a)
Identify the content of the supplemental report if all the three indenture provisions are satisfied.
b)
Identify the changes in the supplemental report if net earnings were $1,020,000 and dividends paid were $80,000.
c)
Identify the changes in the supplemental report if net earnings were $1,020,000 and dividends paid were $80,000 and the client refuses to alter the financial statements or to disclose the violation of the indenture provision on the basis that it is an immaterial amount.
d)
Identify the nature of the supplemental report in a case where all the provisions of the indenture are being satisfied but there is a disclosure of lawsuit in the footnote of the financial statements because of a lawsuit against the company.
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Auditing And Assurance Services
- Among the prescribed audit activities provided below, which of the following would effectively help Metro bank determine its proper allowance for loan losses?a. Make visits to the borrower's commercial business site periodically.b. Have procedures in place to identify problem loans in a timely fashion.c. Identify any weaknesses in the institution's lending process.d. Obtain additional collateral for a loan. When assessing the reasonableness of PNB's allowance for loan losses as a whole, you discovered that his estimate differs from the recorded allowance and that the difference is immaterial. How should you address this finding in your audit?a. Reconsider the precision of his estimateb. Record it on the summary of audit differences.c. Propose an adjustment.arrow_forwardFor each situation, identify the appropriate audit report and briefly explain the rationale for selecting the report. Audit Situations: An audit client has a significant amount of loans receivable outstanding (40% of assets), but has an inadequate internal control system over the loans. The auditor cannot locate sufficient information to prepare an aging of the loans or to identify the collateral for about 75% of the loans, even though the client states that all loans are collateralized. The auditor sent out confirmations to verify the existence of the receivables, but only 10 of the 50 sent out were returned. The auditor attempts to verify the other loans by looking at subsequent payments, but only 8 had remitted payments during the month of January, and the auditor wants to wrap up the audit by February 15. The auditor estimates that if only 10 of the 50 loans were correctly recorded, loans would need to be written down by 7.5 million. During the audit of a large manufacturing…arrow_forwardWhich of the following controls will most likely justify a reduced assessed level ofcontrol risk for the completeness assertion for notes payable?(1) The accounting staff reviews board of director minutes for any indication ofany transactions involving outstanding debt to make sure all borrowings areincluded in the general ledger.(2) All borrowings that exceed $500,000 require approval from the board ofdirectors before loan contracts can be finalized.(3) Before approving disbursement of principal payments on notes payable, thetreasurer reviews terms in the note.(4) Accounting maintains a detailed schedule of outstanding note payable that isreconciled monthly to the general ledger.arrow_forward
- Ann Marcus, CPA, is performing an audit for one of her clients, Artistcraft Ltd., a glass factory, for its December 31, 2023, year end. The audit program requires a substantive analytical procedure to be performed on the reasonableness of Artistcraft's interest expense on its long-term debt. Ann has identified the following information: Long-term debt balance confirmed by the bank in prior-year file Long-term debt balance confirmed by the bank in the current year Interest rate per the bank confirmation Balance per the general ledger Performance materiality (a) $1,545,861 $1,427,529 6.25 % $89,525 $7,000 Which of the following are true with respect to this analytic substantive procedure? The balances of the long-term debt and the interest rate are taken from bank confirmations which is external, third party evidence, and therefore highly reliable. There is no need to need to consider the reliability of the underlying data when using analytical procedures. This analytical procedure is a…arrow_forwardAlpha Security Ltd commenced operations on 1 July 2021. By the end of the first year of operations, the accountant identified that $2,673 (GST Inclusive) of receivables would be uncollectible and wrote these debts off as bad debts using the direct write off method. In addition to reviewing the business’ credit policies, management decided to adopt the allowance method for accounting for bad debts. On this directive, the accountant established an Allowance for Doubtful Debts amounting to $3,940 at 30 June 2022. During the financial year ended 30 June 2023, receivables totalling $3,432 (GST Inclusive) were deemed uncollectible and were written off as bad. Furthermore, $473 (GST Inclusive) was recovered in respect of bad debts previously written off. The total balance of receivables at 30 June 2023 after accounting for bad debts amounted to $120,549 (GST Inclusive, this amount is after the bad debts had been written off). After discussions regarding the level of bad debts after the…arrow_forwardIn order to make sure that loans are properly classified, the auditor would: a. Examine due dates on duplicate copies of loan agreements to determine whether all or part are a non-current liability. b. Examine the loan agreements to determine whether the company has obligations for payment. c. Trace the totals on the loans list to the general ledger. d. Examine corporate minutes for loan approval.arrow_forward
- For each situation, identify the appropriate audit report and briefly explain the rationale for selecting the report. During the course of the audit of Sail-Away Company, the auditor noted that the current ratio has dropped to 1.75. the company’s loan covenant requires the maintenance of a current ratio of 2.0, or the company’s det is all immediately due. The auditor and the company have contacted the bank, which is not willing to waive the loan covenant because the company has been experiencing operating losses for the past few years and has an inadequate capital structure. The auditor has substantial doubt that the company can find adequate financing elsewhere and may encounter difficulties staying in operation. Management, however, is confident that it can overcome the problem. The company does not deem it necessary to include any additional disclosure because management members are confident that an alternative source of funds will be found by pledging their personal assets. The…arrow_forwardThe following are independent audit situations for which you are to recommend an appropriate audit report. For each situation, identify the appropriate audit report and briefly explain the rationale for selecting the report. Audit Situations: An audit client has a significant amount of loans receivable outstanding (40% of assets), but has an inadequate internal control system over the loans. The auditor cannot locate sufficient information to prepare an aging of the loans or to identify the collateral for about 75% of the loans, even though the client states that all loans are collateralized. The auditor sent out confirmations to verify the existence of the receivables, but only 10 of the 50 sent out were returned. The auditor attempts to verify the other loans by looking at subsequent payments, but only 8 had remitted payments during the month of January, and the auditor wants to wrap up the audit by February 15. The auditor estimates that if only 10 of the 50 loans were correctly…arrow_forwardThe following are independent audit situations for which you are to recommend an appropriate audit report. For each situation, identify the appropriate audit report and briefly explain the rationale for selecting the report. Audit Situations: An audit client has a significant amount of loans receivable outstanding (40% of assets), but has an inadequate internal control system over the loans. The auditor cannot locate sufficient information to prepare an aging of the loans or to identify the collateral for about 75% of the loans, even though the client states that all loans are collateralized. The auditor sent out confirmations to verify the existence of the receivables, but only 10 of the 50 sent out were returned. The auditor attempts to verify the other loans by looking at subsequent payments, but only 8 had remitted payments during the month of January, and the auditor wants to wrap up the audit by February 15. The auditor estimates that if only 10 of the 50 loans were correctly…arrow_forward
- A mortgage agent has been charged by FSRA of providing false or misleading information to a client. Given this scenario which of the following is a potential penalty? Select one: a. Up to a $200,000 fine b. Up to a $25,000 fine c. Up to a $500,000 fine d. Up to a $100,000 finearrow_forwardThe audit step most likely to reveal the existence of contingent liabilities is(1) a review of vouchers paid during the month following the year-end.(2) mortgage-note confirmation.(3) accounts payable confirmations.(4) an inquiry directed to legal counsel.arrow_forward4. Prepare reports and file documentation as required through completion of the following actions: a. Prepare reports that document the accounts receivable, debt recovery type and cause, and debt recovery plan, and distribute these to the supervisors, managers, and other designated parties b. File the documentation and reports according to organisational policy and procedures. Document or provide the policy/procedures used for file storage. Create an Aged Receivables Detail report that aligns with the bad debts ageing as per your Collections Policy and submit it with this assessmentarrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning