Question: The subsequent period in an audit is

> Julia continues to be a hard worker and, at age 60, has saved and invested wisely for her planned financially successful retirement. She has an extra $15,000 in a cash management account beyond what she needs for emergency savings. She rejected options a

> Victor and Maria Hernandez are thinking about selling her mother’s home, which she recently inherited, and use the proceeds to enhance their investments for retirement. Its price increased to about today’s value of $300,000. The home is fully paid for.

> Harry and Belinda Johnson are considering purchasing a residential income property as an investment. The Johnsons want to achieve an after-tax total return of 7 percent. They are considering a property with an asking price of $190,000 that should produce

> Lola Garcia, a single mother of a 6-year-old child, works for a utility company in Baltimore, Maryland, and is willing to invest $3,000 per year in a mutual fund. She wants the investment income to supplement her retirement pension starting in approximat

> It has been over 25 years since Julia graduated with a major in aeronautical engineering, and she has been quite successful in her career as well as in managing her personal finances. She has moved up the career ladder, earns a high salary, has $50,000 i

> After learning about mutual funds, the Johnsons are confident that they are a great way to invest, especially because of the diversification and professional management that funds offer. The couple has a financial nest egg of $9,500 to invest through mut

> Victor and Maria have decided to increase their contribution to their investment portfolio since Victor is now age 59 and thinking about retiring in five years. For years, they have followed a moderate-risk investment philosophy and put their money in su

> Ji Wu of Troy, New York, has $5,000 that he wants to invest in the stock market. Ji is in college on a scholarship and does not plan to use the $5,000 or any dividend income for another five years, when he plans to buy a home. He is currently considering

> Kyle Broflovski, a high school guidance counselor in South Park, Colorado, has purchased several corporate and government bonds over the years, and his total bond investments now exceeds $40,000. He prefers investments with some inflation protection. His

> Julia has been thinking about buying a home. For several months, she has been watching real estate shows on television and visiting open houses in her community. She thinks it is time to take the plunge and buy a much larger home since she can genuinely

> Jessica Varcoe works as a drug manufacturer’s representative based in Irvine, California. She has an aggressive investment philosophy and believes that interest rates on new bonds will drop over the next year or two because of an expected economic slowdo

> Julia’s investments survived the last recession and bear stock market declines because she was well diversified and was investing more heavily in bonds in the years preceding the decline. Julia cashed out of some equities and moved most of that money int

> The investments of Harry and Belinda have done well through the years. While the cash portion of their portfolio has risen to $16,000, it is earning a minuscule 1 percent in a money market account; thus they are Required: (a) What is the current yield

> After nearly 14 years of marriage, Harry and Belinda’s finances have improved, even though they have incurred debts for an automobile loan and a condominium. Plus they now have a 5-year-old son, Benjamin. They have not yet saved enough

> It has been about 20 years since Julia graduated with a major in aeronautical engineering, and she has been quite successful in her career and her personal finances. Accordingly, she wants to sell her home and buy a luxury condominium. She has $40,000 in

> The expenses associated with sending two children through college prevented Victor and Maria Hernandez from adding substantially to their investment program. Now that their younger son, Joseph, has completed school and is working full time, they would li

> Just-married couples sometimes over-indulge in the type and amount of life insurance that they buy. Hakeem and Leshaniqua Jackson of Barstow, California, took a different approach. Both were working and had a small amount of life insurance provided throu

> Julia Price is now in her late 30s and has always wanted children. She has arranged to adopt two siblings from overseas, ages 2 and 4. Julia is happy that she earns enough money to support the children adequately, but the agency sponsoring the adoption a

> Joseph and Marcia Michael of Athens, Georgia, are a married couple in their mid-30s. They have two children, ages 5 and 3, and Marcia is pregnant with their third child. Marcia is a part-time book indexer who earned $30,000 after taxes last year. Because

> Biming Chen is a college student from Cleveland, Mississippi. Soon to graduate, Biming was approached recently by a life insurance agent, who set up a group meeting for several members of his fraternity. During the meeting, the agent presented six life i

> Estate Agents Victor and Maria have been thinking about selling their home and buying a house with more yard space so that they can indulge their passion for gardening. Before they make such a decision, they want to explore the market to see what might b

> Switching Life Insurance Policies Victor and Maria Hernandez have a total of $200,000 in life insurance. Victor has a $50,000 cash-value policy purchased more than 20 years ago soon after when they married and a $100,000 group term policy through his emp

> Coverage Harry and Belinda Johnson spend $20 per month on life insurance in the form of a premium on a $10,000, paid-at-65 cash-value policy on Harry that his parents bought for him years ago. Belinda has a group term insurance policy from her employer w

> Charles Napier of Barstow, California, recently took a new job as a manufacturer’s representative for an aluminum castings company. While looking over his employee benefits materials, he discovered that his employer would provide 10 sick days per year, a

> Julia is about to change jobs. Her new employer offers several different health care plans including a traditional health care plan, an HMO, a PPO, and a high-deductible plan. Her employer will pay the first $300 per month for any plan she chooses. This

> Victor Hernandez recently learned that his uncle has Alzheimer’s disease. While discussing this tragedy with Maria, he realized that both of his grandparents probably had Alzheimer’s or another dementia disease, although no formal diagnoses were ever mad

> Dual-income households often have overlapping health care benefits. For example, both Harry and Belinda Johnson’s employers provide partially subsidized family health insurance plans as employee benefits. The Johnsons chose to be covered under Belinda’s

> Your friend Taliesha Jackson of Edwardsville, Illinois, recently changed to a new job as a CPA in a moderate-size accounting firm. Knowing that you were taking a personal finance course, she asked your advice about selecting the best health insurance pla

> Makiko Iwanami, a student from Osaka, Japan, is in one of your classes. She is considering the purchase of a used car and has been told that she must buy automobile insurance to register the car and obtain license plates. Makiko has come to you for advic

> Mark and Kelly Prince of Emmertsburg, Iowa, face a crisis. Their automobile insurance company has notified them that their current coverage expires in 30 days and will not be renewed. Mark and the Prince’s younger son each had a minor, at-fault accident

> Julia has always tried to keep her insurance spending under control by purchasing low limits on her policies. Now that her assets and income have grown, she is beginning to reconsider the wisdom of this approach when buying insurance. Julia knows she has

> Belinda Johnson’s parents and maternal grandmother have combined their finances and presented Harry and Belinda with $50,000 cash gift to use to purchase a home. The Johnsons have shopped and found a house in a new housing development t

> Justin Kealey, CPA, is auditing Tustin Companies, Inc. Kealey has accumulated factual, judgmental, and projected misstatements for the current year to evaluate whether there is a sufficiently low risk of material misstatement of the financial statements

> Linda Reeves, CPA, receives a telephone call from her client, Lane Company. The company’s controller states that the board of directors of Lane has entered into two contractual arrangements with Ted Forbes, the company’s former president, who has recentl

> The auditor’s opinion on the fairness of financial statements may be affected by subsequent events. Required: a. Define what is commonly referred to in auditing as a subsequent event, and describe the two general types of subsequent events. b. Identify

> a. Calculate the gross margin percentage for each of State University’s product lines. b. Compare State University’s gross margins to industry averages. Indicate any margins that appear out of line, in relation to the

> You are the audit manager in the audit of the financial statements of Midwest Grain Storage, Inc., a new client. The company’s records show that, as of the balance sheet date, approximately 15 million bushels of various grains are in storage for the Comm

> During an audit engagement, Robert Wong, CPA, has satisfactorily completed an examination of accounts payable and other liabilities and now plans to determine whether there are any loss contingencies arising from litigation, claims, or assessments. What

> OA Company recently hired a payroll service provider to process its payroll—that service provider has essentially taken over the payroll function, and payroll represents OA’s largest expense. Comment on the following statement: OA’s auditors should make

> In your audit of the financial statements of Wolfe Company for the year ended April 30, you find that a material account receivable is due from a company in reorganization under Chapter 11 of the Bankruptcy Act. You also learn that on May 28 several form

> 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 recognized any cost for the options in the

> 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

> Select the best answer for each of the following and explain fully the reason for your selection. a. Which of the following is least likely to be among the auditors’ objectives in the audit of inventories and cost of goods sold? (1) Det

> You are engaged in the audit of the financial statements of Armada Corporation for the year ended August 31, 20X0. The balance sheet, reflecting all your audit adjustments accepted by the client to date, shows total current assets, $8,000,000; total curr

> During your annual audit of Walker Distributing Co., your assistant, Jane Williams, reports to you that, although a number of entries were made during the year in the general ledger account Notes Payable to Officers, she decided that it was not necessary

> The only long-term liability of Range Corporation is a note payable for $1 million secured by a mortgage on the company’s plant and equipment. You have audited the company annually for the three preceding years, during which time the principal amount of

> Describe the audit steps that generally would be followed in establishing the propriety of the recorded liability for federal income taxes of a corporation you are auditing for the first time. Consideration should be given to the status of (a) the liabi

> During the course of any audit, the auditors are always alert for unrecorded accounts payable or other unrecorded liabilities. Required: For each of the following audit areas, (1) describe an unrecorded liability that might be discovered and (2) state w

> 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

> In the course of your initial audit of the financial statements of Sylvan Company, you determine that of the substantial amount of accounts payable outstanding at the close of the period, approximately 75 percent is owed to six creditors. You have reques

> Auditors usually send confirmations to obtain evidence about accounts receivable and accounts payable. a. Is confirmation presumptively required for accounts receivable, accounts payable, or both? b. Are accounts receivable requests, accounts payable req

> Shortly after you were retained to audit the financial statements of Case Corporation, you learned from a preliminary discussion with management that the corporation had recently acquired a competing business, the Mall Company. In your study of the terms

> Auditors report on the consistency of application of accounting principles. Assume that the following list describes changes that have a material effect on a client’s financial statements for the current year. (1) A change from the completed-contract me

> Your new client, Ross Products, Inc., completed its first fiscal year March 31, 20X4. During the course of your audit you discover the following entry in the general journal, dated April 1, 20X3. Required: Under these circumstances, what steps should

> Allen Fraser was president of three corporations: Missouri Metals Corporation, Kansas Metals Corporation, and Iowa Metals Corporation. Each of the three corporations owned land and buildings acquired for approximately $500,000. An appraiser retained by F

> Kadex Corporation, a small manufacturing company, did not use the services of independent auditors during the first two years of its existence. Near the end of the third year, Kadex retained Jones & Scranton, CPAs, to perform an audit for the year ended

> Gruen Corporation is a large diversified company with a large amount of property, plant, and equipment and intangible assets, including goodwill. In the past year the company has experienced a significant decline in a number of its lines of business. Re

> An executive of a manufacturing company informs you that no formal procedures have been followed to control the retirement of machinery and equipment. A physical inventory of plant assets has just been completed. It revealed that 25 percent of the assets

> Assume that a continuing audit client has recorded Accounts Receivable and Equipment both in the amount of $1,000,000. In a typical audit, which account would take more time to audit?

> 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 w

> Girard Corporation has just completed the acquisition of Williams, Inc., at a purchase price significantly higher than the fair values of the identifiable assets. Describe the audit issues caused by the acquisition and how the auditors would likely resol

> List and state the purpose of all audit procedures that might reasonably be applied by the auditors to determine that all property and equipment retirements have been recorded in the accounting records.

> Grandview Manufacturing Company employs standard costs in its cost accounting system. List the audit procedures that you would apply to ascertain that Grandview’s standard costs and related variance amounts are acceptable and have not distorted the finan

> Use the following to provide the type of audit report the auditors generally should issue in the situations presented below: 1. Unmodified—standard. 2. Unmodified—with an emphasis-of-matter paragraph. 3. Qualified. 4. Adverse. 5. Disclaimer Situation: a

> Assume that you are auditing Roberts Wholesale Supply Co. and that you have decided to use data analytics to test the inventory. Specifically, you would like to identify (1) excess and overvalued items in inventory (e.g., possibly obsolete, quantities we

> You are engaged in the audit of Reed Company, a new client, at the end of its first fiscal year, June 30, 20X1. During your work on inventories, you discover that all of the merchandise remaining in stock on June 30, 20X1, had been acquired July 1, 20X0,

> One of the problems faced by the auditors in their verification of inventory is the risk that slow-moving and obsolete items may be included in the goods on hand at the balance sheet date. In the event that such items are identified in the physical inven

> The City of Westmore is confused about the type of audit that it should obtain: an audit in accordance with generally accepted auditing standards, an audit in accordance with Generally Accepted Government Auditing Standards, or an audit in accordance wit

> North County School District expended $1,450,000 in federal financial assistance this year. Required: a. Is North County School District required to have an audit in accordance with the Single Audit Act? Explain. b. What are the requirements of an audit

> Wixon & Co., CPAs, is performing an audit of the City of Brummet for the year ended June 30, 200X, in accordance with Generally Accepted Government Auditing Standards. During the course of the audit, Gerald Yarnell, a senior auditor, discovers violations

> Matt Gunlock, CPA, is performing an audit of the City of Ryan in accordance with generally accepted auditing standards. Required: a. Must Matt be concerned with the city’s compliance with laws and regulations? Explain. b. How should Matt decide on the n

> CPAs may become involved in examinations of broker-dealers. a. Describe the information a broker-dealer who maintains custody of customer funds or securities is required to file in an annual compliance report. b. Which of the required information in part

> You are conducting the first audit of the marketing activities of your organization. Your preliminary survey has disclosed indications of deficient conditions of a serious nature. You expect your audit work to document the need for substantial corrective

> Throughout this book, emphasis has been placed on the concept of independence as the most significant single element underlying the development of the public accounting profession. The term “independent auditor” is sometimes used to distinguish the publi

> For each of the following brief scenarios, assume that you are reporting on a client’s financial statements. Reply as to the type(s) of opinion possible for the scenario. In addition: ∙ Unless stated otherwise, assume

> Steve Ankenbrandt, president of Beeb Corp., has been discussing the company’s internal operations with the presidents of several other multidivision companies. Ankenbrandt discovered that most of them have an internal audit staff. The activities of the s

> In order to function effectively, the internal auditor must often educate auditees and other parties bout the nature and purpose of internal auditing. Required: a. Define internal auditing. b. Briefly describe three possible benefits of an internal audi

> The third general attestation standard indicates that the subject matter of the engagement must be capable of reasonably consistent evaluation against criteria that are suitable and available to the user. Required: a. Explain why criteria are needed for

> The accounting profession has developed Trust Services to help entities differentiate themselves by demonstrating that they are attuned to the risks posed by their environment and that they are equipped with controls that address those risks. Present the

> The management of Williams Co. is considering issuing corporate debentures. To enhance the marketability of the bond issue, management has decided to include a financial forecast in the prospectus. Management has requested that your CPA firm examine the

> Match the following terms with the appropriate definition (or partial definition). Each definition may be used once or not at all. Term Definition (or Partial Definition) a. Compllance auditing b. Complance Supplement c. Government Auditing 1. A do

> In performing an audit in accordance with both generally accepted auditing standards and Generally Accepted Government Auditing Standards, the auditors are required to communicate information about weaknesses in the organization’s internal control. Howev

> In performing an audit in accordance with Generally Accepted Government Auditing Standards, the auditors are required to issue an additional combined report on compliance with laws and regulations and on internal control. Required: a. Describe the natur

> Devry Corporation has established an independent foundation for the purposes of community improvement. The foundation employs an executive director and eight staff people. The internal auditors of the company were requested to do an audit of the foundati

> You are the chief audit executive for the internal auditing function of a large municipal hospital. You receive monthly financial reports prepared by the accounting department, and your review of them has shown that total accounts receivable from patient

> a. A material departure from generally accepted accounting principles will result in auditor consideration of: (1) Whether to issue an adverse opinion rather than a disclaimer of opinion. (2) Whether to issue a disclaimer of opinion rather than a qualifi

> Assume that you are a partner with the firm of Slater & Lowe LLP. You have been asked by Grayson, Inc., an industrial supply company, to provide assurance about the change in existing customer satisfaction over the last three years. Grayson’s management

> SysTrust and WebTrust are Trust Services developed by the AICPA and the CICA. Required: a. Present and describe the Trust Services principles. b. Present and describe the “criteria” related to Trust Services. c. What is the relationship between the prin

> Loman, CPA, who has audited the financial statements of the Broadwall Corporation, a publicly held company, for the year ended December 31, 20X6, was asked to perform a review of the financial statements of Broadwall Corporation for the period ending Mar

> Jiffy Clerical Services is a company that furnishes temporary office help to its customers. The company maintains its accounting records on a basis of cash receipts and cash disbursements. You have audited the company for the year ended December 31, 20X4

> Your working papers for an integrated audit being performed under PCAOB AS 2201 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 retai

> Assume that during the audit of the public Chandler Corporation the following critical audit matter was identified and summarized for purposes of inclusion in the audit report. Critique presentation and details of the matter. Critical Audit Matter

> Roscoe & Jones, Ltd., a CPA firm in Silver Bell, Arizona, has completed the audit of the financial statements of Excelsior Corporation as of, and for, the year ended December 31, 20X1. Findings related to the financial statements and the audit include ∙

> Sturdy Corporation (a nonpublic company) owns and operates a large office building in a desirable section of New York City’s financial center. For many years, management of Sturdy Corporation has modified the presentation of its financial statement by 1.

> The auditors’ report that follows was drafted by a staff accountant of Smith & Co., CPAs, at the completion of the audit of the financial statements of Lenses Co. (a public company) for the year ended December 31, 20X7. Required:

> Robertson Company had accounts receivable of $200,000 at December 31, 20X0, and had provided an allowance for uncollectible accounts of $6,000. After performing all normal auditing procedures relating to the receivables and to the valuation allowance, th

> During your observation of the November 30, 20X0, physical inventory of Jay Company, you note the following unusual items: a. Electric motors in finished goods storeroom not tagged. Upon inquiry, you are informed that the motors are on consignment to Jay

> Rowe Manufacturing Company has about 50 production employees and uses the following payroll procedures. The factory supervisor interviews applicants and on the basis of the interview either hires or rejects the applicants. After being employed, the appli

> In connection with an audit of the financial statements of Olympia Company, the auditors are reviewing procedures for accumulating direct labor-hours. They learn that all production is by job order and that all employees are paid hourly wages, with time

> The following are typical questions that might appear on an internal control questionnaire for payroll activities: 1. Is there adequate separation of duties between employees who maintain human resources records and employees who approve payroll disburse