Assurance and Financial Statement Auditing
Often in an audit, total combined tolerable misstatement is greater than overall materiality. Why is this the case?
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D’Aquila, J., K. Capriotti, R. Boylan, and R. O’Keefe. 2010. Guidance on auditing high-risk clients. CPA...
D’Aquila, J., K. Capriotti, R. Boylan, and R. O’Keefe. 2010. Guidance on auditing high-risk clients. CPA Journal (October): 32-37 What are main factors that influence engagement risk? Why should an auditor perform risk assessment procedures? How does an auditor identify significant risks of material misstatement? According to the article, what are the most important strategies firms should use to mitigate risk? Eilifsen, A. and W. F. Messier, Jr. 2015. Materiality guidance of the major public accounting firms. Auditing: A Journal...
1. Consider the following statements: I. Per auditing standards, the successor [new] audit firm is...
1. Consider the following statements: I. Per auditing standards, the successor [new] audit firm is required to initiate communication with the predecessor [old] audit firm. II. The predecessor auditor might communicate, to the successor auditor, information related to client management’s integrity. a. I is true; II is true b. I is true; II is false c. I is false; II is true d. I is false; II is false 2. “A letter...
20.You are evaluating audit results for assets in the audit of Stevens Manufacturing. You set the...
20.You are evaluating audit results for assets in the audit of Stevens Manufacturing. You set the preliminary judgment about materiality at $70,000. The account balances, tolerable misstatement, and estimated overstatements in the accounts are shown next: Account Account balance Tolerable Misstate Est. of Total overstatement Cash $25,000 $2,500 $2,000 Account Rec. $600,000 $15,000 $40,000 Inventory $1,250,000 $25,000 ? Other assets $125,000 $7,500 $24,000 Total $2,000,000 $50,000 ? a. Assume you tested inventory amounts totaling $600,000 and found $8,000 in overstatements....
Ringer. CPA, has been engaged to audit Tech Co., a publicly traded company. In planning the...
Ringer. CPA, has been engaged to audit Tech Co., a publicly traded company. In planning the audit, Ringer uses 3% of income before taxes as an overall materiality threshold and 50% of overall materiality as the tolerable misstatement. If, as a result of substantive testing. Tech Co.'s pretax earnings of $20 million are found to be overstated by 4% due to errors in revenue recognition, Ringer would likely take all of the following actions when evaluating the audit findings, except...
Sandifer's Accounting Service, Inc. Trial Balance For the year ended 12/31/19 Accounts Debit Credit Cash $ ...
Sandifer's
Accounting Service, Inc.
Trial Balance
For the year ended
12/31/19
Accounts
Debit
Credit
Cash
$ 156,500
Accounts Recieveable
116,650
Allowance for Doubtful Accounts
$ 51,250
Supplies
2,950
Prepaid Insurance
1,700
Building
260,000
Equipment
125,000
Land
111,500
Accumulated Depreciation
167,000
Investment in Bonds held to Maturity
24,000
Accounts Payable
5,650
Current Maturity of Note Payable
3,000
Note Payable
170,000
Unearned Revenue
2,000
Interest Payable
1,500
Salaries Payable...
Review Garcia and Foster’s calculations of materiality thresholds for the 20X2 Audit . Determine if the...
Review Garcia and Foster’s calculations of materiality
thresholds for the 20X2 Audit . Determine if the auditors correctly
applied the materiality concept in their risk assessment
procedures. Describe any problems you find and provide suggestions
for improvement. This question relates to step 2 of the Garcia and
Foster Audit Plan.
Step 2: Requires the audit team to obtain and document its
understanding of the client’s environment including internal
controls. This understanding allows auditors to identify
significant risks in the audit...
auditing Question one Answer each of the following statements true or false. If it's false explain...
auditing
Question one Answer each of the following statements true or false. If it's false explain how the correct statement should be. (10 marks) i) If planned performance materiality is reduced, the amount of evidence the auditor accumulates will decrease. ii) If acceptable audit risk is low, and inherent risk and control risk are both low, then planned detection risk should be high. ii) If the audit assurance rate or tolerable misstatement is 95%, then the level of acceptable audit...
John Doe, CPA, is interested in testing the fairness of the ending inventory balance during the...
John Doe, CPA, is interested in testing the fairness of the ending inventory balance during the audit of ABC Co. John has relatively little experience using statistical sampling methods and, quite frankly, doesn't like to turn anything over to random chance—especially the selection of items to test. John used a judgmental method of selecting items for testing. The method involves testing the inventory-item balances that he deems most risky or most likely to be misstated. John identified items to test...
1. Consider the following statements: I. Clearly trivial and not material are terms that can...
1. Consider the following statements: I. Clearly trivial and not material are terms that can be used interchangeably. II. The higher the dollar amount of (performance) materiality the less audit evidence is required. a. I is true; II is true b. I is true; II is false c. I is false; II is true d. I is false; II is false 2. Consider the following statements: I. Per auditing standards, the successor [new]...
JJ is a retailer, public for profit company, with net income before taxes of $2,000,000 and...
JJ is a retailer, public for profit company, with net income before taxes of $2,000,000 and total assets of $5,000,000. During the year, Wayne CPA firm discovered multiple misstatements that aggregated to an overstatement of net income of $110,000. Calculate Overall Materiality using 5% of the appropriate base and calculate Tolerable Misstatement by using 50% of the appropriate base. Should JJ CPA firm request an overall adjustment and if so, by how much? Request an adjustment of $5,000 Request an...
Ringer. CPA, has been engaged to audit Tech Co., a publicly traded company. In planning the audit, Ringer uses 3% of income before taxes as an overall materiality threshold and 50% of overall materiality as the tolerable misstatement. If, as a result of substantive testing. Tech Co.'s pretax earnings of $20 million are found to be overstated by 4% due to errors in revenue recognition, Ringer would likely take all of the following actions when evaluating the audit findings, except...
Sandifer's
Accounting Service, Inc.
Trial Balance
For the year ended
12/31/19
Accounts
Debit
Credit
Cash
$ 156,500
Accounts Recieveable
116,650
Allowance for Doubtful Accounts
$ 51,250
Supplies
2,950
Prepaid Insurance
1,700
Building
260,000
Equipment
125,000
Land
111,500
Accumulated Depreciation
167,000
Investment in Bonds held to Maturity
24,000
Accounts Payable
5,650
Current Maturity of Note Payable
3,000
Note Payable
170,000
Unearned Revenue
2,000
Interest Payable
1,500
Salaries Payable...
Review Garcia and Foster’s calculations of materiality
thresholds for the 20X2 Audit . Determine if the auditors correctly
applied the materiality concept in their risk assessment
procedures. Describe any problems you find and provide suggestions
for improvement. This question relates to step 2 of the Garcia and
Foster Audit Plan.
Step 2: Requires the audit team to obtain and document its
understanding of the client’s environment including internal
controls. This understanding allows auditors to identify
significant risks in the audit...
auditing
Question one Answer each of the following statements true or false. If it's false explain how the correct statement should be. (10 marks) i) If planned performance materiality is reduced, the amount of evidence the auditor accumulates will decrease. ii) If acceptable audit risk is low, and inherent risk and control risk are both low, then planned detection risk should be high. ii) If the audit assurance rate or tolerable misstatement is 95%, then the level of acceptable audit...
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