a.
State whether a CPA’s test for unrecorded liabilities is affected by the fact that the client prepared
b.
State whether a CPA’s test for unrecorded liabilities is eliminated or reduced due to internal audit tests.
c.
State whether CPA’s text for unrecorded liabilities be affected by the fact that a letter is obtained in which a responsible management official certifies that to the best of his or her knowledge, all liabilities have been recorded.
d.
Explain the manner in which CPA’s unrecorded liability test be affected by the work of the auditor for a federal agency for the situation given.
e.
State the sources in addition to the year 2017 acquisitions journal must the CPA consider to locate possible unrecorded liabilities.
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Auditing and Assurance Services (16th Edition)
- The fieldwork for the December 31, 2018 audit of Schmidt Corporation ended on March 17, 2019. The financialstatements and auditor's report were issued on March 29, 2019. In each of the material situations (1 through 5)below, indicate the appropriate action (a, b, c). The possible actions are as followsa. Adjust the December 31, 2018 financial statements.b. Disclose the information in a footnote in the December 31, 2018 financial statements.c. No action is required.The situations are as follows:________ 1. On March 1, 2019, one of Schmidt Corporation's major customers declared bankruptcy. The customer'sfinancial condition in 2018 was deteriorating and they owed Schmidt Corporation a large sum of money as of thebalance sheet date.________ 2. On February 17, 2019, Schmidt Corporation sold some machinery for its book value.________ 3. On February 20, 2019 a flood destroyed the entire uninsured inventory in one of Schmidt'swarehouses.________ 4. On January 5, 2019, there was a significant…arrow_forwardAmbrose is auditing the financial statements of Mays (dated December 31, 2017). The date of the auditor’s report is February 17, 2018, and the audit report release date is February 20, 2018. For which of the following matters would Ambrose have the least responsibility?a. The obsolescence of inventory held on December 31, 2017, that was identified on January 20, 2018.b. A customer’s deteriorating financial condition that was identified on February 19, 2018.c. A merger that was announced by Mays and known by Ambrose on February 12, 2018.d. A major loss due to a catastrophe that occurred and was known by Ambrose on March 1, 2018.arrow_forwardWhile completing your audit work for the 30 June 2019 audit of Greenfield Ltd, you become aware of the following material matters: On 5 July, Blue Pty Ltd, a major customer of Greenfield Ltd, was placed into liquidation. As Blue Pty Ltd had confirmed the balance due to Greenfield Ltd as at balance date, management of Greenfield Ltd has refused to write off or provide for the Blue Pty Ltd account in the 30 June 2019 financial report. However, they are prepared to disclose this information as a note to the financial report. On 15 July, Greenfield Ltd entered into a new contract to supply wine to Wine Taster, a major new wine store that had set up operations in northern South Australia. The contract was similar in nature to other contracts previously negotiated with other wine stores. Management does not believe that any change to the financial report is required. Greenfield Ltd has capitalised significant funds incurred in developing an improved new wine cap that allows the wine to…arrow_forward
- While completing your audit work for the 30 June 2019 audit of Greenfield Ltd, you become aware of the following material matters: I. On 5 July, Blue Pty Ltd, a major customer of Greenfield Ltd, was placed into liquidation. As Blue Pty Ltd had confirmed the balance due to Greenfield Ltd as at balance date, management of Greenfield Ltd has refused to write off or provide for the Blue Pty Ltd account in the 30 June 2019 financial report. However, they are prepared to disclose this information as a note to the financial report. - DONE II. On 15 July, Greenfield Ltd entered into a new contract to supply wine to Wine Taster, a major new wine store that had set up operations in northern South Australia. The contract was similar in nature to other contracts previously negotiated with other wine stores. Management does not believe that any change to the financial report is required. DONE III. Greenfield Ltd has capitalised significant funds incurred in developing an improved new wine cap that…arrow_forwardWhile completing your audit work for the 30 June 2019 audit of Greenfield Ltd, you become aware of the following material matters: I. On 5 July, Blue Pty Ltd, a major customer of Greenfield Ltd, was placed into liquidation. As Blue Pty Ltd had confirmed the balance due to Greenfield Ltd as at balance date, management of Greenfield Ltd has refused to write off or provide for the Blue Pty Ltd account in the 30 June 2019 financial report. However, they are prepared to disclose this information as a note to the financial report. II. On 15 July, Greenfield Ltd entered into a new contract to supply wine to Wine Taster, a major new wine store that had set up operations in northern South Australia. The contract was similar in nature to other contracts previously negotiated with other wine stores. Management does not believe that any change to the financial report is required. Required:For each independent situation, state the type of audit report that you should issue and give reasons for…arrow_forwardYou are the auditor in charge of the audit of Irene PLC, which has a 30 June year end. The subsequent events review for the year ended 30 June 2022 revealed that, on 1 August 2022, a receiver was appointed at a major customer. At 30 June 2022 that customer owed GHS 150,000 and goods costing GHS 200,000 made to that customer’s specification were held in inventory. Both these amounts are material.RequiredList the matters to which you would direct your attention in respect of the above in relation to the audit for the year ended 30 June 2022, if the audit report on the financial statements has not yet been written.arrow_forward
- Sorrell, CPA, is auditing the financial statements of Van Dyke as of December 31, 2017. Sorrell’s substantive procedures and other tests indicated that Van Dyke’s financial statements were prepared in accordance with generally accepted accounting principles and, accordingly, Sorrell expressed an unqualified opinion on those financial statements. Because Van Dyke’s securities are registered with the Securities and Exchange Commission, Van Dyke is subject to the reporting requirements of AS 2201. During its assessment of internal control over financial reporting, Van Dyke’s management identified material weaknesses relatedto (1) the method of accounting for sales commissions and (2) separation of duties related to purchase transactions. Sorrell was able to gather sufficient evidence and did not encounter limitations with respect to the evaluation of Van Dyke’s internal control over financial reporting. Sorrell prepared the following draft report on Van Dyke’s internal control…arrow_forwardThe fieldwork for the December 31, 2016 audit of Treble Corporation ended on March 17, 2017. The financialstatements and auditor's report were issued and mailed to stockholders on March 29, 2017. In each of the materialsituations (1 through 5) below, indicate the appropriate action (a, b, c, d, or e). The possible actions are as follows:a. Adjust the December 31, 2016 financial statements.b. Disclose the information in a footnote in the December 31, 2016 financial statements.c. Request the client revise and reissue the December 31, 2016 financial statements. The revision should involvean adjustment to the December 31, 2016 financial statements.d. Request the client revise and reissue the December 31, 2016 financial statements. The revision should involvethe addition of a footnote, but no adjustment, to the December 31, 2016 financial statements.e. No action is required.The situations are as follows:________ 1. On January 16, 2017 a lawsuit was filed against Treble for a patent…arrow_forwardWhile completing your audit work for the 30 June 2019 audit of Greenfield Ltd, you become aware of the following material matters: 1. On 5 July, Blue Pty Ltd, a major customer of Greenfield Ltd, was placed into liquidation. As Blue Pty Ltd had confirmed the balance due to Greenfield Ltd as at balance date, management of Greenfield Ltd has refused to write off or provide for the Blue Pty Ltd account in the 30 June 2019 financial report. However, they are prepared to disclose this information as a note to the financial report. II. On 15 July, Greenfield Ltd entered into a new contract to supply wine to Wine Taster, a major new wine store that had set up operations in northern South Australia. The contract was similar in nature to other contracts previously negotiated with other wine stores. Management does not believe that any change to the financial report is required. III. Greenfield Ltd has capitalised significant funds incurred in developing an improved new wine cap that allows the…arrow_forward
- Subsequent Events and Subsequently Discovered Facts. Michael Ewing is auditing the financial statements of Dallas Company for the year ended December 31, 2017. In concluding the process of gathering sufficient appropriate evidence, Ewing has asked to meet with his supervisor on the audit (John Ross) to discuss responsibility for events occurring afterthe date of the financial statements.Required:a. What is a subsequent event? During what time period is Ewing responsible for subsequent events?b. List some procedures that Ewing may perform to assist him in identifying subsequent events.c. What are two types of subsequent events? How should information related to these types of subsequent events be reflected in Dallas’s financial statements?d. Assume that on January 8, 2018, Dallas Company agreed to acquire Houston Inc. in a significant transaction. The date of Ewing’s report was February 7, 2018, and Dallas issued its financial statements (and Ewing’s reports on its financial statements…arrow_forwardDuring the course of an audit of the financial statements of Julie Company for the yearended December 31, 2019, the following data are discovered: Inventory on January 1, 2019 had been overstated by P300,000. Inventory on December 31, 2019 was understated by P500,000. An insurance policy covering three years had been purchased on January 1, 2018for P150,000. The entire amount was charged as an expense in 2018. During 2019, the entity received a P100,000 cash advance from a customer formerchandise to be manufactured and shipped during 2020. The amount had beencredited to sales revenue. The gross profit on sales is 50%.Net income for 2019 per book was P2,000,000. What is the proper net income for 2019?arrow_forwardLate Appointment of Auditors. AOW has completed the audit of the financial statements of Musgrave Company for the year ended December 31, 2017, and is now preparingthe report.AOW has audited Musgrave’s financial statements for several years, but this yearMusgrave delayed the start of the audit work, so AOW was not present to observe the takingof the physical inventory on December 31, 2017. The inventory balance is $194,000,which represents 39 percent of Musgrave’s total assets and 69 percent of its currentassets. However, AOW performed alternative procedures including (1) examination ofshipping and receiving documents with regard to transactions since the date of the financialstatements, (2) extensive review of the inventory count sheets, and (3) discussion of thephysical inventory procedures with responsible company personnel. AOW also is satisfiedabout the propriety of the inventory valuation calculations and the consistency of the valuation method. Musgrave determines year-end…arrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningAuditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub