Question

In: Accounting

Spencer CPA has been engaged to audit the financial statements of Specific Stores, a continuing audit...

Spencer CPA has been engaged to audit the financial statements of Specific Stores, a continuing audit client, which is a chain of medium-sized retail stores. Specific’s fiscal year will end on June 30, 2015 and Specific’s management has asked Spencer to issue the auditor’s report by August 1, 2015. Spencer will not have sufficient time to perform all of the necessary fieldwork as of an interim date, April 30, 2015.

After the accounts are tested at the interim date, Spencer will also perform substantive procedures covering transactions of the final two months of the year. This will be necessary to extend Spencer’s conclusions to the balance sheet date.

Describe factors Spencer should consider before applying substantive procedures to Specific’s balance sheet accounts at April 30, 2015.

For accounts tested at April 30, 2015, describe how Spencer should design the substantive procedures covering the balances as of the June 30, 2015 and the transactions of the final two months of the year.

Solutions

Expert Solution

The records upto the April 30, 2015 has been tested applying the substantive procedures and Specific Balance Sheet figures are confirmed. Now, Spencer has to extend the substantive procedures which will cover all the transactions of the final two months of the year. The designing of the substantive procedures and the factors related includes:

  1. Segregation of the transactions and the accounts entries after April 30, 2015.
  2. The closing balances as on April 30, 2015 should be carefully brought forward.
  3. The accounts of relative concerns will be tested with cent per cent.
  4. All the accounts in doubt will be tested first and all the rectification entries are made.
  5. The data of the accounts and entries of the two months are made separate.
  6. The tested accounts are merged with the data as on April 30, 2015.
  7. Spencer must keep the things in mind that transactions before the April 30, 2015 are not considered and affected in the extended audit.
  8. The final results as on June 30, 2015 are prepared with due care.
  9. The reports as on June 30, 2015 are drafted based on the final results so made.

===========


Related Solutions

Bell, CPA, was engaged to audit the financial statements of Kent Company, a continuing audit client....
Bell, CPA, was engaged to audit the financial statements of Kent Company, a continuing audit client. Bell is about to audit Kent’s payroll transactions. Kent uses an in-house payroll department to compute payroll data and prepare and distribute payroll checks. During the planning process, Bell determined that the inherent risk of overstatement of payroll expense is high. In addition, Bell obtained an understanding of the internal control structure and assessed control risk at the maximum level for payroll-related assertions. Required:...
Harris Fell, CPA and member of the AICPA, was engaged to audit the financial statements of...
Harris Fell, CPA and member of the AICPA, was engaged to audit the financial statements of Wilson Corporation. Fell had half-completed the audit when he had a dispute with the management of Wilson Corporation and was discharged. Hal Compton, CPA, was promptly engaged to replace Fell. Wilson Corporation did not compensate Fell for his work to date; therefore, Fell refused to allow Wilson Corporation’s management to examine his working papers. Some of the working papers consisted of adjusting journal entries...
Harris Fell, CPA and member of the AICPA, was engaged to audit the financial statements of...
Harris Fell, CPA and member of the AICPA, was engaged to audit the financial statements of Wilson Corporation. Fell had half-completed the audit when he had a dispute with the management of Wilson Corporation and was discharged. Hal Compton, CPA, was promptly engaged to replace Fell. Wilson Corporation did not compensate Fell for his work to date; therefore, Fell refused to allow Wilson Corporation’s management to examine his working papers. Some of the working papers consisted of adjusting journal entries...
1.A company engaged a CPA to perform the annual audit of its financial statements. The audit...
1.A company engaged a CPA to perform the annual audit of its financial statements. The audit failed to reveal an embezzlement scheme by one of the employees. Which of the following statements best describes the CPA's potential liability for this failure? The CPA's adherence to generally accepted auditing standards (GAAS) may prevent liability. The CPA will not be liable if care and skill of an ordinary reasonable person was exercised. The CPA may be liable for punitive damages if due...
A CPA has been asked to audit the financial statements of a publicly held company for...
A CPA has been asked to audit the financial statements of a publicly held company for the first time. All preliminary verbal discussions and inquiries among the CPA, the company, the predecessor auditor, and all other necessary parties have been com- pleted. The CPA is now preparing an engagement letter.
An independent accounting firm has been engaged to audit the 2014 financial statements of a corporation...
An independent accounting firm has been engaged to audit the 2014 financial statements of a corporation which has never undergone an audit. During the audit, it is concluded that the 2014 ending inventory presented by management is in error. The inventory cannot be counted because much of it has been sold as of the time of the audit. Therefore, a "test of reasonableness" of the inventory is performed by using the following data from the 2014 income statement prepared by...
Hale Nelson, CPA, is engaged to audit the financial statements of Hollis Manufacturing, Inc. Hollis engages...
Hale Nelson, CPA, is engaged to audit the financial statements of Hollis Manufacturing, Inc. Hollis engages in very complex sales agreements that create issues with respect to revenue recognition. As a result, Nelson has identified revenue recognition as an audit area of signifi-cant risk that requires special audit consideration.a. Describe the implications of Nelson’s identification of revenue recognition as an area of significant risk. b. Describe how Nelson might decide to react to the significant risk related to revenue recognition.
You are engaged in the audit of the financial statements of Holman Corporation for the year...
You are engaged in the audit of the financial statements of Holman Corporation for the year ended December 31, 20X6. The accompanying analyses of the Property, Plant, and Equipment and related accumulated depreciation accounts have been prepared by the chief accountant of the client. You have traced the beginning balances to your prior year’s audit working papers. HOLMAN CORPORATION Analysis of Property, Plant, and Equipment and Related Accumulated Depreciation Accounts Year Ended December 31, 20X6 Final Assets Per Ledger Description...
You are engaged in the audit of the financial statements of Holman Corporation for the year...
You are engaged in the audit of the financial statements of Holman Corporation for the year ended December 31, 20X6. The accompanying analyses of the Property, Plant, and Equipment and related accumulated depreciation accounts have been prepared by the chief accountant of the client. You have traced the beginning balances to your prior year’s audit working papers. HOLMAN CORPORATION Analysis of Property, Plant, and Equipment and Related Accumulated Depreciation Accounts Year Ended December 31, 20X6 Final Assets Per Ledger   Description...
Question 7: Substantive Tests You have been engaged to audit the financial statements of Brew Ltd...
Question 7: Substantive Tests You have been engaged to audit the financial statements of Brew Ltd for the financial year ended 30 September 2017. The company is well established and has been selling craft beer to around 50 popular local restaurants and bars for the past 10 years. The company has good internal controls and keeps detailed records of sales, which allow for weekly analysis by customer. Sales are seasonal (demand is higher in summer), but highly predictable due to...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT