Question

In: Accounting

1. Why is a cash account said to have a high inherent risk of possible fraud?...

1. Why is a cash account said to have a high inherent risk of possible fraud? Explain some of the controls related to cash accounts!

2. You are an auditor at a public accounting firm. You are conducting an audit for the financial year ending December 31, 2019. Your client has go public. This client is a property development company. Your client builds property in the form of apartment units, housing / real estate and also property investment products in the form of lots ready to build. In addition, this client also has a project development cooperation with its customers. The client is bound by a contract signed by both parties before a notary for the construction of a project with this customer. The project has not been completed 100%, however, the client says that the project has been completed 60% and the client acknowledges 60% of the development as revenue in the 2019 financial year.
Question:
a. In your opinion, as an auditor, what account should the client classify the apartment and housing / real estate complex be? Explain your answer!
b. What is the audit procedure that you will apply to ensure the recognition of revenue that is 60% of the project!
c. What audit evidence will you examine and what are the related assertions? Explain your answer!

3. You are an auditor at a public accounting firm. You and your team are entrusted by Partner to handle clients engaged in the home appliance retail business. Your client is a company that has go public. The client's financial statement in the previous year reported a loss, however this year reported a material gain. After you check, it turns out that the client reports income that is not much different from the previous year, however, there can be a profit due to the decrease in Cost of Goods Sold (COGS). The client reports that the amount of inventory has increased drastically, even though sales have not increased and the account payable balance is almost the same as in previous years, this has led to suspicion of a double counting scheme in the client's inventory. In addition, when a random check was carried out incidentally at one of the client's warehouses, it was found that many inventory were out of date but the client did not make adjustments.
Question:
a. If you wanted to perform an analytical procedure to check the suspected occurrence of this double counting scheme, what ratio would you calculate? Explain your answer!
b. What assertions are related to the above case? Explain your answer!

Subject : Financial Audit II

Solutions

Expert Solution

Answer 1:

Answer 2:

Answer 3:

Kindly, upvote, if your satisfied with my answers. Thank you. It will supports us a lot.


Related Solutions

Why are the long-lived assets and inventory assertions of existence said to have an inherent risk...
Why are the long-lived assets and inventory assertions of existence said to have an inherent risk of material misstatement that is higher than that of the account payable? (10%)
-Why cash is considered as high inherent risk? -What is the different between disposal and impairment...
-Why cash is considered as high inherent risk? -What is the different between disposal and impairment of non current (fixed) asset? -Mention some test of control regarding inventory and payment cycle! -Provide example of each management fraud and employee fraud regarding cash account!
1. Why are the long-lived assets and inventory assertions of existence said to have an inherent...
1. Why are the long-lived assets and inventory assertions of existence said to have an inherent risk of material misstatement that is higher than that of the account payable? 2. Do you think the blank confirmation is included in the positive or negative confirmation? Also explain what the advantages and disadvantages of each type of confirmation are, along with what kind of situation it is suitable to use! 3. Why is a cash account said to have a high inherent...
Identify a factor that makes for high inherent risk in audits and discuss why it would...
Identify a factor that makes for high inherent risk in audits and discuss why it would make inherent risk higher.
The following are a list of possible errors or fraud (1 to 5) involving cash receipt...
The following are a list of possible errors or fraud (1 to 5) involving cash receipt and controls (a to g) that may prevent or detect the errors of fraud: Possible errors or fraud Customer cheques are properly credited to customer accounts and are properly deposited, but errors are made in recording receipts in the cash receipt journal. Customer cheques are misappropriated before being forward to the cashier for deposit. Customer cheques are received for less than the customers’ full...
Recall the definition of inherent risk. Why is it important for internal auditors to focus on...
Recall the definition of inherent risk. Why is it important for internal auditors to focus on inherent risk during the planning phase of an assurance engagement? Auditing & assurance services, fourth edition.
1. How could this fraud have been prevented? Why is this a difficult fraud to prevent?...
1. How could this fraud have been prevented? Why is this a difficult fraud to prevent? 1. What factors in Johnson’s control environment have led to and facilitated the manager’s manipulation of inventory? 2. What pressures did Debbie have to overstate inventory? 3. What rationalization did Debbie use to justify her fraud? . How could this fraud have been prevented? Why is this a difficult fraud to prevent?
Management tends to focus on residual risk instead of inherent risk. Why do you think this...
Management tends to focus on residual risk instead of inherent risk. Why do you think this is so? Why should internal auditors consider both inherent risk and residual risk when planning an assurance engagement?
(1) Related parties are a major factor in assessing inherent risk. Why? (2) Fair value accounting...
(1) Related parties are a major factor in assessing inherent risk. Why? (2) Fair value accounting may be a major factor in assessing both inherent risk and even control risk. Discuss how the extensive use of fair value accounting could affect both inherent risk and control risk.
In this discussion, explain why inherent risk is set for audit objectives for segments (classes of...
In this discussion, explain why inherent risk is set for audit objectives for segments (classes of transactions, balances, and presentation and disclosure) rather than for the overall audit. What is the effect on the amount of evidence the auditor must accumulate when inherent risk changes from medium to high for an audit objective? Provide examples to illustrate your answer.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT