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Homework Assignment NEW 1-20 Public accounting
firms are sometimes grouped into categories of
local firms, regional firms, national firms, and
international firms. Explain briefly the
characteristics of each. Include in your answer
the types of services stressed in each
group. 1-26 The Sarbanes-Oxley Act of 2002
created the Public Company Accounting Oversight
Board. Explain the major responsibilities of this
board. 2-7
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Evaluate the following quotation If a CPA firm
completes a nonpublic company audit of Adam
Company's financial statements following AICPA
generally accepted auditing standards and is
satisfied with the results of the audit, an
unmodified audit report may be issued. On the
other hand, if no audit is performed of the
current year's financial statements, but the CPA
firm has performed satisfactory audits in prior
years, has confidence in the management of the
company, and makes a quick review of the current
year's financial statements, a qualified report
may be issued. Do you agree? Give reasons to
support your answer. 2-28 Reed, CPA, accepted an
engagement to audit the financial statements of
Smith Company. Reed's discussions with Smith's
new management and the predecessor auditor
indicated the possibility that Smith's financial
statements may be misstated due to the possible
occurrence of errors, fraud, and illegal acts. a.
Identify and describe Reed's responsibilities to
detect Smith's errors and fraud. Do not identify
specific audit procedures. b. Describe Reed's
responsibilities to detect Smith's material
noncompliance with laws. Do not identify specific
audit procedures. c. Identify and describe Reed's
responsibilities to report Smith's noncompliance
with laws.
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Homework Assignment 3-31 Ron Barber, CPA, is
auditing the financial statements of DGF, Inc., a
publicly held company. During the course of the
audit, Barber discovered that DGF has been making
illegal bribes to foreign government officials to
obtain business, and he reported the matter to
senior management and the board of directors of
DGF. Required If management and the board of
directors take appropriate remedial action,
should Barber be required to report the matter
outside the company? Describe Barber's
appropriate response if management and the board
of directors fail to take appropriate
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remedial action. 3-43 Thomas Gilbert and Susan
Bradley formed a professional corporation called
Financial Services Inc.A Professional
Corporation, each taking 50 percent of the
authorized common stock. Gilbert is a CPA and a
member of the AICPA. Bradley is a CPCU (Chartered
Property Casualty Underwriter). The corporation
performs auditing and tax services under
Gilbert's direction and insurance services under
Bradley's supervision. One of the corporation's
first audit clients was Grandtime Company.
Grandtime had total assets of 600,000 and total
liabilities of 270,000. In the course of his
examination, Gilbert found that Grandtime's
building with a carrying value of 240,000 was
pledged as collateral for a 10-year term note in
the amount of 200,000. The client's financial
statements did not mention that the building was
pledged as collateral for the 10-year term note.
However, as the failure to disclose the lien did
not affect either the value of the assets or the
amount of the liabilities, and his examination
was satisfactory in all other respects, Gilbert
rendered an unqualified opinion on Grandtime's
financial statements. About two months after the
date of his opinion, Gilbert learned that an
insurance company was planning to loan Grandtime
150,000 in the form of a first-mortgage note on
the building. Realizing that the insurance
company was unaware of the existing lien on the
building, Gilbert had Bradley notify the insurance
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company of the fact that Grandtime's building was
pledged as collateral for a term note. Shortly
after the events described above, Gilbert was
charged with several violations of professional
ethics. Required Identify and discuss at least
four ethical implications of those acts by
Gilbert that were in violation of the AICPA Code
of Professional Conduct. 4-21 Jensen, Inc., filed
suit against a public accounting firm, alleging
that the auditors' negligence was responsible for
failure to disclose a large defalcation that had
been in process for several years. The public
accounting firm responded that it may have been
negligent, but that Jensen, Inc., was really to
blame because it had completely ignored the
public accounting firm's repeated recommendations
for improvements in internal control. Required If
the public accounting firm was negligent, is it
responsible for the loss sustained by the client?
Does the failure by Jensen, Inc., to follow the
auditors' recommendation for better internal
control have any bearing on the question of
liability? Explain. 4-26 The international CPA
firm of Arthur Andersen faced significant
liability in conjunction with its audits of Enron
Corporation. Required
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From a legal liability perspective, describe the
unique features of this audit case. Describe the
important implications of this audit case for a
firm of public accountants.
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AC 410 Unit 3 Homework Assignment 5-36 Comment on
the reliability of each of the following examples
of audit evidence. Arrange your answer in the
form of a separate paragraph for each item.
Explain fully the reasoning employed in judging
the reliability of each
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item. 5- 49 Audit risk should be considered when
planning and performing an audit of financial
statements in accordance with generally accepted
auditing standards. 6- 25 Mary Deming has been
asked to accept an engagement to audit a small
financial institution. Deming has not previously
audited a financial institution. 6-26 Assume that
you have been assigned to the audit of Lockyer
Manufacturing Company. You have completed the
procedures for gathering information about the
company and its environment, including
internal control.
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AC 410 Unit 4 Homework Assignment
Questions Requiring Analysis 7-28 Problem
7-28. Discuss the advantages to CPAs of
documenting internal control by using Questions
Requiring Analysis 7-33 Problem
7-33. Required Identify the weaknesses in
Randall's system of corporate governance and
provide suggestions for improvement in the
system. Organize your answer as follows Questions
Requiring Analysis 9-29 Problem 9-29. Questions
Requiring Analysis 9-38 Problem 9-38.
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AC 410 Unit 5 Homework Assignment Refer to
Chapter 11 of the textbook, Objective
Question 11-38. Assume that fraud has been
discovered in the Possible Errors and Fraud
list, shown as A through O in the problem. Select
two of the fraud items from the list and note
them here Following the scientific method,
answer the following questions below Do
background research in relationship to the issue
to get a more in-depth understanding of the
situation. Construct your hypotheses concerning
the issue which we will use to test our data
against. Test your Hypotheses by doing
experiments. Analyze your data and draw a
conclusion concerning the population under
study. Communicate your results.
AC 410 Unit 6 Homework Assignment NEW
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AC 410 Unit 6 Homework Assignment Questions
Requiring Analysis 12-21 Nolan Manufacturing
Company retains you on April 1 to perform an
audit for the fiscal year ending June 30. During
the month of May, you make extensive studies of
internal control over inventories. All goods
purchased pass through a receiving department
under the direction of the chief purchasing
agent. The duties of the receiving department are
to unpack, count, and inspect the goods. The
quantity received is compared with the quantity
shown on the receiving department's copy of the
purchase order. If there is no discrepancy, the
purchase order is stamped OKReceiving Dept.
and forwarded to the accounts payable section of
the accounting department. Any discrepancies in
quantity or variations from
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specifications are called to the attention of the
buyer by returning the purchase order to him with
an explanation of the circumstances. No records
are maintained in the receiving department, and
no reports originate there. As soon as goods have
been inspected and counted in the receiving
department, they are sent to the factory
production area and stored alongside the machines
in which they are to be processed. Finished goods
are moved from the assembly line to a storeroom
in the custody of a stock clerk, who maintains a
perpetual inventory record in terms of physical
units, but not in dollars. What weaknesses, if
any, do you see in the internal control over
inventories? Problem 12-35 Described below are
potential financial statement misstatements that
are encountered by auditors. 1. Inventory is
understated because warehouse personnel
overlooked several racks of parts in taking the
physical inventory. 2. Inventory is overstated
because warehouse personnel included inventory
items received subsequent to year-end while
recording the purchase in the subsequent year to
hide inventory shortages. 3. Inventory is
overstated because management instructed computer
personnel to make changes in the file used to
price inventories. Questions Requiring Analysis
13-31
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You are part of the audit team that is auditing
Happy Chicken, Inc., a company that franchises
Happy Chicken family restaurants. During the
current year, management of Happy Chicken
purchased for 2 million one of its franchised
locations, a store that was having financial
difficulties. In performing its analysis for
impairment of assets at year-end, management of
Happy Chicken determined that the carrying value
of the asset may not be recoverable. As a result,
management developed an estimate of the fair
value of the location using a discounted cash
flow model. The estimated fair value of the
location was determined to be 1.5 million, which
resulted in an impairment loss of about 500,000.
The undiscounted future cash flows are equal to
1.7 million. Problem 13-34 1. The following are
typical questions that might appear on an
internal control questionnaire relating to
plant and equipment 2. Are subsidiary ledgers
for plant and equipment regularly reconciled with
general ledger controlling accounts? 3. State
the purpose of each of the above controls. 4.
Describe the manner in which each of the
above procedures might be tested. 5. Assuming
that the operating effectiveness of each of the
above procedures is found to be inadequate,
describe how the auditors might alter their
substantive procedures to compensate for the
increased level of risks of material
misstatements.
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AC 410 Unit 7 Homework Assignment Questions
Requiring Analysis 14-30 Early in your first
audit of Star Corporation, you notice that sales
and year-end inventory are almost unchanged from
the prior year. However, cost of goods sold is
less than in the preceding year, and accounts
payable also are down substantially. Gross profit
has increased, but this increase has not carried
through to net income because of increased
executive salaries. Management informs you that
sales prices and purchase prices have not changed
significantly during the past year, and there
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have been no changes in the product line. Star
Corporation relies on the periodic inventory
system. Your initial impression of internal
control is that several weaknesses may
exist. Suggest a possible explanation for the
trends described, especially the decrease in
accounts payable while sales and inventory were
constant and gross profit increased. Explain
fully the relationships involved. For this
question, you'll need to look at the ratios
presented and analyze the trends. What do the
trends mean? Problem 14-38 The following are
typical questions that might appear on an
internal control questionnaire for accounts
payable. 1. Are monthly statements from
vendors reconciled with the accounts payable
listing? Monthly statements from vendors should
be reconciled to the payables ledger. 2. Are
vendors' invoices matched with receiving
reports before they are approved for payment? The
two procedures are test controls that provides
auditors the evidence to access control risk of
financial statements. Required a. Describe the
purpose of each of the above internal control
activities. b. Describe the manner in which each
of the above procedures might be tested. c.
Assuming that the operating effectiveness of each
of
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the above procedures is found to be inadequate,
describe how the auditors might alter their
substantive procedures to compensate for the
increased level of the risk of material
misstatement. Questions Requiring Analysis 15-30
You are retained by Columbia Corporation to audit
its financial statements for the fiscal year
ended June 30. Your consideration of internal
control indicates a fairly satisfactory
condition, although there are not enough
employees to permit an extensive separation of
duties. The company is one of the smaller units
in its industry, but it has realized net income
of about 500,000 in each of the last three
years. Near the end of your fieldwork, you
overhear a telephone call received by the
president of the company while you are discussing
the audit with him. The telephone conversation
indicates that on May 15 of the current year the
Columbia Corporation made an accommodation
endorsement of a 60-day 430,000 note issued by a
major customer, Brill Corporation, to its bank.
The purpose of the telephone call from Brill was
to inform your client that the note had been paid
at the maturity date. You had not been aware of
the existence of the note before overhearing the
telephone call. Questions Requiring Analysis
15-31 Valley Corporation established a stock
option plan for its officers and key employees
this year. Because the options granted have a
higher option price than the stock's current
market price, the company has not
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recognized any cost for the options in the
financial statements. However, a note to the
financial statements includes all required
disclosures. a. Do you believe that Valley's
management has appropriately accounted for the
stock option plan? Explain your answer. b. What
responsibility do the auditors have for the
information in the notes to the financial
statements? c. List the audit procedures, if any,
which you believe should be applied to the stock
option plan.
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AC 410 Unit 8 Alternate Assignment
The types of subsequent events and their
importance to the audit The procedures auditors
cannot perform before the end of the audit The
different types of audit reports and the
conditions under which each is issued
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AC 410 Unit 8 Homework Assignment
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Questions Requiring Analysis 16-31
The auditor's opinion on the fairness of
financial statements may be affected by
subsequent events. Required - Define what is
commonly referred to in auditing as a subsequent
event, and describe the two general types
of subsequent events. - Identify those
auditing procedures that the auditor should apply
at or near the completion of fieldwork
to disclose significant subsequent events.
Questions Requiring Analysis 16-35 Required -
Using the iron curtain approach, describe how
Tanner would consider whether an adjustment is
required. - Using the rollover approach,
describe how Tanner would consider whether an
adjustment is required. - Describe what SEC Staff
Accounting Bulletin No. 108 requires in this
situation. Questions Requiring Analysis
17-24 While performing your audit of Williams
Paper Company, you discover evidence that
indicates that Williams may not have the ability
to continue as a going concern. - Discuss types
of information that may indicate substantial
doubt about a client's ability to remain a going
concern. - Explain the auditors' obligation in
such situations. Objective Questions 17-26
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AC 410 Unit 9 Alternate Assignment
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AC 410 Unit 9 Homework Assignment
18-29. The CPA firm of Carson Boggs LLP is
performing an internal control audit in
accordance with PCAOB Standard No. 5.The partner
in charge of the engagement has asked you to
explain the process of determining which controls
to test. Describe the process, presenting each of
the links in this process and a short summary of
how the auditors approach each of them. 18-34.
Simulation Bill Jensen, a staff member of Zhan
Co., CPAs, has given you the following list of
what he refers to as internal control
deficiencies for the Zabling Co. audit and has
asked you to review each point and make certain
that you agree that each is an internal control
deficiency. For each of the following items,
reply A (Agree) or D (Disagree) indicating
whether the item represents an internal control
deficiency. 18-35. Match the following
definitions (or partial definitions) to the
appropriate term. Each term may be used once or
not at all. 18-36. Your working papers for an
integrated audit being performed under PCAOB
Standard No. 5 include the narrative description
below of the cash receipts and billing portions
of internal control of Slingsdale Building
Supplies, Inc. Slingsdale is a single-store
retailer that sells a variety of tools, garden
supplies, lumber, small
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appliances, and electrical fixtures to the
public, although about half of Slingsdale's sales
are to construction contractors on account.
Slingsdale employs 12 salaried sales associates,
a credit manager, three full-time clerical
workers, and several part-time cash register
clerks and assistant bookkeepers. The full-time
clerical workers perform such tasks as cash
receipts, billing, and accounting and are
adequately bonded. They are referred to in the
narrative as accounts receivable supervisor,
cashier, and bookkeeper.
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AC 410 Unit 10 Assignment Course Reflections
Reflect and describe which key concepts and
topics in this course have made you a stronger
candidate to enter the business world. Discuss
how this course has affected you in your
professional development, as a student, and as a
person, as well as it has encouraged you on your
academic path.
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