Question: What is the importance of cash discounts

> You have been engaged for the audit of the Y Company for the year ended December 31, 2019. The Y Company is in the wholesale chemical business and makes all sales at 25 percent over cost. Following are portions of the client’s sales and

> As a part of your clerical tests of inventory for Martin Manufacturing, you have tested about 20 percent of the dollar items and have found the following exceptions: 1. Pricing errors: 2. Differences located in comparing last year’s c

> Below are four independent client scenarios: 1. Food Giant is a regional grocery store chain located in the Pacific Northwest. Rather than operate a company-owned distribution center, Food Giant uses five different independent storage warehouse companies

> Your client, Ridgewood Heating and Cooling, specializes in residential air conditioning and heating installations. The company maintains an inventory of air conditioning units, furnaces, and air handling ductwork. The client has provided the following se

> The following audit procedures are typical of those found in auditing the payroll and personnel cycle: 1. Examine owner approval of rates of pay and withholdings. 2. Examine evidence that payroll hours and wage rates are verified by an independent person

> The following misstatements are included in the inventory and related records of Westbox Manufacturing Company: 1. When raw material acquisitions were recorded, the improper unit price was included in the perpetual inventory master file. Therefore, the i

> You are part of the engagement team for the audit of Suzuki Manufacturing for the year ended December 31, 2019, and are responsible for auditing the acquisition cycle. Download the Excel file for the problem from the textbook website, which contains a wo

> As part of the June 30, 2019, audit of accounts payable of Milner Products Company, the auditor sent 22 confirmations of accounts payable to vendors in the form of requests for statements. Four of the statements were not returned by the vendors, and five

> What type of report might a service organization use as a marketing tool to provide potential customers information about the internal controls related to security at the service organization?

> Chief executive officer compensation can be a material amount and is often scrutinized by regulators, analysts, competitors, and investors. For CEOs of publicly traded companies, compensation can consist of salary, bonus, stock option grants, or other st

> You are auditing the financial statements of Austin Software Company, which is a fast-growing software development company. As part of the company’s strategy, management has been aggressively pursuing acquisitions of other companies. Some of the prior ac

> The following are various audit procedures performed in the audit of the acquisition and payment cycle and accounts payable: 1. Foot the acquisitions journal for the month of August and trace postings to general ledger and accounts payable master file. 2

> The following are steps in the methodology for designing tests of controls, substantive tests of transactions, and tests of details of balances for the payroll and personnel cycle: 1. Design tests of details of balances for the payroll and personnel cycl

> Tanvi Ghose is auditing payroll accruals for a manufacturing company. The client has accrued payroll taxes, accrued vacation pay, and accrued bonuses for salespersons as of the end of the fiscal year. Ghose performed the following audit procedures: 1. Co

> The following misstatements are included in the accounting records of Newcomb & Company: 1. Direct labor was unintentionally charged to job 620 instead of job 602 by the payroll clerk when he key-entered the labor distribution sheets. Job 602 was complet

> Following are some of the tests of controls and substantive tests of transactions procedures often performed in the payroll and personnel cycle. (Each procedure is to be done on a sample basis or using audit software.) 1. Examine the time card for the ap

> Items 1 through 9 are selected questions typically found in internal control questionnaires used by auditors to obtain an understanding of internal control in the payroll and personnel cycle. In using the questionnaire for a client, a “yes” response to a

> This problem requires you to research the disclosure requirements for fixed assets using the FASB Codification at www.fasb.org. Access to the FASB Codification requires that your educational institution be enrolled in the FASB academic access program or

> The following auditing procedures were performed in the audit of accounts payable: 1. Obtain a list of accounts payable. Re-add and compare with the general ledger. 2. Trace from the general ledger trial balance and supporting documentation to determine

> Describe the key difference between a Type 1 and Type 2 SOC 1 report.

> Your client, Schroeder Manufacturing Co., provided the following schedule of property, plant, and equipment for the year ended June 30, 2019. Balances have been agreed to the general ledger. As part of the audit, the in-charge has asked you to perform pr

> Your client, Edgartown Corporation, provided the following schedule of land, buildings, and equipment for the audit of financial statements for the year ended December 31, 2019: Required: a. What type of evidence would you examine to support the beginn

> The following audit procedures were planned by Jack Kaguri, CPA, in the audit of the acquisition and payment cycle for DeWitt Products, Inc.: 1. Review the acquisitions journal for large and unusual transactions. 2. Examine invoices and related shipping

> The following types of internal controls are commonly used by organizations for property, plant, and equipment: 1. Written policies exist and are known by accounting personnel to differentiate between capitalizable additions, freight, installation costs,

> For each of the following misstatements in property, plant, and equipment accounts, state an internal control that the client can implement to prevent the misstatement from occurring and a substantive audit procedure that the auditor can use to discover

> Assume you performed sampling for an accounts receivable population with a recorded population amount of $2,000,000. Tolerable misstatement is set at $100,000 for the test, and there are no individually significant accounts greater than $100,000. Several

> The Broughton Cap Company requires that prenumbered receiving reports be completed when purchased inventory items arrive in the receiving department. At the time of receipt, the receiving clerk writes the date of receipt on the receiving document. The la

> The following audit procedures are included in the audit program for the audit of the financial statements of Golden State Overnight Express: 1. Select a sample of acquisitions from the acquisitions journal and perform the following: a. Vouch the transac

> Questions 1 through 9 are typically found in questionnaires used by auditors to obtain an understanding of internal control in the acquisition and payment cycle. In using the questionnaire for a client, a “yes” response to a question indicates a possible

> Makoto Auto Parts sells new parts for foreign automobiles to auto dealers. Company policy requires that a prenumbered shipping document be issued for each sale. At the time of pickup or shipment, the shipping clerk records the date on the shipping docume

> Describe the five Trust Services categories.

> The following are the nine balance-related audit objectives, seven tests of details of balances for accounts receivable, and six tests of controls or substantive tests of transactions for the sales and collection cycle: Test of Details of Balances, Tes

> You are evaluating the results of a nonstatistical sample of 85 accounts receivable confirmations for the Bohrer Company. Information on the sample and population are included below. Tolerable misstatement for accounts receivable confirmation sampling is

> You are planning to use nonstatistical sampling to evaluate the results of accounts receivable confirmation for the Meridian Company. You have already performed tests of controls for sales, sales returns and allowances, and cash receipts, and they are co

> The following are common tests of details of balances or substantive analytical procedures for the audit of accounts receivable: 1. Select 20 customer accounts from the accounts receivable master file and trace to the aged accounts receivable listing to

> The Salah Company sells electronics equipment and has grown rapidly in the last year by adding new customers. The audit partner has asked you to evaluate the allowance for doubtful accounts at December 31, 2019. Comparative information on sales and accou

> Describe the purpose of obtaining a cutoff bank statement or obtaining online access to the client’s bank activity after year end.

> Describe how electronic confirmation of cash balances through third-party intermediaries can improve the cash confirmation process.

> How would an auditor test the realizable value audit objective for a financial instrument classified as a level 3 fair value estimate?

> State the most important factors affecting the sample size in confirmations of accounts receivable.

> Explain how expense account analysis relates to the tests of controls and substantive tests of transactions that the auditor has already completed for the acquisition and payment cycle.

> You have been asked to provide assurance on information contained in New Dominion’s Corporate Sustainability Report. What standards would you use to perform this engagement?

> Five months after issuing an unqualified audit opinion and an unqualified opinion on internal controls for the audit of the year ended December 31, 2019, for a large publicly traded client, the client and the auditor become aware of a material misstateme

> Identify three tests of controls or substantive tests of transactions in the payroll and personnel cycle that an auditor may perform using audit software.

> Identify and describe the transaction-related and balance-related presentation audit objectives. Explain how many of the procedures to test presentation objectives are integrated with tests performed in earlier stages of the audit.

> Explain how unacceptable results from tests of controls and substantive tests of transactions might impact the auditor’s planned reliance on tests of details of balances.

> Why do CPA firms sometimes use a combination of positive and negative confirmations on the same audit?

> Included in the December 31, 2019, inventory of the Wholeridge Supply Company are 2,600 deluxe ring binders in the amount of $5,902. An examination of the most recent acquisitions of binders showed the following costs: January 26, 2020, 2,300 at $2.42 ea

> Identify three asset accounts, three expense accounts, and three liability accounts typically associated with acquisition and payment cycle transactions.

> Describe factors the auditor should consider in developing an expectation for depreciation while performing a substantive analytical procedure for depreciation expense.

> Explain why asset impairments are difficult to identify and audit. How might a client or auditor use a valuation specialist in determining the fair value of property and equipment?

> Explain the purpose of an attestation engagement and provide an example of an assertion a CPA could attest to.

> List the factors that should affect the auditor’s decision whether to analyze an account balance.

> Explain the difference between probabilistic and non-probabilistic sample selection.

> Which documents will be used to verify accrued property taxes and the related expense accounts?

> Describe why the use of MUS sampling provides little, if any, evidence related to the completeness balance-related audit objective.

> Describe two major changes a client may make to its supply-chain management system and discuss how those changes might increase or decrease the risk of material misstatement in specific accounts.

> Identify the nine accounts receivable balance-related audit objectives. For each objective, list one audit procedure.

> Explain why you agree or disagree with the following statement: “In most audits, it is more important to test carefully the cutoff for sales than for cash receipts.” Describe how you perform each type of test, assuming documents are prenumbered.

> Define the following terms: a. Acceptable risk of overreliance (ARO) b. Computed upper exception rate (CUER) c. Estimated population exception rate (EPER) d. Sample exception rate (SER) e. Tolerable exception rate (TER)

> The CPA examines all unrecorded invoices on hand as of February 28, 2020, the last day of the audit. Which of the following misstatements is most likely to be uncovered by this procedure? Explain. a. Accounts payable are overstated at December 31, 2019.

> Describe what is meant by an operational audit.

> Identify the key required reports of the Single Audit Act and OMB Uniform Guidance.

> Evaluate the necessity of following the practice described by an auditor: “In confirming bank accounts, I insist upon a response from every bank the client has done business with in the past 2 years, even though the account may be closed at the balance s

> What is the relationship between ARIA for tests of details of balances and ARO for tests of controls?

> How does stratifying an account balance population for sampling differ from using data analytics to audit the entire balance?

> What are the major differences between (a) audit sampling for tests of controls and substantive tests of transactions and (b) audit sampling for tests of details of balances?

> What is meant by the term level of assurance? How does the level of assurance differ for an audit of historical financial statements, a review, a compilation, and a preparation engagement?

> The following misstatements are sometimes found in the sales and collection cycle’s account balances: 1. Several cash receipts were posted to the incorrect customer accounts. 2. A shipment made in the subsequent period is recorded as a current period sal

> With advances in technology, an increasing number of data analysis techniques are being used on audit engagements to increase both efficiency and effectiveness. In an article titled “Introduction to Data Analysis for Auditors and Accountants,” published

> You are responsible for designing the audit of notes receivable for Hickory Appliance Retailers, which sells appliances and electronics to consumers for their homes or small businesses. Hickory Appliance has eight store locations in different cities loca

> Identify two types of substantive analytical procedures an auditor may perform in testing purchases.

> List three audit procedures that are primarily for the detection of fraud and state the type of fraud the procedure is meant to uncover.

> This problem is based on the JA Tires data that was introduced in early chapters. In problem 14-32 you used audit software to test the entire population of transactions for certain attributes. However, assume the following attributes will be tested for a

> The sampling data sheet below is missing selected information for six attributes involving tests of transactions for the sales and collection cycle. Required: a. Use Table 15-8 (p. 519) and Table 15-9 (p. 521) to complete the missing information for ea

> For the audit of the financial statements of Mercury Fifo Company, Stella Mason, CPA, has decided to apply nonstatistical audit sampling in the tests of controls and substantive tests of transactions for sales transactions [see Figure 15-2 (p. 505) for e

> This problem requires the use of ACL software, which can be accessed through the textbook website. Information about downloading and using ACL and the commands used in this problem can also be found on the textbook website. You should read all of the ref

> The following are auditor judgments and attributes sampling results for six populations. Assume large population sizes. a. For each population, did the auditor select a smaller sample size than is indicated by using the attributes sampling tables in Ta

> The questions below relate to determining the CUER in audit sampling for tests of controls, using the following table: Required: a. Using nonstatistical sampling, calculate TER - SER for each of columns 1 through 8 and evaluate whether or not the calcu

> The following questions concern the determination of the proper sample size in audit sampling using the following table: a. Assume that the initial sample size for column 1 using nonstatistical sampling is 90 items. For each of columns 2 through 7, use

> The following is a partial audit program for the audit of sales transactions. 1. Foot the sales journal for one month and trace the postings to the general ledger. 2. Review the sales journal for any large or unusual transactions. 3. Examine sales order

> The following multiple choice questions concern interest-bearing liabilities. Choose the best response. a. Which of the following controls will most likely justify a reduced assessed level of control risk for the completeness assertion for notes payable?

> The following questions deal with discovering fraud in auditing year-end cash. Choose the best response. a. Which of the following cash transfers results in a misstatement of cash at December b. The auditor should control and verify all liquid assets s

> Why does an auditor review sales returns subsequent to year end? What audit objective does this procedure satisfy?

> The following questions deal with auditing year-end cash and financial instruments. Choose the best response. a. A CPA obtains a January 10 cutoff bank statement for a client directly from the bank. Very few of the outstanding checks listed on the client

> The following questions deal with contingent liabilities and the review for subsequent events. Choose the best response. a. When a contingency is resolved subsequent to the issuance of audited financial statements, which correctly contained disclosure of

> The following questions concern accumulating evidence in the acquisition and payment cycle. Choose the best response. a. In auditing accounts payable, an auditor’s procedures most likely will focus primarily on management’s assertion of (1) existence. (2

> The following questions concern the audit of accounts in the capital acquisition and repayment cycle. Choose the best response. a. Which of the following audit procedures would be most relevant when examining the completeness transaction-related audit ob

> The following apply to evaluating results of audit sampling for tests of details of balances. For each one, select the best response. a. While performing a substantive test of details during an audit, the auditor determined that the sample results suppor

> The following questions deal with confirmation of accounts receivable. Choose the best response. a. The return of a positive confirmation of accounts receivable without an exception attests to the (1) collectibility of the receivable balance. (2) accurac

> The following questions concern analytical procedures in the sales and collection cycle. Choose the best response. a. As a result of analytical procedures, the auditor determines that the gross profit percentage has declined from 30 percent in the preced

> The following questions concern internal controls in the payroll and personnel cycle. Choose the best response. a. An auditor found that employee time records in one department are not properly approved by the supervisor. Which of the following could res

> The following questions concern internal controls in the acquisition and payment cycle. Choose the best response. a. Which of the following questions is an auditor least likely to include on an internal control questionnaire concerning the initiation and

> The following questions concern internal controls in the acquisition and payment cycle. Choose the best response. a. An auditor traced a sample of purchase orders and the related receiving reports to the purchases journal and the cash disbursements journ

> Identify when an auditor would not use sampling to test the effectiveness of a control or perform a substantive tests of transactions. Explain circumstances when an auditor could test the entire population using a data analytic procedure using audit soft

> The following questions concern audit testing of the payroll and personnel cycle. Choose the best response. a. A common audit procedure in the audit of payroll transactions involves tracing selected items from the payroll journal to employee time records

> The following questions concern the audit of income and expense accounts. Choose the best response. a. The auditor may note that annual depreciation expense is too low for a class of assets by noting (1) insured values greatly in excess of carrying amoun

> The following questions concern the audit of asset accounts in the acquisition and payment cycle. Choose the best response. a. In testing for unrecorded disposals of equipment, an auditor most likely will (1) select items of equipment from the accounting

> The following questions concern audit objectives and management assertions for accounts receivable. Choose the best response. a. Which of the following will likely provide the most assurance concerning the accuracy balance-related objective for accounts

> The following items concern determining exception rates using random sampling from large populations using attributes sampling. Select the best response. a. The upper precision limit (CUER) in statistical sampling is (1) the percentage of items in a samp