Audit 17

Question 1

Due to several innovations the demand for personal watercraft has declined only slightly - this poses what kind of risk

Answer 1

A relevent assertion level risk

• Innovations may cause obsolescence in existing inventory - limited to inventory valuation

Question 2

to help achieve a 25% increase in sales goal - the CEO changed sales staff compensation from salaried to commission
- this poses what kind of risk and why

Answer 2

• The relevant assertion level risk

- sales staff on commission might be motivated to commit fraud that they would not consider on salary

Question 3

CEO plans to terminate relationships with several retail outlets and identify new retail outlets for distribution - what kind of risk and why

Answer 3

• Relevent assertion level risk
• new outlets introduce new potential for fraudulent entity to take advantage of the co. - This is limited to the revenue cycle and commission accounts

Question 4

Strict new convenience on the company’s renewed LOC - what kind of risk

Answer 4

Financial statement level risk

• Managers with significant bonus opportunities based on profit might be motivated to commit fraud

Question 5

a senior accountant from a prior staff audit firm has taken an accounting position - threat

Answer 5

No unforeseen threat -

Question 6

employees were overheard recounting war stories in connection to a recent accounting software upgrade - what kind of risk

Answer 6

Financial statement level risk

New or revamped systems are relatively untested - Info system weaknesses could result in errors that pervade the financial statements

Question 7

Investments are properly described and classified in the F/S

Answer 7

Verify that transfers from the trading to the available-for-sale investment portfolio have been properly recorded.

Question 8

recorded investments represent investments actually owned on the B/S date

Answer 8

Obtain positive confirmations as of the balance sheet date of investments held by independent custodians.

Question 9

Investments are properly valued at market on the balance sheet date

Answer 9

Determine that any impairments in the price of investments have been properly recorded.

Question 10

A/R represent all amounts owed to the entity at the balance sheet date

Answer 10

perform sales cutoff test to obtain assurance that sales transactions and corresponding entries for inventory and COGS are recorded in the same and proper period

Question 11

The entity has a legal right to all A/R at the balance sheet date

Answer 11

Review loan agreements for indications of whether accounts receivable have been factored or pledged.

Question 12

A/R is stated at NRV

Answer 12

Review the aged trial balance for significant past due accounts.

Question 13

A/R are properly described and presented in the F/S

Answer 13

Review the accounts receivable trial balance for amounts due from officers and employees.

Question 14

The entity has a legal right to property an equipment acquired during the year

Answer 14

Examine deeds and title insurance certificates.

Question 15

Property and equipment reported on the balance sheet actually exist

Answer 15

Physically examine all major property and equipment additions.

Question 16

property and equipment are properly valued in the balance sheet

Answer 16

Review the provision for depreciation expense and determine that depreciable lives and methods used in the current year is consistent with those used in the prior year.

Question 17

Question during a review and Audit :

Cash

Answer 17

Review: Are there any compensating balances or otters restrictions on availability of funds?

Audit: Request a list of outstanding checks to trace to a subsequent bank statement

Question 18

Question during a review and audit :

A/R

Answer 18

Review: Has there been a proper cutoff of sales transactions?

Audit: Request that confirmations be prepared and signed

Question 19

Question during a review and audit :

Inventory

Answer 19

Review: Were consignments in or out considered in taking a physical count?

Audit: an inquiry about the physical count for observation purposes

Question 20

Question during a review and audit :

A/P

Answer 20

Review: Have all liabilities been appropriately accrued?

Audit: request for confirmation if decide to confirm A/P

Also reperformance and testing a sample of invoices for unrecorded liabilities

Question 21

Question during a review and audit :

Debt

Answer 21

Review: Are there assets that have been pledged as collateral

Audit - request for prep and signing of a confirmation, and recalculation of interest expense