Hi, I need help with this assignment. There are some multiple choice questions and some open ended questions at the end. I need help answering those. Please show calculations for questions that need to be calculated. The open ended questions should be at least 4-5 sentences long. The financial statements needed for some of the questions is attached.

Individual Assignment: Audit Planning Assignment Background: Capstone Core Objective Assessment This assignment involves planning the audit for a hypothetical audit client, and serves as a capstone assessment. By completing this assignment, you will demonstrate each of the following core objectives: Critical Thinking Skills (CT) - to include creative thinking, innovation, inquiry, and analysis, evaluation and synthesis of information Communication Skills (CS) - to include effective development, interpretation and expression of ideas through written, oral and visual communication Empirical and Quantitative Skills (EQS) - to include the manipulation and analysis of numerical data or observable facts resulting in informed conclusions Social Responsibility (SR) - to include intercultural competence, knowledge of civic responsibility, and the ability to engage effectively in regional, national, and global communities The information and questions needed to complete this assignment begin on page 2. 1 2015 Audit of Gamma Industries: Summary of Information Assume you are an audit manager planning the 2015 financial statement audit of Gamma Industries, a public company using a 12/31 year-end (for this assignment, focus only on the financial statement audit). Gamma is a new client for your firm. Gamma manufactures medical equipment, and sells these machines to hospitals, out-patient surgery centers, and doctor's offices. The audit partner has asked you to help plan the audit for this new client using the following information obtained and summarized by the engagement team: Ross Parker has been Gamma's CEO for five years, and previously served as an executive vice president at Gamma for seven years. Before joining Gamma, Mr. Parker worked as an account manager at an advertising agency. A routine background check revealed one legal issue for Mr. Parker: he was arrested in 2003 for driving while intoxicated, and was sentenced to a fine and 100 hours of community service. Mr. Parker paid the fine and diligently performed the community service without protest. Maria Gonzalez, CPA, is Gamma's CFO and a former auditor. Mrs. Gonzalez has worked at Gamma in various accounting and financial reporting positions for nearly two decades, and has been CFO for six years. While Mr. Parker and Mrs. Gonzalez have provided consistency in the CEO and CFO positions, respectively, Gamma has experienced significant turnover among its accounting personnel. The majority of the current accounting staff do not have accounting degrees, although both the controller and chief accounting officer have master's degrees in accounting. Gamma received a qualified financial statement opinion for its 2014 financial statements from the predecessor audit firm. Mr. Parker explained that this opinion was due to disagreements over a subjective accounting estimate, the allowance for doubtful accounts. Communications with the predecessor audit firm, which are required by standards, indicated client management and the previous auditor had multiple disagreements over subjective accounting estimates. The predecessor audit firm indicated it resigned after completing the 2014 audit due to what it perceived as aggressive accounting practices related to estimates. The company's executives receive a base salary and incentive-based compensation such as stock options and bonuses. For accounting and financial services personnel, Gamma implemented a policy last year that combines years of service and corporate performance to encourage stability and limit turnover. Due to this policy, Mrs. Gonzalez will receive a very large bonus if the company meets its 2015 Basic EPS forecast because she will pass twenty years of service late in 2015. This morning, the audit senior for the Gamma audit, Eric Wall, disclosed to you that his aunt owns a material (to her) amount of Gamma's common stock. Eric told you he does not believe his independence is impaired and wishes to stay on the Gamma audit. Please see the accompanying Excel file for Gamma's 2015 unaudited financial statements. 2 Questions to Submit to the Professor These questions address issues related to audit planning such as analytical procedures, inherent risk assessment, and audit engagement staffing. Submit one version of this assignment, on the template, as an electronic version through Turnitin via Blackboard. Part 1: Analytical Procedures using the 2015 Unaudited Financial Statements 1. An auditor calculating Gamma's quick ratio should exclude which of the following item(s) from current assets? a. Cash and equivalents b. Inventory c. Prepaid Expenses d. B & C only 2. The numerator of Gamma's receivables turnover is equal to a. Eighty percent of Gamma's net sales b. Eighty-five percent of Gamma's cost of sales c. Eighty-five percent of Gamma's net sales 3. An auditor calculating Gamma's inventory turnover should include which financial statement item in the denominator? a. Total current assets b. Inventory c. Sales 4. An auditor calculating Gamma's times interest earned ratio should include which financial statement item in both the numerator and denominator? a. Interest expense b. Net income c. Notes payable 5. Assuming a 360 day year, Gamma's days outstanding in accounts receivables is __ days. a. 63.00 b. 63.88 c. 66.94 6. Gamma's net profit margin is __ %. a. 3.49 b. 5.68 c. 8.45 7. Gamma's return on equity (ROE) is __ %. a. 0.81 3 b. 3.02 c. 4.57 8. Gamma's quick ratio is a. 0.30 b. 2.72 c. 4.62 9. Assume Gamma's usual credit terms are 2/10, net 30. Gamma's days outstanding in accounts receivables suggests bad debts are likely __ to accounts receivable. a. Immaterial b. Material c. Neither A nor B: Bad debts have no relationship with accounts receivable 10. Gamma's profit margin, relative to the industry of average of 14%, suggests a __ level of detection risk. a. Low b. High c. Neither A nor B: profit margin is irrelevant to assessing detection risk 11. Gamma's ROA, relative to the industry average of 12%, suggests a __ level of inherent risk. a. Low b. High c. Neither A nor B: ROA is irrelevant to assessing inherent risk 12. Gamma's current ratio may be distorted because the company a. Has not fully depreciated and amortized all of its fixed assets b. Did not present diluted EPS in its financial statements c. Likely has a high level of bad debts Part 2: Inherent Risk (IR) Assessment 13. List four issues from the summary information on p.2 that could impact IR at Gamma 14. Consider Gamma's accounting and financial services personnel, including the controller, chief accounting officer, and CFO. What is your assessment of the collective competence of these employees? How does this assessment impact IR? 15. What impact, if any, does the CEO's (Mr. Parker) driving while intoxicated arrest in 2003 have on IR? Explain your answer. 16. What is your IR assessment? Support your conclusion using the summary information in this document and the 2015 unaudited financial statements, including the analytical procedures you performed in Part 1. 4 Part 3: Audit Engagement Staffing 17. Describe your responsibility to the public interest in considering Eric's issue? How does this responsibility impact your consideration of whether to remove him from the Gamma audit? 18. Will you allow Eric to serve on the Gamma audit? Explain your reasoning, including how investors and regulators might view his participation on the audit. 19. If the average auditor in practice was in Eric's position and was allowed to stay on the Gamma audit, could this person be objective (be sure to explain your answer)? What specific advice would you give this person on how to maintain her/his objectivity? 5 Gamma Industries Consolidated Statement of Income (Unaudited) December 31, 2015 Net Sales* Cost of Sales Gross Profit SGA Expenses Operating Income Interest Expense Income Before Taxes Income Tax Provision Net Income Basic EPS *Credit sales are equal to 85% of net sales $2,347,522 1,383,395 964,127 748,356 215,772 10,789 204,983 71,744 133,239 $1.33 Gamma Industries Consolidated Balance Sheet (Unaudited) December 31, 2015 Assets Current Assets Cash and equivalents Accounts Receivable, net Inventory Prepaid Expenses Total Current Assets $997,697 349,194 10,211,723 611,089 12,169,703 Property, Plant & Equipment Land and Buildings Equipment and Vehicles IT Hardware and Software Accumulated Depreciation & Amortization Property, Plant & Equipment, net $1,707,559 1,758,785 1,827,088 (1,109,913) 4,183,518 Total Assets $16,353,222 Gamma Industries solidated Balance Sheet (Unaudited) December 31, 2015 Liabilities & Stockholders' Equity Current Liabilities Accounts Payable Accrued Liabilities Income Taxes Payable Total Current Liabilities $2,601,495 1,430,822 442,254 4,474,572 Notes Payable Total Liabilities $7,466,291 11,940,862 Stockholders' Equity Common Stock, 100,000 shares issued & outstanding Additional Paid-in-Capital Accumulated Other Comprehensive Income Retained Earnings Total Stockholders' Equity Total Liabilities & Stockholders' Equity $200,000 1,560,000 638,703 2,013,656 4,412,359 $16,353,222