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
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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.
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Carinal Ltd. specializes in the development of electronic components within quite a competitive environment causing concerns for marketing and pricing. Its non-current assets primarily include IT software, property, and investments, and there have been additions to these during the year. As audit manager, you are conducting a preliminary analytical review and associated risk analysis for this client for the year ended June 30 2022. You have been presented with the following draft financial information about Carinal with incomplete ratios and percentages calculation. INCOME STATEMENT Year ended June 30 2022 2021 $'000 $'000Revenue 22450 18675Cost of sales 8475 8055Gross Profit 13975 10620Distribution costs 4245 3120Administrative expenses 1276 2134Selling expenses 5555 512Profit from operations 2899 4854Net interest receivable 1245 495Profit before tax 4144 5349Income tax expense 2145 2345Net profit 1999 3004Retained profits 1325 2105Dividends paid $1250 $1049Accounting ratios and…
Carinal Ltd. specializes in the development of electronic components within quite a competitive environment causing concerns for marketing and pricing. Its non-current assets primarily include IT software, property, and investments, and there have been additions to these during the year.
As audit manager, you are conducting a preliminary analytical review and associated risk analysis for this client for the year ended June 30 2022. You have been presented with the following draft financial information about Carinal with incomplete ratios and percentages calculation.
INCOME STATEMENT
Year ended June 30
2022
2021
$'000
$'000
Revenue
22,450
18,675
Cost of Sales
8,475
8,055
Gross Profit
13,975
10,620
Distribution costs
4,245
3,120
Administrative expenses
1,276
2,134
Selling expenses
5,555
512
Profit from operations
2,899
4,854
Net interest receivable
1,245
495
Profit before tax
4,144
5,349
Income tax expenses
2,145
2,345
Net profit
1,999
3,004
Retained…
Carinal Ltd. specializes in the development of electronic components within quite a
competitive environment causing concerns for marketing and pricing. Its non-current assets
primarily include IT software, property, and investments, and there have been additions to
these during the year.
As audit manager, you are conducting a preliminary analytical review and associated risk
analysis for this client for the year ended June 30 2022. You have been presented with the
following draft financial information about Carinal with incomplete ratios and percentages
calculation.
INCOME STATEMENT
Year ended June 30
2022
2021
$'000
$'000
Revenue
Cost of sales
22450
18675
8475
8055
Gross Profit
13975
10620
Distribution costs
4245
3120
Administrative expenses
1276
2134
Selling expenses
5555
512
Profit from operations
2899
4854
Net interest receivable
1245
495
Profit before tax
4144
5349
Income tax expense
2145
2345
Net profit
1999
3004
Retained profits
1325
2105
Dividends paid
$1250
$1049
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
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