In: Accounting
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many inventory were out of date but the client did not make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
Answer 1:
Answer 2:
Answer 3:
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