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
Videos
Textbook Question
Chapter 9, Problem 46FF
UTSTARCOM, INC.
(LO 2, 3, 4, 5, 6, 8)
UTStarcom is a global leader in the manufacture, integration, and support of networking and telecommunications systems. The company sells broadband wireless products and a line of handset equipment to operators in emerging and established telecommunications markets worldwide. The following excerpt was obtained from the 2004 10-K of UTStarcom. Inc., which reported material weaknesses in the company’s internal controls. In describing the company’s remediation efforts, the company stated that “planned remediation measures are intended to address material weaknesses related to revenue and deferred revenue accounts and associated cost of sales.”
These material weaknesses were evidenced by the identification of six separate transactions aggregating approximately $5 million in which revenue was initially included in the company’s fourth-quarter 2004 financial statements before all criteria for revenue recognition were met. In addition, there were other transactions for which there was insufficient initial documentation for revenue recognition purposes but which did not result in any adjustments to the company’s fourth-quarter 2004 financial statements. If unremediated, these material weaknesses have the potential of misstating revenue in future financial periods. The company’s planned remediation measures include the following:
- “The Company plans to design a contract review process in China requiring financial and legal staff to provide input during the contract negotiation process to ensure timely identification and accurate accounting treatment of nonstandard contracts.”
- “In March 2005, the Company conducted a training seminar regarding revenue recognition, including identification of nonstandard contracts, in the United States and, in April 2005, the Company conducted a similar seminar in China. Starting in May 2005, the Company plans to conduct additional training seminars in various international locations regarding revenue recognition and the identification of nonstandard contracts.”
- “At the end of 2004, the Company began requiring centralized retention of documentation evidencing proof of delivery and final acceptance for revenue recognition purposes.”
b. Using the previous disclosures as a starting point, identify challenges regarding internal controls that a company may face in doing business internationally.
c. The company had disclosed its planned remediation efforts for 2004. How might the auditor have used that information in planning the 2005 audit?
d. Considering potential analytical procedures relevant to the revenue cycle, identify analytics that the auditor might use in 2005 to provide evidence that the problems detected in 2004 have been remedied.
e. Considering potential substantive tests of revenue, identify procedures that might be applied in 2005 to provide evidence that the problems detected in 2004 have been remedied.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Give me correct answer with explanation.j
1. During the time frame that Intel was making exclusivity payments to Dell, Dell’s business model was being adversely affected by the increasingly competitive
nature of the PC industry. What responsibility, if any, do auditors have to analyze
a client’s business model? Do auditors have a responsibility to track and analyze key developments in a client’s industry? Defend your answers.
2. What ethical issues do exclusivity agreements such as that between Dell and Intel raise? Are there analogous ethical issues faced by audit firms and their clients? Explain.
Ascendex Sdn Bhd is an online company that supplies a range of IT products. Its product line includes IT hardware and software. Their main customers are government agencies and private company. The company employs a combination of manual procedures and a networked accounting system with distributed terminals in several departments. After years of satisfactory performance, however, Ascendex Sdn Bhd is now experiencing operational inefficiencies and accounting errors. Your firm has been hired to evaluate Ascendex’s business processes and internal controls. Ascendex’s expenditure cycle is described in the following paragraphs.
PURCHASE SYSTEM PROCEDURES
Ascendex’s transactions are initiated when the purchasing department clerk reviews the inventory file for items that need to be replenished. The clerk selects a vendor, adds a record to the digital purchase order (PO) File, and prints four hard copies of the PO. One copy is filed in the department; the second copy is sent to the receiving…
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
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
- ClamShell Security (CSS) is a division of a large, listed company, X3Cate Limited (X3L). The CSS Division produces software products to protect customer’s computers from infection from computer viruses and other malware. The sales of its products have been growing over the last few years as its products become more accepted in the market. The Board of X3L want to introduce a new product line that would specifically protect against Ransomware, a new security threat, particularly business customers. Each Divisional Manager can earn large bonuses on top of their base salaries if they maintain Return on Investment greater than 25% otherwise the bonus payments are halved. The following information is for the year that has just ended related to the CSS Division performance: Profit percentage (Return on Sales): 30% Sales revenue: $15 000 000 Average capital invested $18 000 000 Required:Using the same information provided for the past year, if X3l has a company-wide…arrow_forwardExplain how risk of material misstatement should he assessed and what effect that assessment will have on detection risk for the following audit client:Kistra Corporationis one of several companies engaged in the manufacture of high- speed, high- capacity data storage devices. The industry is very competitive and subject to quick changes in technology. Kistra’s operating results would place the company in the second quartile in terms of profitability and financial position. The company has never been the leader in the industry, with its products typically slightly behind the industry leaders in terms of performance.arrow_forwardAccounting The internal audit group at Freshfield Inc., a produce wholesaler, has tested the company’s IT controls and found security weaknesses in its e-commerce system. This is an example of which type of enterprise risk? a) Strategic risk b) Compliance risk c) Operational risk d) Reporting risk.arrow_forward
- Explain how risk of material misstatement should he assessed and what effect that assessment will have on detection risk for the following audit client:xyz Corporationis one of several companies engaged in the manufacture of high- speed, high- capacity data storage devices. The industry is very competitive and subject to quick changes in technology. MUHEET’s operating results would place the company in the second quartile in terms of profitability and financial position. The company has never been the leader in the industry, with its products typically slightly behind the industry leaders in terms of performance.arrow_forwardQUESTION: Using the information below, propose and elaborate on control measures that Carico should adopt to minimize the likelihood of recurring fraud, while also outlining how each control would mitigate the associated risk. Carico Ltd, a manufacturer of construction blocks, operates with a fiscal year-end of June30th, 2021. With a trading history spanning over 25 years, Carico caters to a diverse range ofcustomers, including both large and small hardware stores nationwide.The company's operations encompass a manufacturing plant, five warehouses, and a centralhead office. Following the manufacturing process, the blocks are stored in one of thewarehouses until they are dispatched to customers. It is important to note that Caricocurrently does not possess an internal audit department.The following is a reflection of the sales system: Each customer is assigned a distinct customer account number, which is utilized toinput sales orders upon receiving written requests from customers. The…arrow_forwardOmitted Procedures and Subsequently Discovered Facts—Internet Exercise. From the “Inspections” section of the PCAOB’s website, access the most recent inspection reports for each of the Big Four firms (Deloitte, EY, KPMG, and PwC). Each inspection report contains the following information:∙ An introductory preface.∙ Inspection procedures and observations, which include specific findings related to issuers (clients) (Part I).∙ A summary of the inspection process.∙ The firm’s response to the inspection report.Occasionally, the PCAOB’s inspection process identifies situations in which necessary audit procedures were not performed or in which the auditors did not identify departures from GAAP. Required:a. What is the auditors’ responsibility with respect to subsequently discovered facts and omitted procedures?b. If one is provided, review and briefly summarize the firm’s response to the inspection report. Comment on whether you believe the firm’s response to omitted procedures and…arrow_forward
- Please answer 1, 2 and 3.arrow_forwardThe CFO of PKD Corporation is very uncomfortable with its current risk exposure related to the possibility of business disruptions. Specifically, PKD is heavily involved in E-business, and its internal information systems are tightly interlinked with its key customers’ systems. The CFO has estimated that every hour of system downtime will cost the company about $10,000 in sales. The CFO and CIO have further estimated that if the system were to fail, the average downtime would be one hour per incident. They have anticipated that PKD will likely experience 50 downtime incidents in a given year due to internal computer system problems and another 50 incidents per year due to external problems—specifically, system failures with the Internet service provider (ISP). Currently, PKD pays an annualized cost of $150,000 for redundant computer and communication systems, and $100,000 for ISP support just to keep the total expected number of incidents to 100 per year. Required: Given the…arrow_forwardChp#7 (Note: . Provide a detailed 4-5 sentence explanation) Issue: Quality Electronics Company is a distributor of microcomputers and related electronic equipment. The company has grown very rapidly. It is located in a large building near Chicago, Illinois. Jack Flanigan, the president of Quality, has hired you to perform an internal control review of the company. You conduct interviews of key employees, tour the operations, and observe various company functions. You discover the following: Quality has not changed its ordering procedures since it was formed eight years ago. Anyone in the company can prepare a purchase order and send it to the vendor without getting any managerial approval. When the invoice arrives from the vendor, it is compared only to the purchase order before authorizing payment. Quality does not have an organization chart. In fact, employees are encouraged to work on their own, without supervision. Flanigan believes that this approach increases creativity.…arrow_forward
- Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardIsland Solutions is a technology business that retails and wholesales computer hardware along with awide variety of technology products and solution services. Recently, several competitors have enteredthe market and introduced new products that might drive some of the business’ inventory intoobsolescence. The company has always been IRFS compliant and wants to ensure that it follows theappropriate authoritative literature in determining the accounting for some significant market changes.The accountant at Island Solutions has tasked two small teams of interns from to conduct several pieces of research and dry-run practices. The following data is available for the month of September for two items of inventory that mightsoon be render obsolete for Island Solutions.Inventory balances at September 1, 2023, were as follows:USB-C (TA3) Hub – 200 @ $400 ea.USB-C (TB3) Hub – 600 @ $800 ea. USB-C (TA3) HUB Date Purchases Sales Sep 5 500 @450 Sep 10 500@540 Sep 15 400 @475…arrow_forwardThe U.S. General Accounting Office (GAO) Office of Special Investigations was responsible for investigating a potential purchase fraud case. The man who allegedly committed the fraud was Mark J. Krenik, a former civilian employee of the U.S. Air Force. Mr. Krenik was the Air Force's technical representative on contracts with Hughes STX. Hughes STX provided hardware, software maintenance, technical support, and training to the Air Force. Part of Mr. Krenik's alleged fraud included opening accounts under his control at banks in Maryland. The accounts were opened under the names Hughes STX and ST Systems Corporation. A section of the GAO report on this fraud investigation reads as follows: On December 15, 1992, Mr. Krenik opened post office box 215 in Vienna, Virginia, in his own name. On December 24, 1992, Mr. Krenik delivered to the Air Force Finance Office 11 bogus invoices totaling $504,941.19. Accompanying the invoices were the respective DD‐250s, on which Mr. Krenik had falsely…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
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
GOVERNANCE OF GLOBAL ISSUES THROUGH INTERNATIONAL TRADE AGREEMENTS| IE EXPLAINS; Author: IE University;https://www.youtube.com/watch?v=1hBf1VzO3K8;License: Standard Youtube License