Would you plan to put reliance on prior-year evidence

Assignment Help Financial Management

Reference no: EM131182751

The BakFirn Corporation, a publicly traded firm, has contracted with YOUCPA, your public accounting firm, for an audit. The BakFirn Corporation manufactures specialty construction tools. The tools are used in the unique construction of homes, warehouses, and multiunit dwellings. The prices range from $1,000 to $5,000 per unit.

During the audit, the audit team has determined the risk assessment of the client. Consequently, the audit has to respond to the assessed risks of material misstatement at the financial statement and assertion levels. The YOUCPA audit team has asked you, the auditor, to prepare a list of actions that you will take to assess the audit risk.

The following information is available in the year just finished:

The BakFirn Corporation end-of-year is 12/31/20XX.

Sales for the previous year were $10,000,000. Sales this year are coming in at $9,500,000.

The firm is in the construction machine industry, making specialty tools.

Account receivable days sales outstanding (DSO) has been averaging 90–120 days. The year before, it was 80–90 days.

Inventory turns have decreased from 3 to 2 per year.

Account receivable and inventory make up 80% of total assets.

Internal auditing has been reduced by one person to reduce costs.

An initial test of controls in cash receipt indicated a lack of following procedures.

The construction industry is in the third year of a downturn. It is forecasted to last two more years.

The audit team has defined materiality to be focused on account receivable and inventory with $3,000 being the initial threshold. Net income for last year was $1,000,000.

Inventory at the end of the year was $2,500,000.

Account receivable at the end of the year was $2,740,000, or 100 DSO.

The previous auditors did not disclose any fraud or any management issues at the meeting with BakFirn and YOUCPA. The reason for the auditor change was explained as a costs reduction program.

Assignment Guidelines:

Audit Assessment Steps:

What is the initial audit risk? High, medium or low?

What factors made you decide on this level?

Audit Plan Assertions

What would you include in the audit plan, and why?

Would you plan a test of controls or substantive tests? Why or why not?

Would these tests make a difference in the nature, timing, and extent of audit procedures? If so, how?

Audit Plan Evidence

Would you plan to put reliance on prior-year evidence? Why, or why not?

Would your evidence come from observation, analytical procedures, or other means? Explain your reasoning.

Would the evidence prove or disprove an assertion on the reliance of a specific balance sheet account or financial statement account? Explain your reasoning.

Reference no: EM131182751

Questions Cloud

Identify any gaps in the organization separation policies : Describe the strategies used by the organization to retain high-performing employees. Explain the organization's policies for handling voluntary and forced separation. Identify the kinds of outplacement counseling and employee assistance programs off..

Suggest three strategies that a public leader could use : Suggest three strategies that a public leader could use in order to do the following: persuade other governmental departments to work collaboratively to reduce financial burdens.

Discussion on legislation as applies to health information : As the new office manager, what factors pertaining to health care information do you need to consider? A discussion on legislation as it applies to health information and The organizational structure and flow of information within a health organizati..

How can distinguish between program costs and indirect costs : Evaluate and explain how you can distinguish between program costs and indirect costs. Describe how these costs off-set. Discuss the role of "in-kind" donations as a vehicle to decrease costs and/or improve revenue flow.

Would you plan to put reliance on prior-year evidence : The BakFirn Corporation, a publicly traded firm, has contracted with YOUCPA, your public accounting firm, for an audit. The BakFirn Corporation manufactures specialty construction tools. What is the initial audit risk? High, medium or low? What facto..

Write a paper in which detail the dr team roles : Write a paper in which Detail the DR team roles, responsibilities, and sub teams that would be implemented, and construct an organizational chart for the team through the use of graphical tools.

What additional suggestions might you offer : Define which tips you have learned outside the course textbook and lectures. What additional suggestions might you offer? Evaluate and explain what potential pitfalls are associated with restricted gifts.

Create a multilevel work breakdown structure : Create a multilevel work breakdown structure (WBS) and detailed project schedule based upon the information. Summarize the project's performance in terms of schedule and costs

If you were president of the united states : Can the U.S. win the "War on Terror?" If so, how? If you were President of the United States, what would you propose?

User Account

All Pages