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ACC 410 Entire Course

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Internal vs. External Audit Staffs. Spacecraft, Inc., is a large corporation that is audited regularly by a public accounting firm
but also maintains an internal auditing staff. Explain briefly how the relationship of the public accounting firm to Spacecraft
differs from the relationship of the internal auditing staff to Spacecraft. Do not forget to show the necessary steps and explain
how you attained that outcome. Respond to at least two of your classmates postings

Audit Reports. Evaluate the following question: If a CPA firm completes a nonpublic company audit of Adam Companys
financial statements following IACPA generally accepted auditing standards and is satisfied with the results of an audit, an
unmodified report may be issued. On the other hand, if no audit is performed of the current years financial statements, but the
CPA firm has performed satisfactory audits in prior years, has confidence in the management of the company, and makes a quick
review of the current years financial statements, a qualified report may be issued. Do you agree? Give reasons to support your
answer. Do not forget to show the necessary steps and explain how you attained that outcome. Respond to at least two of your
classmates postings.

Generally Accepted Auditing Standards. Complete problem below and submit to your instructor. Write under the generally
accepted auditing standards column the specific standard that was violated and how the action of Jones resulted in a failure to
comply with each standard. Organize your answer as shown below; specifically with a column for the standard that was violated
and a column for the required action. The paper should be 2-3 pages.
Problem:
John Clinton, owner of Clinton Company, applied for a bank loan and was informed by the banker that audited financial
statements of the business had to be submitted before the bank could consider the loan application. Clinton then retained Arthur
Jones, CPA, to perform an audit. Clinton informed Jones that audited financial statements were required by the bank and that the
audit must be completed within three weeks. Clinton also promised to pay Jones a fixed fee plus a bonus if the bank approved the
loan. Jones agreed and accepted the engagement.
The first step taken by Jones was to hire two accounting students to conduct the audit. He spent several hours telling them
exactly what to do. Jones told the students not to spend time reviewing controls but instead to concentrate on proving the
mathematical accuracy of the ledger accounts and summarizing the data in the accounting records that support Clinton
Companys financial statements. The students followed Jones instructions and after two weeks gave Jones the financial
statements, which did not include any notes. Jones reviewed the statements and prepared an unqualified audit report. The report,
however, did not refer to generally accepted accounting principles.
Required:

List on the left side of a sheet of paper the generally accepted auditing standards that were violated by Jones, and indicate how
the actions of Jones resulted in a failure to comply with each standard. Organize your answers as follows: Generally Accepted
Auditing Standards
Actions by Jones Resulting in Failure to Comply with Generally Accepted Auditing Standards
General Standards
(1) The auditor must have adequate technical training and proficiency to perform the audit.
(1)
Balance Sheet Verification. The best means of verification of cash, inventory, office equipment, and nearly all other assets is a
physical count of the units; only a physical count gives the auditors complete assurance as to the accuracy of the amounts listed
on the balance sheet. Evaluate this statement. Remember to complete all parts of the problems. Do not forget to show the
necessary steps and explain how you attained that outcome. Respond to at least two of your classmates postings

Accounting Principles. Discuss what is meant by the phrase shopping for accounting principles. What mechanisms have
served to prevent this practice by management? Remember to complete all parts of the problems. Do not forget to show the
necessary steps and explain how you attained that outcome. Respond to at least two of your classmates postings.

Analytical Procedures. In a 2-3 page paper, complete the case below and submit to instructor. Review the income statement for
Uden Supply Company and answer the following:
a. Describe the purpose of analytical procedures performed in the planning stage of the audit.
b. Uden Supply has projected its 2004 gross profit at 31% of sales despite expectation for some shrinkage in margins. On the
basis of Udens operating performance in years 2001 2003 project your best guess for 2004. Project 2004 based on the
incremental changes for each line item over the last three years.
c. Udens unaudited financial statements for the current year show a 31 percent gross profit rate. Assuming that this represents a
misstatement from the amount that you developed as an expectation, calculate the estimated effect of this misstatement on net
income before taxes for 20X4.
d. Indicate whether you believe that the difference calculated in part (c) is material. Explain your answer. (50-100 words).
Comparative income statement information for Uden Supply Company is presented in the accompanying table. UDEN SUPPLY
COMPANY
Comparative Income Statement
Years Ended December 20X1, 20X2, and 20X3

(Thousands)
20X1 Audited
20X2 Audited
20X3 Audited
20X4 Expected
Sales
8,700
9,400
10,100
Cost of goods sold
6,000
6,500
7,000
Gross profit
2,700
2,900
3,100
Sales Commissions
610
660
710
Advertising
175
190

202
Salaries
1,061
1,082
1,103
Payroll taxes
184
192
199
Employee benefits
167
174
181
Rent
60
61
62
Depreciation
60
63
66
Supplies
26
28

30
Utilities
21
22
23
Legal and accounting
34
37
40
Miscellaneous
12
13
14
Interest expense
210
228
240
Net income before taxes
80
150
230
Incomes taxes
18
33

50
Net income
62
117
180
Audit Programs. All experienced auditors would design exactly the same audit program for a particular audit engagement. Do
you agree? Explain. Remember to complete all parts of the problems. Do not forget to show the necessary steps and explain how
you attained that outcome. Respond to at least two of your classmates postings.

Internal Control Procedures. Describe what is meant by a walk-through. Must walk-throughs be performed during audits of
internal control over financial reporting? May the client perform a walk-through and the auditors then review the clients work?
Remember to complete all parts of the problems. Do not forget to show the necessary steps and explain how you attained that
outcome. Respond to at least two of your classmates postings.

Internal Control Case. Complete Case 18-37 (p. 724-725) and submit to instructor. For each of the following independent cases
state the highest level of deficiency that you believe the circumstances representa control deficiency, a significant deficiency, or
a material weakness. Explain your decision in each case.

Legal Case. Compare the rights of plaintiffs under common law with the rights of persons who purchase securities registered
under the Securities Act of 1933 and sustain losses. In your answer, emphasize the issue of who must bear the burden of proof.
Remember to complete all parts of the problems. Do not forget to show the necessary steps and explain how you attained that
outcome. Respond to at least two of your classmates postings.

Ethics Case. 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 Corporations management to examine his working papers. Some of the working papers
consisted of adjusting journal entries and supporting analysis. Wilson Corporations management had no other source for this
information. Did Fell violate the AICPA Code of Professional Conduct? Explain fully. Remember to complete all parts of the
problems. Do not forget to show the necessary steps and explain how you attained that outcome. Respond to at least two of your
classmates postings.

Program Comprehensive Exam. Complete the comprehensive exam, which will take
approximately one to two hours and will be graded based on your score. The full instructions for the exam
are posted in the classroom.

Audit Reporting. Wade Corporation has been your audit client for several years. At the beginning of the current year, the
company changed its method of inventory valuation from average cost to last in, first out (LIFO). The change, which had been
under consideration for some time, was in your opinion a logical and proper step for the company to take. What effect, if any, will
this situation have on your audit report for the current year? Remember to complete all parts of the problems. Do not forget to
show the necessary steps and explain how you attained that outcome. Respond to at least two of your classmates postings.

Audit Reports. The auditors do not believe that certain lease obligations have been reflected in conformity with generally
accepted accounting principles in the clients financial statements. What type of opinion should the auditors issue if they decide
that the exceptions are immaterial? Material? Very material? Remember to complete all parts of the problems. Do not forget to
show the necessary steps and explain how you attained that outcome. Respond to at least two of your classmates postings.

Audit Report Modifications. Complete problem below. List a represents the types of opinions the auditor ordinarily would issue
and List B represents the report modifications [if any] that would be necessary. Select as the best answer for each situation [items
1 to 6] the type of opinion and modifications, if any, the auditor would normally select. The types of opinions in List A and the
report modifications in List B may be selected once, more than once, or not at all. The paper should be 2-3 pages.
Problem:
Items 1 through 6 present various independent factual situations an auditor might encounter in conducting an audit. For each
situation assume:
Assume:
The auditor is independent.
The auditor previously expressed an unqualified opinion on the prior years financial statements.
Only single-year (not comparative) statements are presented for the current year.
The conditions for an unqualified opinion exist unless contradicted in the factual situations.
The conditions stated in the factual situations are material.
No report modifications are to be made except in response to the factual situation.

Situations:
1. In auditing the long-term investments account, an auditor is unable to obtain audited financial statements for an investee
located in a foreign country. The auditor concludes that sufficient appropriate audit evidence regarding this investment cannot be
obtained.
2. Due to recurring operating losses and working capital deficiencies, an auditor has substantial doubt about an entitys ability
to continue as a going concern for a reasonable period of time. However, the financial statement disclosures concerning these
matters are adequate.
3. A principal auditor decides to take responsibility for the work of another CPA who audited a wholly owned subsidiary of the
entity and issued an unqualified opinion. The total assets and revenues of the subsidiary represent 17 percent and 18 percent,
respectively, for the total assets and revenues of the entity being audited.
4. An entity issues financial statements that present financial position and results of operations but omits the related statement of
cash flows. Management discloses in the notes to the financial statements that it does not believe that statement of cash flows to
be a useful financial statement.
5. An entity changes its depreciation method for production equipment from straight-line to a units-of-production method based
on hours of utilization. The auditor concurs with the change, although it has a material effect on the comparability of the entitys
financial statements.
6. An entity discloses certain lease obligations in the notes to the financial statements. The auditor believes that the failure to
capitalize these leases is a departure from generally accepted accounting principles.
Required:
List A represents the types of opinions the auditor ordinarily would issue and List B represents the report modifications (if any)
that would be necessary. Select as the best answer for each situation (items 1 through 6) the type of opinion and modifications, if
any, the auditor would normally select. The types of opinions in List A and the report modifications in List B may be selected
once, more than once, or not at all.
(AICPA, adapted) List A
List B
Types of Opinions
Report Modifications
A. An except for qualified opinion
H. Describe the circumstances in a explanatory paragraph preceding the opinion paragraph without modifying the three standard
paragraphs.
B. An unqualified opinion

I. Describe the circumstances in an explanatory paragraph following the opinion paragraph without modifying the three standard
paragraphs.
C. An adverse opinion
J. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph, and modify the opinion paragraph.
D. A disclaimer of opinion
K. Describe the circumstances in an explanatory paragraph following the opinion paragraph, and modify the opinion paragraph.
E. Either an except for qualified opinion or an adverse opinion.
L. Describe the circumstances in an explanatory paragraph preceding the opinion paragraph, and modify the scope and opinion
paragraphs.
F. Either a disclaimer of opinion or an except for qualified opinion.
M. Describe the circumstances in an explanatory paragraph following the opinion paragraph, and modify the scope and opinion
paragraphs.
G. Either an adverse opinion or a disclaimer of opinion
N. Describe the circumstances within the scope paragraph without adding an explanatory paragraph.
O. Describe the circumstances within the opinion paragraph without adding an explanatory paragraph.
P. Describe the circumstances within the scope and opinion paragraphs without adding an explanatory paragraph.
The final paper will be based on Appendix 6C Illustrative Audit Case: Keystone Computers at pages 237-244 in your text. Write,
in outline format but in complete sentences, a 6 to 10 page audit plan. It is recommended that you look at Figure 18.8 on page
708, which shows the control objectives related to accounts receivable.
In your audit plan cover the steps necessary to determine if you should select the client, the internal control procedures which
need to be reviewed, the substantive tests [using accounts receivable a guide], and the final reporting steps. Based on the actual
facts in the case determine the emphasis you want to place on various accounts. Also reflect back over your entire accounting
program and think about how the accounts are interrelated. For example, when allowance for doubtful accounts is credited the
offset is to bad debt expense. Therefore one of the steps should be to trace the debit side of the entry to the balance for bad debt
expense.
Make your comments as specific as possible. Rather than say look for unusual entries, say look for entries from unusual sources
and rounded amounts with focus on those near an accounting cut off. Use precise language. Rather than saying you vouched
accounts payable, say that you looked at the item to determine that it was a bona fide business expense. Remember to focus on
the key audit objectives and support needed after applying the audit risk model.
Remember, the purpose of the Final Paper is for you to culminate the learning achieved in the course by describing your
understanding and application of knowledge in the field of accounting.

The Final Paper should focus on real life, real time application of topics covered in this course; the uses you have seen and the
uses you can envision. The paper must be submitted to your instructor no later than the last day of class. Earlier submittal is
appreciated.