Reference no: EM132475676
Question 1
Qa. You are performing an annual audit of a company with a December 31, 20X1 year-end. Your firm is planning to complete the audit on March 1, 20X2 and release the report shortly thereafter. On February 15, 20X2, two material subsequent events occur:
• There was a significant earthquake that caused a lot of damage at one of the company's manufacturing plants in South America, and
• One of the company's customers files for bankruptcy; your client had an accounts receivable of $300,000 from this customer at 12/31/20X1 (The Company had established an allowance of $50,000 for this receivable @ 12/31/20X1)
What impact, if any, will these two subsequent events have on your client's 12/31/20X1 audited financial statements?
Qb. Describe 2 procedures the CPA is required to perform on a review engagement. Also, name 2 documents the CPA is required to obtain on a review engagement.
Qc. Define Gross Negligence
Qd. To Milton Friedman, what is the social responsibility of business?
Qe. To R. Edward Freeman, what is the primary responsibility of the executive?
Question 2
Facts:
• A manufacturing company has 3 lines of business. In recent years, the 3 lines of business have produced the following average annual profits / losses.
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Profit (Loss)
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Line 1
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$ 400,000
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Line 2
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300,000
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Line 3
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(1,000,000)
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Subtotal
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(300,000)
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Administrative @ Headquarters
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(600,000)
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Total
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(900,000)
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• As of the end of the year being Audited (12/31/20X1), the company is tight on cash - and has only modest additional borrowing capacity left on its bank lines of credit.
• The audited financial statements must be released by 90 days after the end of the year - i.e. 3/31/20X2.
• On February 28, 20X2 (i.e. 60 days after the end of the year under audit), the company was able to sell Line 3 @ net book value; the purchase price of $100,000 was paid in cash.
Q: Do you believe there is substantial doubt about the Company's ability to continue as a Going Concern? Structure your answer into the following 3 parts:
• Conditions and Events
• Management's Plans
• Conclusion - State whether you believe there is or is not substantial doubt about the Company's ability to continue as a going concern. Be specific & describe the reasons for your decision.
Question 3
A fellow DePaul student you know has not taken this Auditing I course. She tells you she read an article in the Wall Street Journal that used the following 6 terms:
• Fraud
• Professional Skepticism
• Loss Contingencies
• Subsequent Events
• Going Concern
• Ethics
She asks you to explain these terms to her; be specific and give her examples to provide the most complete explanation.