Hi, tutors,

Could anyone helps me do the following homeworks from my auditing classes?

Winnie

Assignment 10 Discussion questions 1. What period is covered by the auditor's review for subsequent events? Give an example of a subsequent event that should result in disclosure, and a subsequent event that would require adjustment to the financial statements. 2. Assume you learn of a subsequent event after the date of the audit report (end of audit fieldwork) but before the audit report has been issued. How should you address this type of subsequent event? 3. Your preliminary judgment of materiality was based on net income. Why is it necessary to compare unadjusted misstatements to other bases of materiality? What should the auditor do if the unadjusted misstatements exceed one or more materiality thresholds? Assignment 9 Discussion questions 1. Oceanview's inventory consists primarily of boats and involves a comparatively small number - inventory items. How would inventory observation and test count tracing tests differ if the cliehas a large number of inventory items and the client did not have a detailed list of inventory hand at the time of the inventory observation? 2. Because of the nature of Oceanview's inventory, pricing is done using the specific identification method. How would the pricing tests differ if the inventory consisted of a large number of items for each product? 3. Oceanview identified some potentially obsolete inventory items. What tests should the auditor perform to identify inventory that is obsolete or inventory that should be reduced from historical cost to net realizable value? 4. The client received a large shipment of inventory on December 31st during the inventory observation. What procedures should the auditor perform to verify that the acquisition of inventory is properly accounted for? Assignment 7 Discussion questions a l 1. In Assignment 5, you performed tests of controls and substantive tests of transactions for acquisitions. How do the results of these tests affect the extent of testing in the audit of accounts payable? The purpose of performing tests of controls and substantive tests of transactions for acquisitions is to meet transaction-related audit objectives, such as 1) Occurrence. Recorded acquisitions for goods and services are received. 2) completeness. Existing acquisitions are recorded. 3) accuracy. Acquisitions are accurately recorded. The auditor performs tests of controls to obtain evidence that controls are operating effectively. If the client has highly effective internal controls over recording and paying for acquisitions, the verification of accounts payable should require little audit effort. For example, receipt of goods is promptly documented by prenumbered receiving reports; prenumbered vouchers are promptly and efficiently prepared and recorded in the acquisition transactions file and the accounts payable master file. In those situation, required auditing works should be reduced greatly in the terms of verifying accounts payable. Another example, if receiving reports are not used, the client defers recording acquisitions until cash disbursements are made, and because of cash shortages, bills are often paid several months after their due date. When an auditor faces such a situation, there is a high likelihood of an understatement of accounts payable; thus, extensive tests of details of accounts payable are necessary to determine whether accounts payable is correctly stated on the balance sheet date. 2. What is the primary objective in the audit of accounts payable? How might this affect the sampling method used and how the sample is evaluated? The auditors' principal objectives for the substantive tests of accounts payable and purchases are to: (a) substantiate the existence of recorded accounts payable and the occurrence of purchase transactions, (b) establish the completeness of accounts payable and purchase transactions, (c) determine that the client has obligations to pay the recorded accounts payable, (d) determine the appropriate valuation of accounts payable, and (e) determine that the presentation and disclosure of accounts payable and purchases are appropriate. Because an understatement of liabilities overstates income, auditors are ordinarily most concerned with the completeness assertion for payables. However, in circumstances in which a client may be motivated to understate income (e.g., to minimize taxes), existence becomes a bigger concern. So, the primary objective of the accounts payable audit is to determine that all payables are recorded. To verify that all payables are recorded, auditing procedures are required. Those procedures include: (1) Reviewing related prior audit reports; (2) Interviewing staff of Accounts Payable and Purchasing Departments; (3) Reviewing Accounts Payable Policy and Procedures documents; (4) Reviewing supporting documentation for sample invoices to determine if it meets certain assertion. (5) Performing other analytical reviews. The number of confirmation requests is determined by the auditors' assessments of control risk. Thus, the selection of accounts payable for confirmation would be from the following groups: (1) Large accounts including important suppliers even though the account balance is small at balance sheet date. (2) Accounts for which monthly statements are unavailable. (3) Accounts with unusual transactions. (4) Accounts with zero balances that had substantial activity earlier in the year. 3. The client received and recorded a large shipment of inventory on January 3rd that was shipped FOB shipping point on December 29th. How should the auditor account for this in the search for unrecorded liabilities? The terms of FOB shipping point the title to the goods usually passes to the buyer at the shipping point. This means that goods in transit should be reported as a purchase and as inventory by the buyer. In circumstance that the client deters recording liabilities, cause understatement of the liabilities, and thus overstates the income statement. Auditor should extend tests of details of accounts payable to determine whether accounts payable is correctly stated on the balance sheet date. 4. Confirmations were emphasized in tests of accounts receivable, but are rarely used in tests of accounts payable. What factors account for this difference? When would confirmation of accounts payable be appropriate? The confirmation of accounts receivable is a generally accepted auditing procedure. In contrast, the confirmation of accounts payable is not a generally accepted auditing procedure, although the procedure is often followed. There are two possible reasons for this differences. 1) Management fraud would tend to overstate the assets and understate the liabilities. Confirmation is generally more effective for tests of existence (overstatement) than completeness (understatement). 2) The evidence supporting accounts receivable records is usually generated by the company's internally produced documents, whereas the evidence supporting accounts payable, such as vendors' invoices and statements, is produced by outside sources. For these reasons, the emphasis of the accounts receivable audit is to obtain evidence supporting the amount recorded. On the other hand, determining that all payables are recorded is the primary objective of the accounts payable audit. So, confirmations are very useful in supplying supporting evidence for receivables but auditing procedures are required to verify that all payables are recorded. The following attributes of transactions and balances would be appropriate for the use of confirmation: (1) Large accounts including important suppliers even though the account balance is small at balance sheet date. (2) Accounts for which monthly statements are unavailable. (3) Accounts with unusual transactions. (4) Accounts with zero balances that had substantial activity earlier in the year