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.

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