What are the purposes of the two parts of the report of management? The purpose of the first part of the report of management is for management to state its responsibilities for internal control over financial reporting. The Second part of the report states management’s responsibility for the fair presentation of the financial statements.
What is the auditor’s responsibility related to the report of management? The auditor’s responsibility is to express an opinion on the fairness of the presentation of the financials, and an opinion on the effectiveness of internal control of financial reporting, including an opinion on whether management’s assessment of internal control is fairly stated.
Explain the differences among management assertions about classes of transactions and events. Management assertions about account balances and management assertions about presentation and disclosure…
Management assertions relate to transactions and other events that are reflected in the accounting records. In contrast, assertions about account balances relate to the ending account balances that are included in the financials, and assertions about presentation and disclosure relate to how those balances are reflected and disclosed in the financials.
For each assertion, indicate whether it is an assertion about classes of transactions and events, an assertion about account balances, or an assertion about presentation and disclosure…and indicate the name of the assertion made by management…..
a) Classes of transactions - Completeness
b) Presentation and disclosure – Classification and understandability
c) Account balances – Valuation and allocation
d) Classes of transactions - Cutoff
e) Classes of transactions - Classification
f) Presentation and disclosure - Completeness
g) Account balances – Completeness
h) Account balances – Rights and obligations
i) Presentation and disclosure – Accuracy and valuation
j) Classes of transactions - Occurrence
k) Account balances - Existence
l) Classes of transactions - Accuracy
m) Presentation and disclosure – Occurrence, rights, and obligations 7-33
Identify the type of audit evidence used for each audit procedure and identify the general balance-related audit objective or objectives satisfied by each audit procedure 1. Re-performance; Detain tie-in
2. Physical Examination; existence and accuracy
3. Inquiry of the client; realizable value
4. Physical examination; Completeness and Accuracy
5. Analytical Procedures; Accuracy
6. Documentation; Rights and obligations
7. Confirmation; Existence, Completeness, and Accuracy
McClure Advertising Credits— An Insufficient number of confirmations were sent. Use of alternative procedures is acceptable however; one credit was confirmed by telephone rather than by written confirmation. The differences found were immaterial but the auditors would have determined the reason for the difference and an error should have been projected to the population. Twenty additional credits were selected for testing. The testing relied on internal documentation which is insufficient to support the credits. Placing the ad is insufficient evidence also without supporting evidence from the vendors supporting the reduction in the Accounts Payable.
Springbrook Credits—these credits were confirmed by telephone and were not supported by written confirmation. The staff auditor was suspicious of the clients’ unwillingness to allow written confirmation of the amounts as well as the changing explanation of the nature of the credits. No additional testing was performed to resolve any doubts about the validly of the credits.
Ridolfi Credits—The auditor received oral confirmation that these credits were not valid. The client indicated that the auditor’s information was incorrect but would not allow the auditor to obtain written confirmation for these credits. Also, the credit memos had been altered which...