REVIEW QUESTIONS
8-1 (OBJECTIVE 8-1) What are the benefits derived from planning audits?
8-2 (OBJECTIVE 8-2) What are the responsibilities of the successor and predecessor auditors when a company is changing auditors?
8-3 (OBJECTIVE 8-2) What is the purpose of an engagement letter? What subjects should be covered in such a letter?
8-4 (OBJECTIVE 8-2) Who is considered the client when auditing public companies?
8-5 (OBJECTIVE 8-3) Explain why auditors need an understanding of the client’s industry. What information sources are commonly used by auditors to learn about the client’s industry?
8-6 (OBJECTIVE 8-3) In recent years, globalization of business and factors such as techno- logical disruption, tax reform, trade policies, and changing demographics in the workforce uncertainty and volatility in stock and bond markets. Why might it be important for you to consider current economic and other events as part of planning an audit?
8-7 (OBJECTIVE 8-3) When a CPA has accepted an engagement from a new client who is a manufacturer, it is customary for the CPA to tour the client’s plant facilities. Discuss the ways in which the CPA’s observations made during the course of the plant tour will be of help in planning and conducting the audit.
8-8 (OBJECTIVE 8-3) Define what is meant by a related party. What are the auditor’s responsibilities for related parties and related party transactions?
8-9 (OBJECTIVE 8-3) For the audit of Radline Manufacturing Company, the audit partner asks you to carefully read the new mortgage contract with the First National Bank and abstract all pertinent information. List the information in a mortgage that is likely to be relevant to the auditor.
8-10 (OBJECTIVE 8-3) Identify two types of information in the client’s minutes of the board
of directors meetings that are likely to be relevant to the auditor. Explain why it is important to read the minutes early in the engagement.
8-11 (OBJECTIVE 8-3) Identify the three categories of client objectives. Indicate how each objective may affect the auditor’s assessment of risk of material misstatement and need for
evidence accumulation.
8-12 (OBJECTIVE 8-3) What is the purpose of the client’s performance measurement system? How might that system be useful to the auditor? Give examples of key performance indicators for the following businesses: (1) a chain of retail clothing stores; (2) an Internet portal; (3) a hotel chain.
8-13 (OBJECTIVE 8-4) Gale Gordon, CPA, has found ratio and trend analysis relatively useless as a tool in conducting audits. For several engagements, he computed the industry ratios for his clients and compared them with industry averages. For most engagements, the client’s business
was significantly different from the industry data, and the client automatically explained away
any discrepancies by attributing them to the unique nature of its operations. In cases in which the client had more than one branch in different industries, Gordon found the ratio analysis to be no help at all. How can Gordon improve the quality of his analytical procedures?
8-14 (OBJECTIVE 8-4) Your client, Harper Company, has a contractual commitment as a part of a bond indenture to maintain a current ratio of 2.0. If the ratio falls below that level on the balance sheet date, the entire bond becomes payable immediately. In the current year, the client’s financial statements show that the ratio has dropped from 2.6 to 2.05 over the past year. How should this situation affect your audit plan?
8-15 (OBJECTIVE 8-5) Define the meaning of the term materiality as it is used in accounting and auditing. What is the relationship between materiality and the phrase obtain reasonable assurance used in the auditor’s report?
8-16 (OBJECTIVES 8-5, 8-6) Explain why materiality is important but difficult to apply in practice.
8-17 (OBJECTIVE 8-6) What is meant by using benchmarks for setting a preliminary
judgment about materiality? How will those benchmarks differ for the audit of a manufacturing company and a government unit such as a school district?
THE AUDIT PROCESS
8-18 (OBJECTIVE 8-6) Assume that Xinran Wang, CPA, is using 5 percent of net income
before taxes, current assets, or current liabilities as her major guideline for evaluating ma-
teriality. What qualitative factors should she also consider in deciding whether misstate-
ments may be material?
8-19 (OBJECTIVE 8-6) How will the conduct of an audit of a medium-sized company be af-
fected by the company’s being a small part of a large conglomerate as compared with it
being a separate entity?
8-20 (OBJECTIVE 8-7) Assume a company with the following balance sheet accounts:
You are concerned only about overstatements of owner’s equity. Set performance materi-
ality for the three relevant accounts such that the preliminary judgment about materiality
does not exceed $5,000. Justify your answer.
Account Amount
Cash $10,000
Fixed assets 60,000
$70,000
Account Amount
Long-term loans $30,000
M. Johnson, proprietor 40,000
$70,000
8-21 (OBJECTIVE 8-7) Provide two examples of when an auditor might set a lower level
of performance materiality for a particular class of transactions, account balance, or
disclosure.
8-22 (OBJECTIVE 8-8) Assume materiality for the financial statements as a whole is $100,000
and performance materiality for accounts receivable is set at $40,000. If the auditor finds
one receivable that is overstated by $55,000, what should the auditor do
Custompaper.help is an academic writing platform that provides students and professionals with quality services to ease their assignment challenges. With a wide range of services, the platform has become one of the leading academic writing service providers in the market due to its reliability and affordability. Below, we shall discuss some of the services which Custompaper.help provides:
Essay Writing Service
The essay writing service provides customers with quality essays on any subject or topic they requested within a given deadline. The writers at custompaper are experts in their respective fields, and they ensure customer satisfaction by producing original content with thorough research involved backed up with strong evidence from reliable sources available online or offline. All essays come with free plagiarism reports as well as revisions if needed so that customers can trust that they are getting high-quality work for their money’s worth.
Research Paper Writing Service
This is another popular service offered by custom paper help wherein customers are assisted in conducting research papers according to their needs and requirements within specified deadlines. Writers at custom paper help have vast knowledge about various topics belonging to different disciplines such as Management, Arts & Humanities, History etc., allowing them to craft impeccable research papers every time regardless of the complexity or urgency level requested by customers. Additionally, all our research papers come along with proper citation formats which ensures customer’s safety when it comes to plagiarism issues while also helping them save time on formatting procedures thus improving overall efficiency even further!
Dissertation Writing Service
CustomPaperHelp also offers dissertation writing assistance for those who need it most – students preparing for graduation or professionals wanting to further refine their skills through higher education levels such as Master/PhD degrees etc, Our team of writers consists of experienced individuals having Master’s/PhD degrees themselves so you can rest assured that your dissertation will be handled expertly from the start till the end! Furthermore, we offer unlimited revisions until your complete satisfaction is achieved, along with regular checkups being done throughout the process just so everything goes according to course without any hiccups!
Editing And Proofreading Services
If you already have written an essay but want professional feedback before submitting it, then CustomPaperHelp also offers editing & proofreading services which helps in identifying & rectifying errors present in assignments like grammar mistakes, spelling mistakes, punctuation problems etc., thereby ensuring top-notch quality work, before submission takes place! We understand how important accuracy & consistency are when it comes to grading systems used at universities nowadays, so taking extra care during this phase becomes absolutely essential if good grades are desired afterward!
Coursework Help
For those who find coursework difficult due to complications of being quite technical in nature; CustomPaperHelp extends its support here too, by providing quality solutions every single time – starting from understanding concepts properly up until composing flawless answers following university guidelines closely enough making sure no loopholes remain whatsoever! Whether it’s related math problem-solving algorithms or lengthy home assignments – our expert panel has got you covered from head-to-toe leaving no stone unturned during this very crucial stage since final grades depend largely upon the success rate achieved here successfully!
Assignment Help
Assignments form an integral part of getting better scores & ultimately, a degree itself (in case pursuing a masters/PhD) – something only possible if precision is made a priority right away; otherwise, chances of failure increase exponentially over a time period detrimentally affecting performance evaluation systems later down road drastically hence stressing timely importance completion prior commencement other operations associated same project altogether consistently meeting high standards expected each situation respectively! Here too, CustomPaperHelp presents comprehensive solution package exceeding expectations beyond point offering optimal values therein ensuring maximum satisfaction reached under circumstances prevailing accordingly without fail…proving once more why people trust us implicitly without second thought whatsoever!!
