Question
Nicole Henderson is a third-year accounting student and she provides the following comments on risks. Indicate whether you agree or disagree with them respectively.
Audit risk can be applied quantitatively or qualitatively. In essence, it is a concept used to ensure that the auditor gathers sufficient evidence to render an opinion on the financial report with little likelihood of being wrong.
Control risk refers to both the design of controls and the operation of controls. To assess control risk as low, the auditor must gather evidence on both the design and operation of controls.
Audit risk should vary inversely with engagement risk: The higher the risk with being associated with the client, the lower should be the audit risk taken.
In analyzing the audit risk model, it is important to understand that much of it is judgmental. For example, setting audit risk is judgmental, assessing inherent and control risk is judgmental and setting detection risk is simply a matter of the individual risk preferences of the auditor.
2 a. The following misstatements are included in the accounting records of Johnson’s Manufacturing Company:
A purchase order was in error by $2 000 as a result of a key-entry mistake.
A credit sale was unintentionally posted as a cash sale. Instead of debit to account receivable, it was mistakenly debited to cash account.
iii. The customer payment cheque was stolen by the mailroom clerk when the mail was opened.
The employee inflated his timesheet by 10 hours and he ended up being paid $300.
Required: Identify whether each misstatement is likely to be an error or a fraud.
There are two types of fraud: misappropriation of assets and fraudulent financial reporting. Identify if the following is misappropriation of asses or fraudulent financial reporting?
Setting up false vendors and paying the vendors for fictitious goods
Overstating expense reimbursement requests
iii. Misrepresentation or omission of transactions
intentional misapplication of accounting principles
Several independent audit or review situations are presented below. Assume that everything other than he situation described would have resulted in an unqualified opinion on the company’s financial report.
The client will not allow the auditor to view the minutes for the entire year under audit and beyond.
The auditor finds that the firm is not independent of the client on the last day of fieldwork.
The client declines to include a statement of cash flow in the financial report.
The client fails to record an immaterial amount of insurance paid in advance as an asset.
Required: For each of the above independent situations, determine the type of opinion that will most likely be issued by the firm auditing the financial statements.
Section B: Case Studies
Alexander Robinson, a junior auditor working for Big One Accounting Firm. He is included in the audit team engaging in the audit the Financial Reports of Complicated Ltd., a listed company on AST. When evaluating audit results for assets in the audit, Alexander has set the preliminary judgment about materiality to be $67,000. He then allocated the materiality to all the asset accounts. The account balances, performance materiality and estimated overstatements in the accounts are shown below:
Account
Account balance
Performance materiality
Estimate of total overstatements
Cash
60,000
6,000
5,500
Account receivable
1,300,000
20,000
?
Inventory
2,100,000
60,000
45,000
Other assets
360,000
24,000
23,000
Total
4,090,000
110,000
Alexander has chosen a sample of $500,000 in Accounts Receivable. He tested it and uncovered $6000 in overstatement. He then checked on the individual accounts and all accounts in the total assets against the allocated performance materiality and the preliminary materiality to decide the acceptability of the financial statements.
Required:
Ignoring sampling risk, what is the estimate of the total misstatement in Accounts Receivable?
Why the total performance materiality is not the same as the preliminary materiality? Should they be equal?
Based on the audit of the asset accounts and ignoring other accounts, are the overall financial statements acceptable? Please show workings to support the conclusion.
What do you believe the auditor should do in the circumstances?
The post Financial Reports of Complicated Ltd appeared first on Homework Aider.
What Students Are Saying About Us
.......... Customer ID: 12*** | Rating: ⭐⭐⭐⭐⭐"Honestly, I was afraid to send my paper to you, but you proved you are a trustworthy service. My essay was done in less than a day, and I received a brilliant piece. I didn’t even believe it was my essay at first 🙂 Great job, thank you!"
.......... Customer ID: 11***| Rating: ⭐⭐⭐⭐⭐
"This company is the best there is. They saved me so many times, I cannot even keep count. Now I recommend it to all my friends, and none of them have complained about it. The writers here are excellent."
"Order a custom Paper on Similar Assignment at essayfount.com! No Plagiarism! Enjoy 20% Discount!"
