In your audit of Aviary Industries for calendar year 2018, you found a number of matters that

Question:

In your audit of Aviary Industries for calendar year 2018, you found a number of matters that you believe represent possible adjustments to the company’s books. These matters are described below. Management’s attitude is that “once the books are closed, they’re closed,” and management does not want to make any adjustments. Planning materiality for the audit was $100 000, determined by computing 5 percent of expected income before taxes. Actual income before taxes on the financial statements prior to any adjustments is $1 652 867.

Possible adjustments:

1. Several credit memos that were processed and recorded after year-end relate to sales and accounts receivable for 2018. These total $26 451.

2. Inventory cutoff tests indicate that $25 673 of inventory received on December 30, 2018, was recorded as purchases and accounts payable in 2019. These items were included in the inventory count at year-end and therefore were included in ending inventory.

3. Inventory cutoff tests indicate several sales invoices recorded in 2018 for goods that were shipped in early 2019. The goods were included in inventory even though they were set aside in a separate area. The total amount of these shipments was $41 814.

4. The company wrote several cheques at the end of 2018 for accounts payable that were held and not mailed until January 15, 2019. These totalled $43 671. Recorded cash and accounts payable at December 31, 2018, are $2 356 553 and $2 666 290, respectively.

5. The company has not established a reserve for obsolescence of inventories. Your tests indicate that such a reserve is appropriate in an amount somewhere between $15 000 and $30 000.

6. Your review of the allowance for uncollectible accounts indicates that it may be understated by between $35 000 and $55 000.


REQUIRED

a. Determine the adjustments that you believe must be made for Aviary’s financial statements to be fairly presented. Include the amounts and accounts affected by each adjustment.

b. Why may Aviary Industries’ management resist making these adjustments?

c. Explain what you consider the most positive way of approaching management personnel to convince themto make your proposed changes.

d. Describe your responsibilities related to unadjusted misstatements that management has determined are immaterial individually and in the aggregate.

Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula                Ending Inventory Formula =...
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive...
Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Auditing The Art and Science of Assurance Engagements

ISBN: 978-0134613116

14th Canadian edition

Authors: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Joanne C. Jones

Question Posted: