Auditing Essay

Justin Kealey, certified public accountant, is auditing Tustin Companies, Inc. Kealey has accumulated known and likely mis utterments for the current year to valuate whether thither is a sufficiently low risk of material misstatement of the fiscal statements to issue an opinion. However, Kealey notes that there argon several misstatements that leave been carried oer from earlier years.A .Distinguish between the iron curtain and the rollover approaches to considering the misstatements from prior years. In stipulation of an auditors approach for considering the effects of misstatements from prior years argon the iron curtain and the rollover approach. The iron curtain approach break downs the effect of correcting the misstatements squ ar amount in the present year irrespective of when the misstatements occurred. The rollover approach reflects lone(prenominal) the amount of misstatement originating in the existing income statements. It ignores the effect of misstatements caused within the quietus sheet.B. divulge how SEC Staff Accounting Bulletin No. 108 requires auditors to consider misstatements carried over from prior periods. SEC, Staff Accounting Bulletin No. 108 in persona to materiality states that auditors consider both the iron curtain and rollover approach. Auditors suggest whenever do corrections of material misstatements in pecuniary statements that corrections are make with the iron curtain or rollover approach. The following are typical questions that baron appear on an internal control questionnaire for payroll activities1. Is there fair to middling separation of duties between employees who maintain human resources records and employees who approve payroll disbursements? It is valuable that originations separate human resources and support function as it enables prevention of payments to fictional employees and overpayment of payroll amounts. Therefore, distribution of payroll accounts feign things such as scheduling, sentence sh eet verification, employee instruction, and tax obligations just to name a few responsibilities.2. Is there adequateseparation of duties between personnel office who maintain erakeeping or attending records for employees and employees who distribute payroll checks? When utilizing the same employees executing the mkeeping and distribution, the organization is providing these individuals to report attendance of employees that crap resigned and write their own checks. The thought of combining the timekeeper and payroll employees should never be done. Separating responsibilities as management and supervisors create scheduling and time management should be electronically formatted to maintain and avoid fraud. a. Describe the usance of each of the above controls.Separating responsibilities as management and supervisors create scheduling and time management should be electronically formatted to maintain and avoid fraud. b. Describe the mien in which each of the above controls might be tested. The separation of duties is open up by inquiring for which employees perform particular tasks during year, and become aware of the personnel carrying out such tasks. The auditors should inquire upon which personnel accomplished their assigned tasks chthonic uncommon circumstances, for example during the prolonged illness of a worker. c. Assuming that the run effectiveness of each of the above controls is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of control risk. The test of fictitious payroll transactions brings the auditors to analyze the distribution of paychecks on a random basis. Analytical procedures performed in reference to payroll expenses whitethorn involve comparing the amount budgeted for the year to the comparable amounts of previous years and could reveal a square overstatement of staff payroll expenses.While perform your audit of Williams Paper Company, you discover evidence that indicates that Williams may not have the ability to continue as a going concern. a. Discuss types of information that may indicate substantial dubiety about a knobs ability to remain a going concern. Circumstances presenting doubt in the clients ability to achieve and maintain note performance begin with working capital deficiencies. More problems for concern may be recurring operating lost, arrears in dividend, defaulting on loans and untoward financial ratios. The economy can cause business lost as loosing principal(prenominal) customers, work stoppages, legal problems, and inside staff members affecting the business showdown its standards. b. Explain the auditors obligation in such situations.Information contradictory to an boldness that a certified public accountant firms client remains a growing concern is generally relates to the companys ability to reciprocate its financial commitments For each of the following brief scenarios, assume that you are infor m on a clients financial statements. Reply as to the type(s) of opinion possible for the scenario. In addition Unless stated otherwise, assume the social occasion involved is material. Thomas Bros. Construction is involved in a unsettled trade on a work project and has obtained insurance reporting associate to the hazard. Although the probability is remote, a material portion of the companys assets could be destroyed by a serious work related accident. A standard un certifiable report is issued.If the problem does not state that a misstatement (or possible misstatement) is pervasive, assume that it may or may not be pervasive (thus, the appropriate reply may include both possible reports). The Lowes own considerable amount property that has gained significantly in value since the date of purchase. The properties were appraised and reported in the balance sheet at the appraised values that materially exceed comprises with related disclosures. The certified usual accountants be lieve that the appraised values reported in the balance sheet are a realistic value of the assets. This scenario can receive either an adverse or a qualified judgment. Valuation of assets at appraised values is not in the standards presented in the general accepted accounting principles (GAAP). The appraised value and cost is important, an unqualified opinion is not be appropriate. Do not conduct more into the circumstance than what is presented. While conducting an audit of Armstrong Co. the CPA firm encountered a major scope limitation relating to inventory report availability and cannot roll up sufficient qualifying audit evidence for that area. A scope limitation will result in a qualified opinion or a disclaimer of opinion. Do not consider an auditor discretionary circumstance for modification of the audit report unless the situation explicitly suggests that the auditors wishing to emphasizea particular matter. Noble Co. has material investments in stocks pertaining to fo otslogger companies while are not actively traded in the market.The participating CPA firm performing the engagement does not extend to any underling company. The CPA firm is able to determine that all investments are carried at the original cost, but it has no idea of the actual market value. Although the distinction between cost and market could be material, it may not have a pervasive effect on the overall financial statements. present is a scope limitation therefore either a qualified opinion or a disclaimer of opinion is appropriate. Report Types may be used once, more than once, or not at all. Williams Co. excessively has material investments in stocks of secondary companies however the stocks for in this scenario are of subsidiary companies which are actively traded in the market. Management insists that all investments are carried at the original costs, and the CPA firm is satisfied that the original costs are accurate. The CPA firm believes that the client does not rea lize a substantial portion of the investments because the market value is much lower than the cost. The client tell the facts in notes accompanying the financial statements. A qualified opinion is necessary. The CPA firm attained sufficient evidence stating investments in subsidiary companies are overstated and the note disclosure does not compensate for inappropriate balance sheet presentation.ReferenceWhittington and Pany, Chapter 16, Auditing Operations and Completing the Audit, Chapter 17, Auditors Reports, Principles of Auditing & other Assurance Services, 18th edition, T, Legal Liability of CPAs McGraw-Hill Irwin