Solutions to applied auditing by cabrera

Solutions to applied auditing by cabrera

Confirm with customers unclaimed merchandise still in the possession of the client as of the balance sheet date. The extent of test counting will be determined by the inventory-taking procedures; for example, the number of the auditors test counts would be reduced if there were two teams, one verifying the other, taking the inventory.

audit problems and solutions

Principal problems the auditor will face are related by: 1. Existence or occurrence 2.

Obtain from the client a complete list of all consignees together with copies of the consignment contracts. Because ending inventory and net income have a direct relationship, net income in would be understated. P10, or one-third of P30, should be reported as income each year. Pancho Manufacturing Corporation 1. Naval Base on November 30, In this related-party transaction, the auditors must look beyond form--a total cost of P, for the original stock of merchandise--to substance. The extent of test counting will be determined by the inventory-taking procedures; for example, the number of the auditors test counts would be reduced if there were two teams, one verifying the other, taking the inventory. In , P30, was reported as income when only P10, should have been reported. Because P20, too much was reported, the net income of is overstated. Ascertain that any arbitrary mark-ons are deducted and that shipping and related charges for the transfer of merchandise to the consignees are reflected as part of the inventory. Confirm with customers unclaimed merchandise still in the possession of the client as of the balance sheet date.

Existence or occurrence. The auditors should inspect perpetual inventory records for usage of the materials, and should inquire of production personnel whether the materials are currently useful in production. Verify postings to the perpetual ledger at the plant office for both stock owned and stock being held for customers against original cost sheet to determine amounts debited and credited to the account.

These agreements usually provide for certain payments to be made by the borrower as pledged goods are sold. The ending inventory would be understated since the merchandise was omitted.

Determine that goods pledged to obtain funds are covered by warehouse receipts. Because ending inventory and net income have a direct relationship, net income in would be understated.

Substantiation of the figure for inventories is an especially challenging task because of the variety of acceptable methods of valuation. Existence or occurrence 2. In addition, the variety of materials found in inventories calls for considerable experience and skill to do an efficient job of identifying and test-counting goods on hand. Ascertain that quantities of goods in hands of consignees at the close of the period under audit appear in the balance sheet and are separately designated as Merchandise on Consignment. Beed Company Since Beed Company obtained all of its merchandise inventory from the president of the company in a related-party transaction, the auditors must determine the cost of the merchandise to the president in his operation of a similar business as a single proprietor. Require that an annual physical inventory taking be done by the client and arrangements for the presence and observation of the auditor be done. Proper valuation since the perpetual inventory records reflect quantities only. Determine that goods pledged to obtain funds are covered by warehouse receipts. Principal problems the auditor will face are related by: 1. Jay Company The following procedures should be undertaken: a The oral evidence that the motors are on consignment should be substantiated by a review of the clients records of consigned inventory, examination of contracts and correspondence with consignors, and confirmation of consigned stocks by direct communication with consignors. The possibilities of obsolescence and of excessive stocks also create problems.

PAS 38, paragraphs 54 to 57 govern the accounting for research and development costs. Finally, the relatively large size of inventories and their significance in the determination of net income make purposeful misstatement by the client a possibility which the auditors must guard against.

In , P30, was reported as income when only P10, should have been reported. The P8, of last months rent is also an asset, called prepaid rent. The auditors make test counts of inventory quantities during their observation of the taking of the physical inventory to ascertain that an accurate count is being made by the individuals taking the inventory. In addition, the variety of materials found in inventories calls for considerable experience and skill to do an efficient job of identifying and test-counting goods on hand. Obtain from the client a complete list of all consignees together with copies of the consignment contracts. Require that an annual physical inventory taking be done by the client and arrangements for the presence and observation of the auditor be done. The ending inventory would be understated since the merchandise was omitted. Accordingly, the auditors should ascertain that the sales value of the machine is included in accounts receivable, and that the cost of the machine is not in the perpetual inventory or the physical inventory. The possibilities of obsolescence and of excessive stocks also create problems. Review the clients procedures for acceptance and evaluation of the performance of warehouses, and review supporting documents. The auditors should examine the receiving report for the machine, the accounts receivable confirmation from the customer, and records of the clients quality control department, to ascertain who has title to the machine. The auditors responsibilities with respect to inventories include not only quantities and pricing, but also the quality or condition of the goods, the accuracy of extensions, footing, and summaries, and the evaluation of internal control. Ascertain that quantities of goods in hands of consignees at the close of the period under audit appear in the balance sheet and are separately designated as Merchandise on Consignment.
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Philippine CPA Review: Answer Key in Applied Auditing by Cabrera ( Edition)