Discuss what janes should do in each given situation

Assignment Help Auditing
Reference no: EM131367548

Problem 1: Marie Janes encounters the following situations in doing the audit of a large car dealership. Janes is not a partner:

1. The sales manager tells her there is a sale (at a substantial discount) on new cars that is limited to long-established customers of dealership. Because her firm has been doing the audit for several years, the sales manager has decided Janes should also be eligible for the discount.

2. The car dealership has an executive lunchroom that is available free to employees above a certain level. The controller informs Janes that she can also eat there at any time.

3. Janes is invited to and attends the company's annual Christmas party. When presents are handed out, she is surprised to find her name included. The present (gift voucher) has a value $500.

Required

Use the three-step process in the AICPA's independence conceptual framework to assess whether Janes' independence has been impaired.

a. Describe how each of the situations might threaten Janes' independence from the auto dealership.

b. Identify a safeguard that Janes' firm could impose that would eliminate or mitigate the threat of each situation to Janes' independence.

c. Assuming no safeguards are in place and Janes accepts the offer or gift in each situation, discuss whether she has violated the rules of conduct.

d. Discuss what Janes should do in each situation.

Problem 2: The following situations involve the provision of nonaudit services. Indicate whether providing the service is a violation of AICPA rules or SEC rules including Sarbanes-Oxley requirements on independence. Explain your answer as necessary.

a. Providing bookkeeping services to a public company. The services were preapproved by the audit committee of the company.

b. Providing internal audit services to a public company that is not an audit client.

c. Designing and implementing a financial information system for a private company.

d. Recommending a tax shelter to a client that is publicly held. The services were preapproved by the audit committee.

e. Providing internal audit services to a public company audit client with the preapproval of the audit committee.

f. Providing bookkeeping services to an audit client that is a private company.

Problem 3:

1. During your audit of Raceway, Inc., you conclude that there is a probability that inventory is materially overstated. The client refuses to permit you to expand the scope of your audit adequately to verify whether the balance is actually misstated.

2. You do the audit of Munich Department Store, and in your view the financial statements are fairly shown. On the last day of the audit, you find out that one of your supervisors assigned to the audit has a material investment in Munich.

3. Auto Delivery Company has a fleet of various delivery trucks. In the past, Auto Delivery had followed the policy of purchasing all equipment. In the present year, they determined to lease the trucks. The method of accounting for the trucks is thus changed to lease capitalization. This change in policy is completely disclosed in footnotes.

4. You are auditing Deep Clean Services for the 1st time. Deep Clean has been in business for subsequent years but over the last two years has struggled to stay afloat provided the economic conditions. Based on your audit work, you have considerable doubt that Deep Clean may be in business by the end of its next fiscal year.

5. One of your audit clients has a material investment in a privately-held biosciences company. Your audit firm engaged a business valuation specialist to help in computing the client's estimation of the investment's fair value. You refer that the valuation specialist's work gives sufficient appropriate audit evidence.

6. Four weeks after the year-end date, a main customer of Prince Construction Co. declared bankruptcy. Because the customer had definite the balance due to Prince at the balance sheet date, management refuses to charge off the account or otherwise disclose the information. The receivable represents just about 10% of accounts receivable and 20% of net earnings before taxes.

For each situation, do the subsequent:

a. Check which of the conditions requiring a modification of or a deviation from an unqualified standard report is appropriate.

b. State the level of materiality as immaterial, highly material or material. If you cannot select the level of materiality, state the extra information needed to make a decision.

c. Given your answers in parts a and b, state the kind of audit report that should be issued. If you have not decided on one level of materiality in part b, state the related report for each alternative materiality level

Problem 4: Various types of "accounting changes" can affect the second reporting standard of the generally accepted auditing standards. This standard reads, "The auditor must identify in the auditor's report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period." Assume that the following list describes changes that have a material effect on a client's financial statement for the current year:

1. Correction of a mathematical error in inventory pricing made in a prior period.

2. A change from prime costing to full absorption costing for inventory valuation.

3. A change from presentation of statements of individual companies to presentation of consolidated statements.

4. A change from deferring and amortizing preproduction costs to recording such costs as an expense when incurred because future benefits of the costs have become doubtful. The new accounting method was adopted in recognition of the change in estimated future benefits.

5. A change from the completed-contract method to the percentage-of completion method of accounting for long-term construction contracts.

6. A change in the estimated useful life of previously recorded fixed assets based on newly acquired information.

7. A change to including the employer share of Social Security (FICA) taxes as "retirement benefits" on the income statement from including it with "other taxes."

8. A change from FIFO method of inventory pricing to the LIFO method of inventory pricing.

Identify the type of change described in each item above, and state whether any modification is required in the auditor's report as it relates to the second standard of reporting. Organized your answer sheet as shown For example, a change from the LIFO method of inventory pricing to the FIFO method in inventory pricing would appear as shown.

Reference no: EM131367548

Questions Cloud

What is alternative governance structures : What are the High Holy Days and how are they kept? Be sure to provide a thorough explanation. complete a political risk profile of a European country of your choice. Explain how the life of the Hasidim differs from traditional orthodox Judaism. What ..
Why corruption tend to be more prevalent in poorer countries : Why does corruption tend to be more prevalent in poorer countries?- Describe one method for comparing the levels of corruption to be expected in two different countries?
Define war peace and terrorism : Define war, peace and terrorism. Describe the events of 9/11 and the aftermath of this tragedy. Define cultural relativism
Bargaining tactics used in international negotiating : In a negotiation, why would an MNE be interested in the acceptance zone of the other party?- What are some bargaining tactics that are used in international negotiating? Identify and describe three of them.
Discuss what janes should do in each given situation : Assuming no safeguards are in place and Janes accepts the offer or gift in each situation, discuss whether she has violated the rules of conduct. Discuss what Janes should do in each situation.
Determine the sequence of tms and tdi inputs : determine the sequence of TMS and TDI inputs required to load the instruction register with 011 and the boundary scan register BSR2 with 1101. Start in state 0 and end in state 1. Give the sequence of states along with the TMS and TDI inputs.
What is the greatest domestic terrorist threat : What is the greatest domestic terrorist threat the United States faces today? How might this threat change in the next five years
Adjust your interpersonal communication styles : Question: Describe how you will adjust your interpersonal communication styles when communicating with each group of personnel to meet the different individual needs of the staff.
How does a polycentric solution differ from an ethnocentric : In determining parent-subsidiary relationships, how does a polycentric solution differ from an ethnocentric or geocentric solution? Compare and contrast all three.

Reviews

Write a Review

 

Auditing Questions & Answers

  Prepare first on alert''s bank reconciliation at december 31

The bank statement also shows a $30 service charge and $20 of interest revenue that First on Alert earned on its bank balance.

  What was the value of stock

What was the value of stock when it was purchased and when it was sold and given the uncertainty surrounding the collectability of the note, did an exchange occur? How do we account for the different scenarios, exchange or no exchange?

  Companies and auditors now operate in a global environment

1.Companies and auditors now operate in a global environment and need to be aware of potential risks that stem from subsidiaries,

  Control systems in nonprofit organizations

Control systems in nonprofit organizations will never be as highly developed as in profit-seeking organizations. Do you agree? Explain.

  Complexity likelihood technological solutions

Include in your discussion, the scope, complexity, and likelihood of the IT risk and whether you believe technology changes will reduce/increase such risks.

  Backgroundmr david buttoneer the owner operator of buttons

backgroundmr david buttoneer the owner operator of buttons by david pty ltd. runs a number of button lines. his

  Performance audits

The president has promised an intensive ''audit'' of all aspects of the department's performance. The university has never explicitly established formal goals for the athletic department.

  Describe internal control strength or recommend a control

Identify if internal controls related to the assertion are strong or weak and describe the internal control strength or recommend a control if controls are weak.

  Your cfo heard about the outstanding job you did on your

your cfo heard about the outstanding job you did on your meeting and the accounting department personnel were boasting

  Show audit areas that have the highest risk

Show audit areas that have the highest risk for potential litigation and liability for public accounting firms and prepare two best practices for public accounting firms to minimize the risk to liability exposure.

  Will edge be successful in their legal action

Would your answer to b) change if Edge had written to the auditors telling them that they intended to buy NFD and were relying on the audited financial statements to assist them in making their decision?

  Audit of fisher aquarium supply

Income tax liability. Fisher's tax attorney informed you that it is possible that the client will have to pay $875,000 in taxes regarding a tax dispute that started four years ago.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd