Question 8-33 & question 8-35 to be done only.
Evaluate the explanation provided by O'Keefe. Show calculations to support your Required conclusions. which specific aspects ofthe client's financial statements require intensive investiga- tion in this audit eONECTmu s 4) n the audit of the Worldwide Wholesale Company, you did extensive and trend analysis as part of preliminary audit planning. Your analytical procedures Mrnified the following: 1. Commission expense as a percent of sales was constant for several years but has in- ficantly in the current year. Commission rates have not changed. creased sig 4 The number of days sales in accounts receivable has steadily increased for three years. 5. Allowance for uncollectible accounts as a percent of accounts receivable has steadily decreased for three years 6 The absolute amounts of depreciation expense and depreciation expense as a percent of gross fixed assets are s ignificant tly smaller than in the preceding year. a. Evaluate the potential significance of each of the changes in ratios or trends identified Required lysis on the fair presentation of financial statements. in your anal b State the follow-up proced ures you would perform for each fluctuation to determine whether a material misstatement exists. Coca Cola Co. and PepsiCo Inc. are chains of soft drinks and bev- cage products industry that cater to customers who desire softdrink and beverage goods at certain prices. The Securities and Exchange Commission (SEC Form 10-K filing rules management of American public companies to include background information as the most recent financial condition and results of opera about the business, as wel tions. Access each company's most recent Form 10-K.These can be obtained through the SEC Web site (www.sec.gov), or directly from the investor relations section of the Coca and PepsiCo Inc. Cola Co. (www. .coca-Cola com) www.pepsico.com) Web sites. a. Read the description of each com pany's business in Part I, Item 1 of Form 10-K and evaluate the similarity of each company as a basis for making financial com b. Read the description of each company's business included in Part em 7 of Form 10-K and evaluate the similarity of each company as a basis for making comparisons. teml and Item 7 information between Coca Cola Co. and Evaluate whether the PepsiCo Inc. makes sense given the description of each company's business You set the preliminary judgment about material ity at $50,000. The account balances, performance materiality, and estimated overstatements in the accounts are shown next Account Estimate of Total Materiality Cash 1.000 50,000 5,000 Accounts receivable 1,200,000 30,000 Inventory 50,000 2,500,000 Other assets 250,000 15.000 12.000 Total $4,000,000 $100,000 a. Assume you tested inventory amounts totaling $1.000.000 and found $10.000 in Required overstatements. Ignoring sampling risk, what is your estimate of the total misstate- ment in invent Based on the audit of the assets accounts and ignoring other accounts, are the overall financial statements acceptable? Explain c What do you believe the auditor should do in the circumstances Chapter 8 IAUDIT PLANNING AND MATERIALITY
