MMU Financial Statements Auditing and Internal Controls Paper

Question Description

Part A 400-500 words.
The following situations have caused you to become concerned about the quality of the upcoming external audit:

  • Because of the fact that the audit will not begin until February after the books have been closed, the external auditors will not be able to confirm the accounts receivable cutoff, physically examine the inventory, and examine other important procedures.
  • You have just been advised that the auditing firm has been acquired by a larger auditing firm, and the auditor that is coming to Bovar Company will be unfamiliar with Bovar Company.
  • One of the acquiring auditing firm’s principal partners is related to the chief executive officer (CEO) of Bovar Company.
  • Some areas of control that have been of concern to the auditing department will not be audited because of workload and timing constraints.
  • Some of the methodology used in the accounting department to compile the financial statements may not comply with generally accepted accounting principles (GAAP).

Generally accepted auditing standards (GAAS) provides three categories of standards and ten standards by which an audit should be performed. You are concerned that some of the aforementioned situations may be in violation of the GAAS standards, and you have decided to review the GAAS standards to detect any possible violations. Complete the following:

  • List each of these standards in their correct category.
  • Identify those standards that you believe may be compromised by the aforementioned situations.
  • Describe specific actions that you believe should be taken to comply with the GAAS standards.

Part B. 300-40 words and unadjusted misstatement audit schedule

To properly assess the internal controls that are in place at Bovar Company, you have found that there are three major objectives that an entity should follow in designing an effective internal control system. They are as follows:

  • Reliability of financial reporting
  • Efficiency and effectiveness of operations
  • Compliance with laws and regulations

In 3–4 paragraphs, complete the following:

  • Discuss the meaning of each of the following major objectives:
    • Reliability of financial reporting
    • Efficiency and effectiveness of operations
    • Compliance with laws and regulations
  • Discuss how they might be satisfied at Bovar Company.
  • Prepare an unadjusted misstatement audit schedule with a comment on your judgment of the audit findings based on the following audit results for Bovar. Bovar has the following misstatements (any amount more than 5% of current assets, total assets, and income before taxes):
    • Understated allowance for uncollectible accounts: $95,000 estimated based on analytical procedures
    • Accounts receivable or sales cutoff misstatements: $60,000 estimated population misstatements based on the sample, including sampling error ($60,000 accounts receivables or sales were not included in the cutoff reporting period.)
    • Difference between physical inventory and book figures:$120,000 actual population misstatements. (The physical inventory is higher than the book figures by $120,000.)
    • Unrecorded liabilities: $285,000 estimated population misstatements based on the sample, including sampling error
    • Repairs or expense items that should have been capitalized:$90,000 estimated based on analytical procedures

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