Concept explainers
a
Introduction:A substantive procedure is a process, to create conclusive evidence regarding audit assertions the completeness, existence, disclosure, rights, valuation of assets. Enough documentation must be collected to qualify as a substantive procedure.
To ascertain:The substantive
b
Introduction:A substantive procedure is a process, to create conclusive evidence regarding audit assertions the completeness, existence, disclosure, rights, valuation of assets. Enough documentation must be collected to qualify as a substantive procedure.
To ascertain:The substantive audit procedures should use during the audit to obtain the evidence.
c
Introduction:A substantive procedure is a process, to create conclusive evidence regarding audit assertions the completeness, existence, disclosure, rights, valuation of assets. Enough documentation must be collected to qualify as a substantive procedure.
To ascertain:The substantive audit procedures should use during the audit to obtain the evidence.
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Auditing: A Risk Based-Approach (MindTap Course List)
- You are the audit manager of Matfine & Co and are reviewing the key issues identified in the files of two audit clients as follows: Pito Industries Co (Pito) Pito’s year-end was 31 March 2019 and the draft financial statements show revenue of $32·2 million, receivables of $6·1 million and profit before tax of $3.4 million. The fieldwork stage for this audit has been completed. A customer of Pito owed an amount of $375,000 at the year-end. Testing of receivables in April highlighted that no amounts had been paid to Pito from this customer as they were disputing the quality of certain goods received from Pito. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance. Albo Trading Co (Albo) Albo is a new client of Matfine & Co, its year-end was 31 January 2019 and the firm was only appointed auditors in February 2019, as the previous auditors were suddenly unable to undertake the audit. The fieldwork…arrow_forwardYou are the audit manager of Matfine & Co and are reviewing the key issues identified in the files of two audit clients as follows: Pito Industries Co (Pito) Pito’s year-end was 31 March 2019 and the draft financial statements show revenue of $32·2 million, receivables of $6·1 million and profit before tax of $3.4 million. The fieldwork stage for this audit has been completed. A customer of Pito owed an amount of $375,000 at the year-end. Testing of receivables in April highlighted that no amounts had been paid to Pito from this customer as they were disputing the quality of certain goods received from Pito. The finance director is confident the issue will be resolved and no allowance for receivables was made with regards to this balance. Albo Trading Co (Albo) Albo is a new client of Matfine & Co, its year-end was 31 January 2019 and the firm was only appointed auditors in February 2019, as the previous auditors were suddenly unable to undertake the audit. The fieldwork…arrow_forwardYou are the supervisor accountable for the audit of Kicap Manis Berhad, a listed agency, for the 12 months ended 31 December 2019. The major enterprise activity of Kicap Manis Berhad is the manufacture of farm machinery. The audit paintings has been completed, and you are reviewing the operating papers in order to draft a file to those charged with governance. during the audit of property, plant and gadget (PPE), the audit team located no cloth misstatement but the subsequent issues have come to your interest. It changed into found that authorization had not been won for the buy of office equipment with a fee of RM315,000. The officer in rate of the buy claimed that the management has conveyed their settlement with the buy in the management team month-to-month meeting, but the audit team has now not been provided with such mins of assembly even after numerous requests. The purchaser is the use of an internally evolved PPE gadget, PropertyCare, to hold the records of the PPE. It became…arrow_forward
- You are auditing the December 31, 2021, accounts payable balance of one of your firm's divisions. The division controller's office has provided you with a schedule listing the creditors and the amount owed to each at December 31, 2021, Which of the following audit procedures would be your best choice for determining that no Individual account payable has been omitted from the schedule? A. Send confirmation requests to a randomly selected sample of creditors listed on the schedule B. Send confirmation requests to creditors that are listed on the schedule but not listed on the corresponding December 31, 2020, schedule. C. Examine support for selected 2022 payments to creditors, ascertaining that those relating to 2021 are on this schedule. D. Examine support for selected 2022 payments to creditors, ascertaining that those relating to 2022 are not on the schedule.arrow_forwardPlease solve all questions. You are the manager responsible for the audit of Kicap Manis Berhad, a listed company, for the year ended 31 December 2019. The main business activity of Kicap Manis Berhad is the manufacture of farm machinery. The audit work has been completed, and you are reviewing the working papers in order to draft a report to those charged with governance. During the audit of property, plant and equipment (PPE), the audit team found no material misstatement but the following issues have come to your attention. It was discovered that authorization had not been gained for the purchase of office equipment with a cost of RM315,000. The officer in charge of the purchase claimed that the management has conveyed their agreement with the purchase in the management team monthly meeting, but the audit team has not been furnished with such minutes of meeting even after numerous requests. The client is using an internally developed PPE system, PropertyCare, to maintain the…arrow_forwardYou are assigned to do the audit the work for Howard Ltd for the calendar year 2019, you found some issues that you believe represent possible adjustments to the company’s books. In addition, there are other issues that need to be addressed. The matters include: Several credit memos that were processed and recorded after year-end relate to sales and account receivables for 2019. These total $42 000. Electricity and other utilities’ invoices received after the cut-off date $30,000 Inventory cut-off tests indicate that $35 000 of inventory received on 30 December 2019 was recorded as purchases and accounts payable in 2020. These items were included in the inventory count at year-end and were therefore included in ending inventory. On 15 December 2019, Howard Ltd declared a bonus issue of 2 000 shares with a par value of $100 000 of its ordinary shares, payable 25 January 2020 to the ordinary shareholders on record as in 30 December 2019. Howard Ltd has not established a reserve for…arrow_forward
- Subsequent Events and Subsequently Discovered Facts. Michael Ewing is auditing the financial statements of Dallas Company for the year ended December 31, 2017. In concluding the process of gathering sufficient appropriate evidence, Ewing has asked to meet with his supervisor on the audit (John Ross) to discuss responsibility for events occurring afterthe date of the financial statements.Required:a. What is a subsequent event? During what time period is Ewing responsible for subsequent events?b. List some procedures that Ewing may perform to assist him in identifying subsequent events.c. What are two types of subsequent events? How should information related to these types of subsequent events be reflected in Dallas’s financial statements?d. Assume that on January 8, 2018, Dallas Company agreed to acquire Houston Inc. in a significant transaction. The date of Ewing’s report was February 7, 2018, and Dallas issued its financial statements (and Ewing’s reports on its financial statements…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_forwardHall accepted an engagement to audit the year 1 financial statements of XYZ Company. XYZcompleted the preparation of the year 1 financial statements on February 13, year 2, and itsauditors began the fieldwork on February 17, year 2. Hall completed gathering sufficientappropriate evidence on March 24, year 2; Hall’s report and XYZ’s financial statements werereleased on March 28, year 2. The written representations normally would be dateda. February 13, year 2.b. February 17, year 2.c. March 24, year 2.d. March 28, year 2.arrow_forward
- During your review of the audit field work completed by a new junior employee of the audit firm, John Smith, you have noted many areas which require additional review notes. John, who has just completed the interim audit of Taxon Ltd for the year ended 30 June 2019, has just performed testing of controls. When testing controls over payments made to related parties, there should be evidence of approval and sign-off by the chief financial officer (CFO). John selected a sample of payments made to related parties and vouched them back to the electronic funds transfer (EFT) forms to sight the CFO’s signature of approval. Based on a sample of ten payments, six had been approved by the CFO in writing. However, the remaining four EFT forms (for immaterial amounts) did not have the CFO’s signature, but John noted that the CFO had given verbal approval. John concluded that because all internal controls were working, the audit team could use analytical procedures alone to audit payments made to…arrow_forwardRoland 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?arrow_forwardRoland 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…arrow_forward
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