AUDIT QUESTION

McCaffery, CPA, is the auditor of the Raleigh Corporation. Raleigh is a construction company that builds single-family homes and lowrise apartment buildings. Raleigh uses the percentage-of-completion method to recognize revenues on projects. Percentage of completion is based on discussion with project managers and the percentage of expenditures versus budget for each project. McCaffery has decided to use ADA as a risk analysis tool to evaluate revenue recognized on various projects.

Required:

a) Identify the assertion being audited.

b) How would an auditor set an expectation regarding percentage-of-completion for each project?

c) What would be an acceptable deviation from the auditors expectation? Explain the role of business acumen in evaluating an acceptable deviation from the auditors expectation.

d) What would be an unacceptable deviation from the auditors expectation? Explain the role of business acumen in evaluating an unacceptable deviation from the auditors expectation.

Note: Please elaborate your answers thoroughly. Thank you!