EBK FINANCIAL ACCOUNTING THEORY AND ANA
12th Edition
ISBN: 9781119299646
Author: CATHEY
Publisher: JOHN WILEY+SONS,INC.-CONSIGNMENT
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Question
Chapter 1, Problem 1.4C
(a)
To determine
Introduction: Accounting principles are general guidelines that are followed by the accountant for the preparation of financial statements.
To state: The general accounting principles used in audit report.
(b)
To determine
Introduction: Accounting principles are general guidelines that are followed by the accountant for the preparation of financial statement
To state: Whether or not accounting principle is generally accepted and discuss the source to support the accounting principles.
(c)
To determine
Introduction: Accounting principles are general guidelines that are followed by the accountant for the preparation of financial statement
To state: Whether diversity in accounting practice will always exist in the entity.
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Which of the following are rights of auditors? I. To access all accounting books and records at all times II. To insist that financial statements are corrected if they do not give a true and fair view III. To receive notice of all board meetings on matters of concern to the auditor IV. To attend and be heard at all board meetings on matters of concern to the auditor V. To receive all information and explanations from management necessary for the proper conduct of the audit
Course Name: Auditing (Accounting)
Write a concise answer between 350 to 400 words for each question.
a) The purpose of an audit is to enhance the degree of confidence of interested users in the financial statements. How can you achieve this purpose? Explain.
b) “Sufficiency of audit evidence and appropriateness of audit evidence are essential for arriving at the conclusions on which the auditor’s opinion is based.” Elaborate the statement.
Chapter 1: Introduction of Auditing
A.
Section 267 and 271 of the Companies Act 2016 respectively require for the private
and public companies to appoint an auditor for each financial year. An auditor should
ensure that the financial statements of the company are prepared in accordance with
the relevant accounting standards. An auditor is guided by the auditing standards in
order to obtain reasonable assurance that the financial statements are free from
material misstatements.
Required:
i.
Explain two (2) benefits of a financial statements audit performed by an
approved company auditor.
i.
Explain the tem 'reasonable assurance'.
i.
Explain two (2) importance of auditing standards to an auditor in performing the
assigned duties.
Chapter 1 Solutions
EBK FINANCIAL ACCOUNTING THEORY AND ANA
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Similar questions
- An important task ¡n the audit of the revenue cycle is determining whether a client has appropriately recognized revenue. a. What is the five-step process that companies should use in recognizing revenue? Why might the auditor need to do additional research and consider additional criteria on revenue recognition? b. The following are situations in which the auditor will make decisions about the amount of revenue to be recognized. For each of the following scenarios, labeled (1) through (6): . Identify the key issues to address in determining whether or not revenue should he recognized. . Identify additional information the auditor may want to gather in making a decision on revenue recognition. . Based only on the information presented, develop a rationale for either the recognition or nonrecognition of revenue. 1. AOL sells software that is unique as a provider of Internet services. The software contract includes a service fee of $19.95 for up to 500 hours of Internet service each month. The minimum requirement is a one-year contract. The company proposes to immediately recognize 30% of the first-year’s contract as revenue from the sale of software and 70% as Internet services on a monthly basis as fees are collected from the customer. 2. Modis Manufacturing builds specialty packaging machinery for other manufacturers. All of the products are high end and range in sales price from $5 million to $25 million. A major customer is rebuilding one of its factories and has ordered three machines with total revenue for Modis of $45 million. The contracted date to complete the production was November, and the company met the contract dare. The customer acknowledges the contract and confirms the amount. However, because the factory is not yet complete, it has asked Modis to hold the products in the ware house as a courtesy until its building is complete. 3. Standish Stoneware has developed a new low-end line of baking products that will be sold directly to consumers and to low-end discount retailers. The company had previously sold high-end silverware products to specialty stores and has a track record of returned items for the high-end stores. The new products tend to have more defects, but the defects are not necessarily recognizable ¡n production. For example, they are more likely to crack when first used in baking. The company does not have a history of returns from these products, but because the products are new, it grants each customer the right to return the merchandise for a full refund or replacement within one year of purchase. 4. Omer Technologies is a high-growth company that sells electronic products to the custom copying business. It is an industry with high innovation, but Omer’s technology is basic. In order to achieve growth, management has empowered the sales staff to make special deals to increase sales in the fourth quarter of the year. The sales deals include a price break and an increased salesperson commission but not an extension of either the product warranty or the customer’s right to return the product. 5. Electric City is a new company that has the exclusive right to a new technology that saves municipalities a substantial amount of energy for large-scale lighting purposes (e.g., for ball fields, parking lots, and shop ping centers). The technology has been shown to be very cost effective in Europe. In order to get new customers to try the product, the sales force allows customers to try the product for up to six months to prove the amount of energy savings they will realize. The company is so confident that customers will buy the product that it allows this pilot-testing period. Revenue is recognized at the time the product is installed at the customer location, with a small provision made for potential returns. 6. Jackson Products decided to quit manufacturing a line of its products and outsourced the production. However, much of its manufacturing equipment could be used by other companies. In addition, it had over $5 million of new manufacturing equipment on order in a noncancelable deal. The company decided to become a sales representative to sell the new equipment ordered and its existing equipment. All of the sales were recorded as revenue.arrow_forwardQUESTION (AUDITING) 1. Briefly explain with five reasons why auditors are needed in society?2. Mention, a few characteristics that are important for an auditor to have?3. Identify and briefly discuss the inherent limitations of an audit of the set of annual financial statements of a company?arrow_forward6) Cutoff tests designed to detect purchases made before the end of the year that have been recorded in the subsequent year provide assurance about management's assertion of: existence rights and obligations completeness presentation and disclosure Question 7 An engagement letter is used primarily to: disclaim liability ensure a clear contractual understanding of the services to be provided by the CPA. provide management representations to be included in the audit evidence. express an opinion on the financial statements.arrow_forward
- 20. To correct all errors they discover in the accounting records for the year under audit. The auditors should prepare adjusting journal entries for material items only. Because they are concerned with the fairness, not the preciseness, of the client's financial statements. Select one:TrueFalsearrow_forward16. What is the purpose of information presented in notes to financial statements? a. To present management's responses to auditor comments b. To correct improper presentation in the financial statements c. To provide disclosures required by generally accepted accounting principles d. To provide recognition of amounts not included in the total of the financial statements 17. Proper application of accounting principles is most dependent upon a. Existence of specific guidelines b. Oversight of regulatory bodies c. External audit function d. Professional judgment of the accountant 18. Which of the following is not a correct variation of the basic accounting equation? a. Asset = Liabilities +Equity b. Asset - Liabilities = Equity c. Asset - Equity = Liabilities d. Asset + Liabilities = Equity 19. Entity A's total liabilities are P50M, while its total equity is P10. Entity A's total assets are a. P60M b. P50M c. P40M d. Any of these 20. What is the effect on an entity's financial…arrow_forwardWho is the auditor for Target? What type of opinion are they giving on Target’s financial statements? (page 32) Refer to “Types of Auditor’s Opinions document.arrow_forward
- 27. If the auditors disagree with management regarding an accounting principle used in the financial statements, the auditors should express their views in the notes to the financial statements." Select one:TrueFalsearrow_forwardIn what document would the following statement most likely appear. It is our opinion that the possible liability to the company from this proceeding is nominal in amount. Lawyer's response to audit inquiry letter. Audit committees communication to the auditor. Auditor's engagement letter. Audit inquiry to legal counsel.arrow_forwardThe purpose of an audit is to A. provide financial statement users with an opinion by an independent auditor on whether the financial statements are presented fairly in accordance with an applicable financial reporting framework B. provide internal auditors with an opinion by the external auditor on whether the financial statements are presented fairly in accordance with an applicable financial reporting framework C. provide absolute assurance that the financial statements conform to Generally Accepted Accounting Principles (GAAP) D. help management ensure yearly bonuses will be receivedarrow_forward
- Under which section in the auditor's report is stated that, "we have audited the financial statements of the company"? O a. Auditor's responsibilities for the audit of the Financial Statements paragraph O b. Opinion paragraph O c Basis for Opinion paragraph O d. Responsibilities of Management for the Financial Statements paragrapharrow_forwardWhich of the following parties are responsible for the detection of errors and accounting irregularities in a company's financial statements? Multiple Choice O internal audit staff and audit committee of the board of directors. all of these answer choices are correct. the SEC staff during their review process external auditorsarrow_forward**Objective Question:** In the context of accounting practices, what term refers to the mandatory periodic rotation of audit firms tasked with auditing a company's financial statements to enhance independence and objectivity? a) Financial disclosure b) Audit rotation c) Tax planning d) Cost accountingarrow_forward
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