Auditing and Assurance Services (16th Edition)
16th Edition
ISBN: 9780134065823
Author: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan
Publisher: PEARSON
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Chapter 5, Problem 25DQP
To determine
Indicate whether the Bank will succeed.
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Aaron Rivers, CPA, is auditing the financial statements of Charger Company, a client for the past five years. During past audits of
Charger, Rivers identified some immaterial misstatements (most of which relate to isolated matters and do not have common
characteristics). A summary of these misstatements follows. (To illustrate, in 2015, the misstatements would have reduced net income
by $13,200 if corrected:)
Effect on
Equity
$ (13,200)
5,000
(9,250)
(2,000)
1,000
Effect on Net
Effect on
Effect on
Income
$ (13,200)
5,000
(9,250)
(2,000)
1,000
Year
Assets
Liabilities
$ (20,000)
12,000
(11,000)
(5,500)
1,000
$ (6,800)
7,000
(1,750)
(3,500)
2015
2016
2017
2018
2019
During the most recent audit, Rivers concluded that service revenue totaling $11,000 was recognized as of December 31, 2020 and it
did not meet the criteria for recognition until 2021. When Rivers discussed this issue with Chris Turner, Charger Company's chief
financial officer, Turner asked Rivers about the performance…
You 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 successful
In October 2020, the head office of Joey Limited was damaged by a fire. A lot of the company's accounting records were destroyed before the audit for the year ended 31 December 2020 took place, as Joey Limited has no practice of using electronic accounting records. The company's financial accountant has prepared financial statements for the year ended 31 December 2020 on the basis of estimates and the information he has been able to salvage. You have completed the audit of these financial statements.
a) Explain how your audit report would be affected by the fire at the head office of Joey Limited and the possible audit opinions in this situation.
b) Compare the responsibilities of directors and auditors regarding the published financial statement of Joey Limited.
Chapter 5 Solutions
Auditing and Assurance Services (16th Edition)
Ch. 5 - Prob. 1RQCh. 5 - Prob. 2RQCh. 5 - Prob. 3RQCh. 5 - Prob. 4RQCh. 5 - Prob. 5RQCh. 5 - Prob. 6RQCh. 5 - Prob. 7RQCh. 5 - Prob. 8RQCh. 5 - Prob. 9RQCh. 5 - Prob. 10RQ
Ch. 5 - What potential sanctions does the SEC have against...Ch. 5 - Prob. 12RQCh. 5 - Prob. 13RQCh. 5 - Prob. 14.1MCQCh. 5 - Prob. 14.2MCQCh. 5 - Prob. 14.3MCQCh. 5 - Prob. 15.1MCQCh. 5 - Prob. 15.2MCQCh. 5 - Prob. 15.3MCQCh. 5 - Prob. 16.1MCQCh. 5 - Prob. 16.2MCQCh. 5 - Prob. 16.3MCQCh. 5 - Prob. 17DQPCh. 5 - Prob. 18DQPCh. 5 - Prob. 19DQPCh. 5 - Prob. 20DQPCh. 5 - Prob. 21DQPCh. 5 - Prob. 22DQPCh. 5 - Prob. 23DQPCh. 5 - Under Section 11 of the Securities Act of 1933 and...Ch. 5 - Prob. 25DQPCh. 5 - Prob. 26DQPCh. 5 - Prob. 27C
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