You will be using the background information provided at the beginning of the problem, the Company Profiles information, and Recent Developments information (not the information or instructions under Required).

Question:

Writing as the audit senior for Bond CPA firm, you must inform the team of what you feel are specific audit risk for the TWD audit engagement. Like always you must inform your audit team WHY you feel certain factors present an audit risk for the engagement (include your reasoning for why you have identified certain factors as audit risks). ( don't need 1- 15 answer and ignore the Required part from the photo, you should just use the company background information don't have to give an answer from the photo its a whole different Question which I have posted at the bottom).

Transcribed Image Text:

This question consists of a number of items pertaining to an auditor's risk analysis for a company. Your task is to tell how each item affects overall audit risk-that is, the probability of issuing an unmodified audit report on materially misleading financial statements. Bond, CPA, is considering audit risk at the financial statement level in planning the audit of Toxic Waste Disposal (TWD) Company's financial statements for the year ended Decem- ber 31, 2017. TWD is a privately owned company that contracts with municipal govern- ments to remove environmental wastes. Audit risk at the overall financial statement level is influenced by the risk of material misstatements, which may be indicated by a combination of factors related to management, the industry, and the company. Required: Based only on the following information, indicate whether each of the following factors (items 1 through 15) would most likely increase overall audit risk, decrease overall audit risk, or have no effect on overall audit risk. Discuss your reasoning. Company Profile 1. This was the first year TWD operated at a profit since 2012 because the municipalities received increased federal and state funding for environmental purposes. 2. TWD's board of directors is controlled by Mead, the majority stockholder, who also acts as the chief executive officer. 3. The internal auditor reports to the controller, and the controller reports to Mead. 4. The accounting department has experienced a high rate of turnover of key personnel. 5. TWD's bank has a loan officer who meets regularly with TWD's CEO and controller to monitor TWD's financial performance. 6. TWD's employees are paid biweekly. 7. Bond has audited TWD for five years. Recent Developments 8. During 2017. TWD changed the method of preparing its financial statements from the cash basis to the accrual basis under generally accepted accounting principles. 9. During 2017, TWD sold one-half of its controlling interest in United Equipment Leasing (UEL) Co. TWD retained significant interest in UEL. This question consists of a number of items pertaining to an auditor's risk analysis for a company. Your task is to tell how each item affects overall audit risk-that is, the probability of issuing an unmodified audit report on materially misleading financial statements. Bond, CPA, is considering audit risk at the financial statement level in planning the audit of Toxic Waste Disposal (TWD) Company's financial statements for the year ended Decem- ber 31, 2017. TWD is a privately owned company that contracts with municipal govern- ments to remove environmental wastes. Audit risk at the overall financial statement level is influenced by the risk of material misstatements, which may be indicated by a combination of factors related to management, the industry, and the company. Required: Based only on the following information, indicate whether each of the following factors (items 1 through 15) would most likely increase overall audit risk, decrease overall audit risk, or have no effect on overall audit risk. Discuss your reasoning. Company Profile 1. This was the first year TWD operated at a profit since 2012 because the municipalities received increased federal and state funding for environmental purposes. 2. TWD's board of directors is controlled by Mead, the majority stockholder, who also acts as the chief executive officer. 3. The internal auditor reports to the controller, and the controller reports to Mead. 4. The accounting department has experienced a high rate of turnover of key personnel. 5. TWD's bank has a loan officer who meets regularly with TWD's CEO and controller to monitor TWD's financial performance. 6. TWD's employees are paid biweekly. 7. Bond has audited TWD for five years. Recent Developments 8. During 2017. TWD changed the method of preparing its financial statements from the cash basis to the accrual basis under generally accepted accounting principles. 9. During 2017, TWD sold one-half of its controlling interest in United Equipment Leasing (UEL) Co. TWD retained significant interest in UEL.

Answer rating: 100% (QA)

ANSWER Risk Assessment 1 Decrease Ordinarily the fact that this is the first profitable year after a string of losses would cause concern The auditor might suspect an overstatement of revenues or unde... View the full answer