Principles of Auditing & Other Assurance Services (Irwin Accounting)
20th Edition
ISBN: 9780077729141
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 3, Problem 44P
a.
To determine
Suggest actions in the given situations.
b.
To determine
Suggest suitable action if the client declines to record the liability of $54,000.
c.
To determine
Suggest suitable actions when one is hired for the audit of Company R, who is aware of a given incident.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Roland Company, a retail store, has utilized your services as independent auditor for several years. During the current year, the company opened a new store, and in the course of your annual audit, you verify the cost of the fixtures installed in the new store by examining purchase orders, invoices, and other documents. This audit brings to light an understated invoice nearly a year old in which a clerical error by the supplier, Western Showcase, Inc., caused the total of the invoice to read $28,893.62 when it should have read $82,893.62. The invoice was paid immediately upon receipt without any notice of the error, and subsequent statements and correspondence from Western Showcase, Inc., showed that the account with Roland Company had been paid in full. Assume that the amount in question is material in relation to the financial position of both companies.
What action should you take in this situation?
Roland Company, a retail store, has utilized your services as independent auditor for several years. During the current year, the company opened a new store, and in the course of your annual audit, you verify the cost of the fixtures installed in the new store by examining purchase orders, invoices, and other documents. This audit brings to light an understated invoice nearly a year old in which a clerical error by the supplier, Western Showcase, Inc., caused the total of the invoice to read $28,893.62 when it should have read $82,893.62. The invoice was paid immediately upon receipt without any notice of the error, and subsequent statements and correspondence from Western Showcase, Inc., showed that the account with Roland Company had been paid in full. Assume that the amount in question is material in relation to the financial position of both companies.
What action should you take in this situation?
If the client should decline to take any action in the matter, would you insist…
Roland Company, a retail store, has utilized your services as independent auditor for several years. During the current year, the company opened a new store, and in the course of your annual audit, you verify the cost of the fixtures installed in the new store by examining purchase orders, invoices, and other documents. This audit brings to light an understated invoice nearly a year old in which a clerical error by the supplier, Western Showcase, Inc., caused the total of the invoice to read $28,893.62 when it should have read $82,893.62. The invoice was paid immediately upon receipt without any notice of the error, and subsequent statements and correspondence from Western Showcase, Inc., showed that the account with Roland Company had been paid in full. Assume that the amount in question is material in relation to the financial position of both companies.
Assuming that you were later retained to make an audit of Western Showcase, Inc., would you utilize the information gained in…
Chapter 3 Solutions
Principles of Auditing & Other Assurance Services (Irwin Accounting)
Ch. 3 - What is meant by the term ethical dilemma?...Ch. 3 - What are the two major types of constraints on...Ch. 3 - Prob. 3RQCh. 3 - Prob. 4RQCh. 3 - Prob. 5RQCh. 3 - Prob. 6RQCh. 3 - Prob. 7RQCh. 3 - Bill Scott works as a manager in the Phoenix...Ch. 3 - Prob. 9RQCh. 3 - Prob. 10RQ
Ch. 3 - Prob. 11RQCh. 3 - Prob. 12RQCh. 3 - Prob. 13RQCh. 3 - Prob. 14RQCh. 3 - Prob. 15RQCh. 3 - Prob. 16RQCh. 3 - Prob. 17RQCh. 3 - Prob. 18RQCh. 3 - Prob. 19RQCh. 3 - Prob. 20RQCh. 3 - Prob. 21RQCh. 3 - Prob. 22RQCh. 3 - Prob. 23RQCh. 3 - Prob. 24RQCh. 3 - Prob. 25RQCh. 3 - Prob. 26RQCh. 3 - Prob. 27QRACh. 3 - Prob. 28QRACh. 3 - Prob. 29QRACh. 3 - Prob. 30QRACh. 3 - Prob. 31QRACh. 3 - Prob. 32QRACh. 3 - Ron Barber, CPA, is auditing the financial...Ch. 3 - Prob. 34AOQCh. 3 - Prob. 34BOQCh. 3 - Prob. 34COQCh. 3 - Prob. 34DOQCh. 3 - Prob. 34EOQCh. 3 - Prob. 34FOQCh. 3 - Prob. 34GOQCh. 3 - Prob. 34HOQCh. 3 - Prob. 34IOQCh. 3 - Prob. 34JOQCh. 3 - Prob. 34KOQCh. 3 - Prob. 34LOQCh. 3 - Prob. 35OQCh. 3 - Prob. 36OQCh. 3 - Prob. 37OQCh. 3 - Prob. 38OQCh. 3 - Prob. 39OQCh. 3 - Prob. 40OQCh. 3 - Prob. 41OQCh. 3 - Prob. 42OQCh. 3 - Gary Watson, a graduating business student at a...Ch. 3 - Prob. 44PCh. 3 - Prob. 45PCh. 3 - Prob. 46PCh. 3 - Prob. 47ITCCh. 3 - Prob. 48ITCCh. 3 - Prob. 49RDC
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
- Roland Company, a retail store, has utilized your services as independent auditor for several years. During the current year, the company opened a new store, and in the course of your annual audit, you verify the cost of the fixtures installed in the new store by examining purchase orders, invoices, and other documents. This audit brings to light an understated invoice nearly a year old in which a clerical error by the supplier, Western Showcase, Inc., caused the total of the invoice to read $28,893.62 when it should have read $82,893.62. The invoice was paid immediately upon receipt without any notice of the error, and subsequent statements and correspondence from Western Showcase, Inc., showed that the account with Roland Company had been paid in full. Assume that the amount in question is material in relation to the financial position of both companies. If the client should decline to take any action in the matter, would you insist that the unpaid amount of $54,000 be included in…arrow_forwardAs you are planning the annual audit of Norton Corporation, you note that the company has a number of user operated computers in use in various locations. One of the machines has been installed in the stores department, which has the responsibility for disbursing stock items and for maintaining stores records. In your audit, you find that one employee receives the requisitions for stores, disburses the stock, maintains the records, operates the computer, and authorizes adjustments to the total amounts of stock recorded by the computer. When you discuss the applicable controls with the department manager, you are told that the user operated computer is assigned exclusively to that department. Therefore, the manager contends that it does not require the same types of controls applicable to large IT systems. a. Comment on the manager’s contention.arrow_forwardDuring your annual audit of Walker Distributing Company, your assistant, Jane Williams, reports to you that, although a number of entries were made during the year in the general ledger account Notes Payable to Officers, she decided that it was not necessary to audit the account because it had a zero balance at year-end. Required: Do you agree with your assistant’s decision? Discuss.arrow_forward
- As the auditor for Company A, you discover that a material sale ($500,000 sale; cost of goods of $300,000) was made to a customer this year. Because of poor internal accounting controls, the sale was never recorded. Your client makes a management decision not to bill the customer because such a long time has passed since the shipment was made. You determine, to the best of your ability, that the sale was not fraudulent. Using the framework for ethical decision making, determine whether the auditor should require either a recording or a disclosure of the sales transaction. Instructions: Using the framework for ethical decision making, determine whether the auditor should require either a recording or a disclosure of the sales transaction. Please make sure to use at least 100 words in your response. Once you give your response, please respond to at least two of your peers using at least 50 words in your responses. Remember to follow the netiquette guidelines found in the course…arrow_forwardABC Manufactures is a manufacturing company, and your audit team is conducting the annual audit of its financial statements. As part of the audit procedures, you are tasked with testing the accounts receivable balance. ABC Manufactures has a significant accounts receivable balance owing to its diverse customer base. Upon initiating the audit procedures, your team sends out accounts receivable confirmations to one of ABC Manufactures largest customers with a material accounts receivable balance outstanding. However, several weeks have passed, and the confirmation has not been returned. The audit team has made follow-up attempts via phone calls and emails, but there has been minimal response. Considering the lack of responsiveness, the audit team is becoming increasingly skeptical about the effectiveness of the confirmation process in this particular situation. Describe two alternative audit procedures that the audit team may conduct that may assist them in gathering sufficient…arrow_forwardAs you are planning the annual audit of Norton Corporation, you note at the company has a number of user operated computers in use in various locations. One of the machines has been installed in the stores department, which has the responsibility for disbursing stock items and for maintaining stores records. In your audit, you find that one employee receives the requisitions for stores, disburses the stock, maintains the records, operates the computer, and authorizes adjustments to the total amounts of stock recorded by the computer. When you discuss the applicable controls with the department manager, you are told that the user operated computer is assigned exclusively to that department. Therefore, the manager contends that it does not require the same types of controls applicable to large IT systems. b. Discuss five types of control that would apply to this microcomputer application.arrow_forward
- You are in your second year as an auditor with Dantly and Regis, a regional CPA firm. One of the firm’s long-time clients is Mayberry-Cleaver Industries, a national company involved in the manufacturing, marketing, and sales of hydraulic devices used in specialized manufacturing applications. Early in this year’s audit you discover that Mayberry- Cleaver has changed its method of determining inventory from LIFO to FIFO. Your client’s explanation is that FIFO is consistent with the method used by some other companies in the industry. Upon further investigation, you discover an executive stock option plan whose terms call for a significant increase in the shares available to executives if net income this year exceeds $44 million. Some quick calculations convince you that without the change in inventory methods, the target will not be reached; with the change, it will. Required: Do you perceive an ethical dilemma? What would be the likely impact of following the controller’s suggestions?…arrow_forwardYou are in your second year as an auditor with Dantly and Regis, a regional CPA firm. One of the firm's long-time clients is Mayberry- Cleaver Industries, a national company involved in the manufacturing, marketing, and sales of hydraulic devices used in specialized manufacturing applications. Early in this year's audit, you discover that Mayberry-Cleaver has changed its method of determining inventory from LIFO to FIFO. Your client's explanation is that FIFO is consistent with the method used by some other companies in the industry. Upon further investigation, you discover an executive stock option plan whose terms call for a significant increase in the shares available to executives if net income this year exceeds $44 million. Some quick calculations convince you that without the change in inventory methods, the target will not be reached; with the change, it will. Do you perceive an ethical dilemma? What would be the likely impact of following the controller's suggestions? Who would…arrow_forwardYou have accepted the engagement of auditing the financial statements of the C. Reis Company, a small manufacturing firm that has been your client for several years. Because you were busy writing the report for another engagement, you sent a staff accountant to begin the audit with the suggestion that she start with accounts receivable. Using the prior year’s audit documentation as a guide, she prepared a trial balance of the accounts, aged them, prepared and mailed positive confirmation requests, examined underlying support for charges and credits, and performed other work she considered necessary to obtain evidence about the validity and collectability of the receivables. At the conclusion of her work, you reviewed the audit documentation she prepared and found she had carefully followed the prior year’s audit documentation.Required:The opinion rendered by auditors states that the audit was made in accordance with generally accepted auditing standards. Identify the important…arrow_forward
- A division of your company purchased a large quantity of new desktop computers during the current fiscal year. An internal audit manager has asked you to audit the process used to acquire the computers. He also wants you to determine whether the computers have been used properly and accounted for correctly. The manager specified a set of audit objectives to guide your tests. For example, he wants you to determine whether: (1) The purchases of the computers were properly authorized. (2) Responsibilities regarding the computers were properly segregated. (3) The computers, as well as the software and information they contain, are properly safeguarded. Consider both physical and logical access。 (4) Laws and regulations regarding software usage have been complied with. (5) The computers recorded as being purchased actually exist. (6) All of the computers that were purchased have been recorded. (7) The amounts at which the computers are recorded are correct. (8) The estimated useful lives…arrow_forwardJohnny Kang, CPA, is the auditor of the Felix Lee Ltd. Johnny Kang, CPA is considering the audit work to be performed in the accounts payable area for the current year’s engagement. The prior year papers show that confirmation requests were mailed to one hundred of the client’s one thousand suppliers. The selected suppliers were based on Johnny Kang’s sampling, which was designed to select high value items in the accounts payable balance. Johnny Kang and Felix Lee Ltd.’s accountant, DY Anderson spent substantial number of hours resolving relatively minor differences between the confirmation replies and accounting records. Alternative audit procedures were used for those suppliers who did not respond to the confirmation requests. Required:1. Identify the accounts payable assertions that Johnny Kang must consider in determining the substantive tests to be followed. 2. Identify situations for which Johnny Kang should use accounts payable confirmations and discuss whether he is required to…arrow_forwardYou are the audit manager at KPMG & Coopers a medium-sized audit firm undertaking the audit forthe year ended 30 June 2018 of Vesta Tech Ltd, an electronic component manufacturer located inSydney. During the planning stage of the audit you discovered that one of Vesta Tech Ltd’s majorsuppliers went bankrupt one month ago, causing major product shortages. To overcome the problem,Jonathon Marshall, the husband of the finance director, Nimat Marshall provided electroniccomponents to Vesta Tech Ltd through his private company. There is no formal agreement in placewith Jonathon Marshall, however, the goods are being provided at competitive prices. You areconcerned about the electronic components that Jonathon Marshall’s company is supplying, becausehis products are new to the market and you have heard some of Vesta Tech Ltd’s staff complainingthat they are of poor quality.The board has informed you that although sales have been strong this year, Vesta Tech Ltd hassuffered significant…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 LearningAuditing: 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