date specified by your instructor. As the controller of LNP Company‚ Amy discovers a misstatement that overstated net income in the prior year’s financial statements. The misleading financial statements appear in the company’s annual report which was issued to banks and other creditors less than a month ago. After much thought about the consequences of telling the president‚ Nick Oliver‚ about this misstatement‚ Amy gathers her courage to inform him. Nick says‚ “Hey! What they don’t know won’t
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audited financial statements as a clear picture window into corporate America. SAS No. 99 requires you to gather and consider a great deal of information to assess fraud risks. SAS 99 defines fraud as an intentional act that results in a material misstatement in financial statements. An audit requires due professional care‚ which in turn requires that the auditor exercise professional skepticism. Requires ‘brainstorming’ sessions to discuss how and where the entity’s financial statements might be
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AUDIT ENGAGEMENT LETTER To the governing body Hood Furniture‚ Inc. Dated August 30‚ 2007 Dear Mr. Conrad Saws‚ As certified public accountant licensed to do audits in Oregon‚ we are happy that you have engaged our firm to audit your financial statements as of December‚ 31‚ 2007 and for the year then ended. This letter will substantiate our understanding of the arrangements regarding the financial audit we shall be making of the Hood Furniture Inc as of and for the year ended December 31‚ 2007
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confirmed that necessary steps have already been taken for fast debt recovery. Other threshold of materiality is qualitative in nature. These include trends in profitability‚ misstatement that changes a loss into income‚ effect of statement on segment information‚ existence of statutory reporting requirements‚ implications of misstatement involving frauds possible illegal acts‚ misclassification in operating and non-operating
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the audit. It permits management to prevent‚ detect‚ and correct misstatements. It addresses three categories of deficiencies‚ which may exist in the external audit of a company’s financial statements. Types of Deficiencies The first is control deficiency‚ which applies when the design of the entity’s control does not allow management or employees to detect or prevent misstatements in a timely manner. In this scenario‚ misstatements will not be prevented‚ detected or corrected on time because of
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3. When an auditor believes that an illegal act may have occurred‚ the auditor should first: The answer is C‚ to inquire management at a level above those likely to be involved. The reason C is the correct answer is because it is one of the three things that an auditor should do when they believe that an illegal act has occurred. The other 2 things that they should do are: The auditor should consult with the client’s legal counsel or other specialist who is knowledgeable about the potential
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absentee owner does. Materiality: The magnitude of omission or misstatement of accounting information that‚ in light of surrounding circumstances‚ makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced. Misstatement: An instance where a financial statement assertion is not in accordance with the criteria against which it is audited (e.g. GAAP). Misstatements may be classified as fraud (intentional)‚
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Overview of Sampling 3. LO3: Selecting a Sampling Approach 4. LO4: Gathering Sample Evidence about Control Effectiveness 5. LO5: Statistical Approach to Test Account Balances and Assertions: Monetary Unit Sampling (MUS) 6. LO6: No Misstatements in the Sample 7. LO7: Using Generalized Audit Software to Obtain Evidence 8. LO8: Analytical Procedures as a Substantive Test Overview of Tools to Gather Audit Evidence Substantive Analytical Procedures Provide evidence on the reasonableness
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accounts—receivables and revenue. This aspect of the audit is illustrated with the following audit documentation: • ABC’s risk assessment working paper that combines the auditors’ assessments of inherent and control risks into an overall risk of material misstatement for the assertions. • The substantive audit program of accounts receivable and revenue. • The audit sampling plan for the confirmation of accounts receivable. Adams‚ Barnes & Cos. assessment of control risk is described in Part II of the audit case
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9.19 Assertions Background information Existence or occurrence: -assets or liabilities of the entity exist at a given date and whether recorded transactions or events have occurred during the period Completeness: -transactions‚ events and accounts that should be presented in the financial statement are included Cut-off -all transactions‚ events and accounts have been recorded in the correct period Right and obligations: -assests represent rights of the entity and liabilities are the obligations
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