Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN: 9781337619455
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 9, Problem 12RQSC
a.
To determine
Introduction : ‘A’ restated its financial statements for the years ended 31 December 2014 and 2015 as well restated unaudited quarterly financial data for fiscal year 2015 for the first three quarters of 2016 due to the reporting of two errors reported in their historical consolidated financial statements.
To ascertain: The two main reasons for A’s restatement and reasons for judging these issues as material, requiring restatement of financial statements.
b.
To determine
Introduction: Restatement of financial statements is a clear indication that the results which were presented in prior period had been materially misstated.
To state : Implication of restatement on financial reporting quality and audit quality.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
(B) Unusual Items: Please give two examples of “unusual items” and explain if these items affect the current period income statement or a prior period income statement.
Why should these particular items be reported separately on the income statement? Please be specific.
(C) Audit Reports:
(1) What types of companies are required to obtain an independent audit and what is the purpose of the Audit Report?
(2) An “unqualified opinion” doesn’t sound very favorable; in fact, it sounds like the person giving the opinion does not have the proper credentials. Please clarify this issue. Wouldn’t a company rather receive a “qualified opinion?”
Also, does a clean opinion mean the financial statements are 100% error-free? Please explain.
The auditor noticed that the financial
statements of XYZ Company were missing
some footnotes important for users for
decision making. This action of
management is a violation of:
Select one:
a. Full disclosure concept
O b. Going concern concept
c. Materiality concept
O d. Cost benefit concept
2. What is the revenue-recognition abuse identified in the article related to the percentage-of-completionmethod?3. Did revenue-recognition abuses tend to increase or decrease net income in the year they occurred?4. Did auditors tend to require their clients to make adjustments that reduced the revenue-recognition abusesthey detected?
Chapter 9 Solutions
Auditing: A Risk Based-Approach (MindTap Course List)
Ch. 9 - In the revenue cycle, the most significant...Ch. 9 - Which of the following statements is true...Ch. 9 - Prob. 4CYBKCh. 9 - Prob. 7CYBKCh. 9 - Prob. 8CYBKCh. 9 - Prob. 9CYBKCh. 9 - Prob. 10CYBKCh. 9 - Prob. 11CYBKCh. 9 - Prob. 12CYBKCh. 9 - Prob. 13CYBK
Ch. 9 - Prob. 14CYBKCh. 9 - Prob. 15CYBKCh. 9 - Prob. 16CYBKCh. 9 - Prob. 17CYBKCh. 9 - Prob. 18CYBKCh. 9 - Which of the following statements is false...Ch. 9 - Prob. 20CYBKCh. 9 - Prob. 22CYBKCh. 9 - Prob. 23CYBKCh. 9 - Prob. 24CYBKCh. 9 - Prob. 25CYBKCh. 9 - Prob. 26CYBKCh. 9 - Prob. 27CYBKCh. 9 - Prob. 28CYBKCh. 9 - Prob. 29CYBKCh. 9 - Prob. 30CYBKCh. 9 - Prob. 31CYBKCh. 9 - Prob. 32CYBKCh. 9 - Refer to Exhibit 9.1. Which accounts are relevant...Ch. 9 - Prob. 2RQSCCh. 9 - Prob. 3RQSCCh. 9 - An important task ¡n the audit of the revenue...Ch. 9 - Prob. 5RQSCCh. 9 - Prob. 6RQSCCh. 9 - Prob. 7RQSCCh. 9 - Prob. 8RQSCCh. 9 - Prob. 9RQSCCh. 9 - Prob. 10RQSCCh. 9 - Prob. 11RQSCCh. 9 - Prob. 12RQSCCh. 9 - Prob. 13RQSCCh. 9 - Prob. 14RQSCCh. 9 - Prob. 15RQSCCh. 9 - Stainless Steel Specialties (SSS) is a...Ch. 9 - Prob. 17RQSCCh. 9 - Prob. 18RQSCCh. 9 - Prob. 19RQSCCh. 9 - Prob. 20RQSCCh. 9 - Prob. 21RQSCCh. 9 - Prob. 22RQSCCh. 9 - Prob. 23RQSCCh. 9 - Prob. 24RQSCCh. 9 - Prob. 25RQSCCh. 9 - Prob. 26RQSCCh. 9 - Prob. 27RQSCCh. 9 - Prob. 28RQSCCh. 9 - Prob. 29RQSCCh. 9 - Prob. 30RQSCCh. 9 - Prob. 31RQSCCh. 9 - Prob. 32RQSCCh. 9 - Prob. 33RQSCCh. 9 - Prob. 34RQSCCh. 9 - Prob. 35RQSCCh. 9 - Prob. 36RQSCCh. 9 - Prob. 37RQSCCh. 9 - Prob. 38RQSCCh. 9 - Prob. 39RQSCCh. 9 - Read the following scenario about Strang...Ch. 9 - Prob. 41RQSCCh. 9 - Prob. 42RQSCCh. 9 - ZYNGA (LO Z 3, 4, 5, 6, 8) Refer to the Why It...Ch. 9 - UTSTARCOM, INC. (LO 2, 3, 4, 5, 6, 8) UTStarcom is...Ch. 9 - Prob. 47FFCh. 9 - Prob. 48FFCh. 9 - Prob. 55DAUA
Knowledge Booster
Similar questions
- The accounting and auditing literature discusses several different types of accounting changes. For each of the changes listed below (a. through c.), indicate whether the auditor should add a paragraph to the audit report, assuming that the change had a material effect on the financial statements and was properly justified, accounted for, and disclosed. Assume that the organization is a U.S. non-public company. a. Change from one GAAP to another GAAP b. Change in accounting estimate not affected by a change in accounting principle c. Change in accounting estimate affected by a change in accounting principle d. Correction of an error c. Change from non-GAAP to GAAP (a special case of correction of an error)arrow_forwardAn important task ¡n the audit of the revenue cycle is determining whether a client has appropriately recognized revenue. a. What is the five-step process that companies should use in recognizing revenue? Why might the auditor need to do additional research and consider additional criteria on revenue recognition? b. The following are situations in which the auditor will make decisions about the amount of revenue to be recognized. For each of the following scenarios, labeled (1) through (6): . Identify the key issues to address in determining whether or not revenue should he recognized. . Identify additional information the auditor may want to gather in making a decision on revenue recognition. . Based only on the information presented, develop a rationale for either the recognition or nonrecognition of revenue. 1. AOL sells software that is unique as a provider of Internet services. The software contract includes a service fee of $19.95 for up to 500 hours of Internet service each month. The minimum requirement is a one-year contract. The company proposes to immediately recognize 30% of the first-year’s contract as revenue from the sale of software and 70% as Internet services on a monthly basis as fees are collected from the customer. 2. Modis Manufacturing builds specialty packaging machinery for other manufacturers. All of the products are high end and range in sales price from $5 million to $25 million. A major customer is rebuilding one of its factories and has ordered three machines with total revenue for Modis of $45 million. The contracted date to complete the production was November, and the company met the contract dare. The customer acknowledges the contract and confirms the amount. However, because the factory is not yet complete, it has asked Modis to hold the products in the ware house as a courtesy until its building is complete. 3. Standish Stoneware has developed a new low-end line of baking products that will be sold directly to consumers and to low-end discount retailers. The company had previously sold high-end silverware products to specialty stores and has a track record of returned items for the high-end stores. The new products tend to have more defects, but the defects are not necessarily recognizable ¡n production. For example, they are more likely to crack when first used in baking. The company does not have a history of returns from these products, but because the products are new, it grants each customer the right to return the merchandise for a full refund or replacement within one year of purchase. 4. Omer Technologies is a high-growth company that sells electronic products to the custom copying business. It is an industry with high innovation, but Omer’s technology is basic. In order to achieve growth, management has empowered the sales staff to make special deals to increase sales in the fourth quarter of the year. The sales deals include a price break and an increased salesperson commission but not an extension of either the product warranty or the customer’s right to return the product. 5. Electric City is a new company that has the exclusive right to a new technology that saves municipalities a substantial amount of energy for large-scale lighting purposes (e.g., for ball fields, parking lots, and shop ping centers). The technology has been shown to be very cost effective in Europe. In order to get new customers to try the product, the sales force allows customers to try the product for up to six months to prove the amount of energy savings they will realize. The company is so confident that customers will buy the product that it allows this pilot-testing period. Revenue is recognized at the time the product is installed at the customer location, with a small provision made for potential returns. 6. Jackson Products decided to quit manufacturing a line of its products and outsourced the production. However, much of its manufacturing equipment could be used by other companies. In addition, it had over $5 million of new manufacturing equipment on order in a noncancelable deal. The company decided to become a sales representative to sell the new equipment ordered and its existing equipment. All of the sales were recorded as revenue.arrow_forwardThe accounting and auditing literature discusses several different types of accounting changes. For each of the changes listed below (a. through e.), indicate whether the auditor should add a paragraph to the audit report, assuming that the change had a material effect on the financial statements and was properly justified, accounted for, and disclosed. Assume that the organization is a U.S. nonpublic company. a. Change from one GAAP to another GAAP b. Change in accounting estimate not affected by a change in accounting principle c. Change in accounting estimate affected by a change in accounting principle d. Correction of an error e. Change from non-GAAP to GAAP (a special case of correction of an error)arrow_forward
- The accounting and auditing literature discusses several different types of accounting changes. For each of the changes listed below (a. through e.), indicate whether the auditor should add a paragraph to the audit report, assuming that the change had a material effect on the financial statements and was properly justified, accounted for, and disclosed. Assume that the organization is a U.S. nonpublic company. a. Change from one GAAP to another GAAP b. Change in accounting estimate not affected by a change in accounting principle c. Change in accounting estimate affected by a change in accounting principle d. Correction of an error e. Change from non-GAAP to GAAP (a special case of correction of an error) PLEASE ANWSER ONLY SECTION D & E THANK YOU!arrow_forwardDETERMINE WHETHER TRUE OR FALSE S1- Toward the end of an engagement, after all audit evidence has been gathered by the auditor, the auditor again considers materiality by comparing the combined misstatements with the preliminary or revised estimate for the entire set of the financial statements as a whole. S2- Changes in the regulatory or operating environment can result in changes in competitive pressures and significantly different risks.arrow_forwarda. Why do you think it is so difficult to find an actual report?b. If you found an auditor’s report, were any deficiencies noted? If so, what were they?c. Why would a service organization publicize the results of its auditor’s report?arrow_forward
- The preliminary judgement about materiality is the ______________ amount by which the auditor believes the statements could be misstated and still not affect the economic decisions of users. The missing word in this sentence is: a. Average b. Minimum c. Maximum d. Medianarrow_forwardFor which of the following events would an auditor issue a report that does not make any reference to consistency Select one: a. Management’s lack of reasonable justification for a change in accounting principle b. A change in the useful life used to calculate the provision for depreciation expense c. A change in the method of accounting for inventories d. A change from an accounting principle that is not generally accepted to one that is generally acceptedarrow_forward(1) Audit Reports: (A) What types of companies are required to obtain an independent audit and what is the purpose of the Audit Report? (B) An “unqualified opinion” doesn’t sound very favorable; in fact, it sounds like the person giving the opinion does not have the proper credentials. Please clarify this issue. Wouldn’t a company rather receive a “qualified opinion?” Also, does a clean opinion mean the financial statements are 100% error-free? Please explain.arrow_forward
- As a result of analytical procedures, the auditor determines that the gross profitpercentage has declined from 30% in the preceding year to 20% in the current year.The auditor should(1) express a qualified opinion due to inability of the client company to continue asa going concern.(2) evaluate management’s performance in causing this decline.(3) require footnote disclosure.(4) consider the possibility of a misstatement in the financial statements.arrow_forwardYour view of what the companies’ auditors would need to consider in the effective audit of its primary revenues. For example, what would you do to audit the revenue streams? How would you verify that they are correctly stated in the financial statements without material error? Identify no more than three audit procedures around revenue recognition for the company you selected.arrow_forwardSimplified approaches for preparing pro forma statements assume that the firm’s past financial condition is an accurate indicator of the future. There are several examples from the past where organizations were not accurately reporting their financial information. Discuss the relationship between the external auditor and the organization. What steps have been taken to ensure that the relationship is truly neutral and no bias is shown by the external auditing firm?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