Question
The following are scenarios encountered during the conduct of audit. Based on prevailing audit standards and recommended audit procedures, answer the following questions objectively. 1)
The following are scenarios encountered during the conduct of audit. Based on prevailing audit standards and recommended audit procedures, answer the following questions objectively.
1) You, an audit staff of SGV, were assigned with others to audit ABC Company. You were able to observe the conduct of the inventory count and inspection of PPE. You had prepared the necessary reconciliations between the books and actual count, and the lapsing schedules. The said reports were submitted and accepted by the audit team lead and proposed adjusting journal entries had been recommended and accepted by the client. Before the release of financial statements, you discovered that the entity has inventory and property items that are located offsite not considered during the count because of the company's failure to disclose these items. As the auditor what measures will you undertake to rectify this issue?
2) You were assigned to audit DEF Company for the fiscal year ended March 31, 2021. You noticed that every end of a period, material transfers of inventory were made between DEF Company and XYZ Company, with terms beyond the standard approved credit. What audit procedures will you conduct in this situation?
3) You were auditing the intangible assets of 555 Company when you noticed that part of the balance were for a subscription to an email list of customer leads obtained from the marketing company OptinMaster for a monthly fee of $1,500. The email list were capitalized as each customer leads given during the month were stored in the company database and were sent promotions for items that matches their previous preferences. The company had been paying for these lists for the past 3 years, and their database now includes over 30,000 emails, with an average of 750-900 new emails added monthly. Of the emails being sent for each promotional campaign, 5% to 7% materialize as sales. (a) Is the entity correct in classifying this as an asset? Or should this be classified as an expense? Why? (b) What adjusting journal entries would you propose?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started