenders, and (3) why you would suggest debt (or equity) financing.arrow_forward
- Based on your analysis of the Lion Tire transactions, draft the journal entries that should have been made in an Excel spreadsheet. Then, write a memo to Andrew explaining the accounting principles that should have been followed for Panache's investment in Lion Tire. In your memo: Illustrate how the investment will be reported in the company's balance sheet and income statement. Summarize how and why the accounting for this investment is different from the accounting for Panache's other investment securities. Devise three ways, based on past practices, that Panache can improve its future accounting principles for the Lion Tire transactions. Use examples from the Excel spreadsheet when necessary.arrow_forwardIndicate whether the following statements are (True) or (False) and correct the false statements: The financial manager prepares financial statements that recognize revenue at the point of sale and expenses when incurred. Capital markets are for investors who want a safe temporary place to deposit funds where they can earn interest and for borrowers who have a short term need for funds. Common stock dividends paid to stockholders are equal to the earnings available for common stockholders divided by the number of shares of common stock outstanding.arrow_forwardSelect the description that best fits each term or phrase. A. Records and tracks the bondholders’ names. B. Is unsecured; backed only by the issuer’s credit standing. C. Has varying maturity dates for amounts owed. D. The legal contract between the issuer and the bondholders. E. Can be exchanged for shares of the issuer’s stock. F. Is unregistered; interest is paid to whoever possesses them. G. Maintains a separate asset account from which bondholders are paid at maturity. H. Pledges specific assets of the issuer as collateral. 1. Registered bond 5. Convertible bond 2. Serial bond 6. Bond indenture 3. Secured bond 7. Sinking fund bond 4. Bearer bond 8. Debenturearrow_forward
- The Absco Corporation has requested that Herb Germany, CPA,provide a report to the Northern State Bank as to the existence or nonexistence of certainloan conditions. The conditions to be reported on are the working capital ratio, dividendspaid on preferred stock, aging of accounts receivable, and competence of management.This is Herb’s first experience with Absco. Should Herb accept this engagement? Substantiate your answer.arrow_forwardSelect the item that best fits each description A through H. Description A. Records and tracks the bondholders' names. B. Is unsecured; backed only by the issuer's credit standing. C. Has varying maturity dates for amounts owed. D. The legal contract between the issuer and the bondholders. E. Can be exchanged for shares of the issuer's stock. F. Is unregistered; interest is paid to whoever possesses them. G. Maintains a separate asset account from which bondholders are paid at maturity. H. Pledges specific assets of the issuer as collateral. Items Bearer bond Bond indenture Convertible bond Debenture Registered bond Secured bondarrow_forward1. Capital structure decisions and firm value Aa Aa Why focus on the optimal capital structure? A company's capital structure decisions address the ways a firm's assets are financed (using debt, preferred stock, and common equity capital) and is often presented as a percentage of the type of financing used. As with all financial decisions, the firm should try to set a capital structure that maximizes the stock price, or shareholder value. This is called the optimal capital structure. Which of the following statements regarding a firm's optimal capital structure is true? The optimal capital structure maximizes the firm's cost of debt. The optimal capital structure minimizes the firm's weighted average cost of capital. The optimal capital structure maximizes the firm's earnings per share (EPS). The optimal capital structure maximizes the firm's cost of equity. Understanding the impact of debt in the capital structure Suppose you are conducting a workshop on capital structure decisions…arrow_forward
- Governments require some banks to conduct stress tests of their financial situation. What type of financial regulation is this requirement? A. Disclosure requirements B. Assessment of risk management C. Restrictions on competition D. Consumer protectionarrow_forwardChoose the correct. What is a registration statement?a. A statement that must be filed with the SEC before a company can begin an initial offering of securities to the public.b. A required filing with the SEC before a large amount of stock can be obtained by an inside party.c. An annual filing made with the SEC.d. A filing made by a company with the SEC to indicate that a significant change has occurred.arrow_forward7. According to the 1934 Securities Act, select ALL who must certify the quarterly and annual financial statements for a company. a. The chief executive officer of the company b. An external auditor hired by the company c. The chief financial officer of the company С. d. A representative of the Securities and Exchange Commission (SEC) 8. Select ALL of the following that are required in a proxy statement. a. How the proxy materials will be sent b. How much is expected to be spent on the solicitation c. Who the shareholders for the proxy are Od. Who is soliciting the proxyarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
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
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
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