Question Details

AC 555
FINAL
1. (TCO A) There are ten generally accepted auditing standards, divided into three categories. What are the standards of reporting? (Points: 10)

 

2. (TCO A) Distinguish between generally accepted auditing standards (GAAS) and generally accepted accounting principles (GAAP). What professional organization establishes GAAS? What professional organization establishes GAAP? (Points: 15)

 

3. (TCO B) Assume you are the partner in charge of the audit of Franklin Corporation's 2002 financial statements. The audit report has not yet been prepared. In each independent situation following, indicate the appropriate opinion you should issue and why you would issue that opinion. 
1.	You have substantial doubt about Franklin's ability to continue as a going concern. 
2.	Franklin Corporation changed its method of computing depreciation in 2002. You concur with the change, and the change is properly disclosed in the financial statement footnotes. 
3.	Ten days after the balance sheet date, one of Franklin's buildings was destroyed by a fire. Franklin refuses to disclose this information in a footnote to the financial statements, but you believe disclosure is required to conform with generally accepted accounting principles. The amount of the uninsured loss was material, but not highly material.
(Points: 15)

 

4. (TCO C) State whether there is any violation of the AICPA Code of Professional Conduct, and the nature of the violation. Where there is a violation, evaluate the potential legal liability the accountant may face. Justify your position. 
1.	Tarbet, Esq., CPA has a law practice and recommended one of her clients to Wagner, CPA. Wagner agreed to pay Tarbet 15% of the fee for services rendered by Wagner to Tarbet's client. Some services will be doing a Review of the company books, and some will be solely consulting. 
2.	Cindy Williams, CPA, is the partner on the audit of a nonprofit charitable organization, and is also an honorary Board of Directors member. She is not involved in any management functions, but likes to hang out with the management and other Board members during happy hour. 
3.	Rawling Martin, CPA took his client out fishing on the weekend before the audit was to begin. The client told Rawling that the accounts receivable records were as clean as a whistle, and that Rawling didn't have to waste valuable time or money on sending out unnecessary confirmations that might just upset his good customers. Rawling agreed to not send them out, if the client caught the bigger fish that day. The client won the bet with the biggest fish, and Rawling didn't send out confirmations.
(Points: 15)

 

5. (TCO D) Discuss at least five of the actions that can be taken by individual CPAs, to protect themselves from legal liability. (Points: 20)

 

6. (TCO E) Bobby Thigpen, waiter at Relief Stop, has been taking cash from the restaurant. Thigpen prepares a customer's check from which the customer pays. Thigpen then destroys the check, and prepares a new one with different items of lower cost. He presents the new check and indicated amount on the check to the cashier, and saves the excess cash for himself. Question: Formulate three internal control features that the restaurant could implement, to eliminate this defalcation. 
(Points: 25)

 

7. (TCO G) Three types of legal documents and records that auditors examine in the planning phase of an audit are the corporate charter and bylaws, corporate minutes of meetings of the board of directors and stockholders, and contracts. Discuss the audit-relevant information contained in each of these three types of documents that an auditor should be aware of early in the audit. (Points: 25)

1. (TCO F) What are specific audit objectives? Explain their relationship to the general audit objectives. (Points: 25)
2. (TCO H) Explain why it is necessary to allocate the preliminary judgment about materiality to individual accounts (segments) in the financial statements. Also explain why 
3. (TCO I) For each of the following potential misstatements, provide one potential audit test that could be used to detect the misstatement.
•	Recorded sale for which there was no shipment
•	Sale recorded more than once
•	Shipment made to nonexistent customers
(Points: 25)
4. (TCO I) Describe how the auditor tests the classification objective for accounts receivable. (Points

5. (TCO I) The design of tests of details of balances for inventory is affected by audit results from multiple cycles. Identify the cycles, other than the inventory and warehousing cycle, that affect the audit of inventory. (Points: 25)
. (TCO J) Describe three computer auditing techniques available to the auditor. (Points: 25
7. (TCO K) Match seven of the terms (a-p) with the description/definitions provided below (1-7):
a. Commitments
b. Completing the engagement checklist
c. Contingent liability
d. Dual-dated audit report
e. Financial statement disclosure checklist
f. Independent review
g. Inquiry of client- attorneys
h. Letter of representation
i. Other information in annual reports
j. Review for subsequent events
k. Subsequent events
l. Unadjusted misstatement worksheet
m. Management letter
n. Pending claim
o. Unasserted claim
p. Audit documentation review