questions 1-6

211 AaBbCcDdEe AaBbCcDdEe AaBb CCD AaBbCcDde Normal No Spacing Heading 1 Heading 2 The following are independent situations for which you will recommend an appropriate audit report: 1. Intelligis Electronics is a manufacturer of advanced electrical components. During the year, changes in the market resulted in a significant decrease in the demand for their products, which are now being sold significantly below cost. Management refuses to write-off the products or to increase the reserve for obsolescence. 2. In the last 3 months of the current year, Oil Refining Company decided to change direction and go significantly into the oil drilling business. Management recognizes that this business is exceptionally risky and could jeopardize the success of its existing refining business, but there are significant potential rewards. During the short period of operation in drilling, the company has had three dry wells and no successes. The facts are adequately disclosed in footnotes. 3. Your client, Harrison Automotive, has changed from straight-line to sum-of-the-years digits depreciation. The effect on this year's income is material, and the effect in future years is likely to be highly material. The facts are adequately disclosed in footnotes. 4. During the course of his audit of the financial statements of a corporation for the purpose of expressing an opinion on the statements, a CPA is refused permission to inspect the minutes of board of director meetings that document significant decisions of the board. The corporation secretary instead offers to give the CPA a certified copy of all resolutions and actions involving accounting matters. 5. A CPA is engaged in the audit of the financial statements of a large manufacturing company with branch offices in many widely separated cities. The CPA was not able to count the substantial undeposited cash receipts at the close of business on the last day of the fiscal year at all branch offices. As an alternative to this auditing procedure used to verify the accurate cutoff of cash receipts, the CPA observed that deposits in transit as shown on the year-end bank reconciliation appeared as credits on the bank statement on the first business day of the new year. He was satisfied as to the cutoff of cash receipts by the use of the alternative procedure. 6. On January 2, 2014, the Retail Auto Parts Company received a notice from its primary supplier that effective immediately, all wholesale prices will be increased 10%. On the basis of the notice. Retail Auto Parts revalued its December 31 2013, inventory to reflect the higher costs. The inventory constituted a material proportion of total assets, however, the effect of the revaluation was material to current assets but not to total assets or net income. The increase in valuation is adequately disclosed in the footnotes. 0 FOCUS