Your firm, ACTG 307 & Associates, is engaged to audit the financial statements of XYZ Corporation....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Your firm, ACTG 307 & Associates, is engaged to audit the financial statements of XYZ Corporation. It is a private manufacturing company that is considering going public in three to four years. Your firm has been preforming audit services to this client for the past five years. The client requires financial statements audits for monitoring purposes, but mainly to receive finance and loans from banks. The management team has high level of competence and integrity, and based on the other team's assessment of internal control, the control risk is low. Another team did most of the audit tests and completed most of the audit workpapers. Your team is assigned to complete the workpapers and audit tests of the engagement. Specifically, your team is required to do the following: 1. Write an engagement letter, dated 11/6/2016, by completing WP 2-1. 2. Perform the preliminary analytical procedure WP 3-1 and 3-2 and comment on: a. The client liquidity, profitability and solvency. b. The client ability to continue as a going concern. 3. Assess the preliminary materiality based on the policy. provided (WP 1-13), and complete WP 3-5, assuming moderate risk and satisfactory results of the analytical procedures. 4. Complete the audit of the accounts receivables: a. Calculate the sample size for A/R confirmation by following steps in WP 25-2. b. Assume that you received answers for all of the confirmations and only one of them indicated that the balance is wrong. The balance recorded is $598,000, but the correct amount is $589,000. Prepare an adjusting entry on WP 25-5. c. Complete the A/R lead sheet WP 25-1, and complete the conclusions box by stating whether this account is fairly stated or not. (Ignore the allowance for doubtful accounts). d. Assuming that all other tests came to be satisfactory, prepare an audit report (dated 2/21/2017) assuming that: 1. The client made the suggest adjusting entry. 2. The client did not do the adjusting entry (only if different from the above one). Notes: 1. Comparative income statements and balance sheets are provided. 2. Make sure to initial every document. [If you are from the morning (evening) class group # 1, your initial will be MG1 (EG1)]. 3. In the analytical procedure section, do not explain the ratios, rather provide the conclusions that you arrived to based on the results of the ratio analysis. WP 1-13 ACTG 307 & ASSOCIATES, CPAs POLICY STATEMENT Professional judgment is to be used at all times in setting and applying materiality guidelines. As a general guideline, the following policies are to be applied: 1. The combined total of misstatements in the financial statements exceeding 10 percent is normally considered material, less than 5 percent is presumed to be immaterial in the absence of qualitative factors. Between 5 percent and 10 percent require the greatest amount of professional judgment to determine their materiality. 2. The 5 percent to 10 percent must be measured in relation to the appropriate base. Many times there is more than one base to which misstatements should be compared. The following guides are recommended in selecting the appropriate base: a. Income statement. Combined misstatements in the income statement should ordinarily be measured at 5 percent to 10 percent of operating income before taxes. A guideline of 5 percent to 10 percent may be inappropriate in a year in which income is unusually large or small. b. Balance sheet. Combined misstatements in the balance sheet should originally be evaluated for current assets, current liabilities, and total assets. For current assets and current liabilities, the guidelines should be between 5 percent and 10 percent. For total assets, the guidelines should be between 3 percent and 6 percent. 3. Qualitative factors should be carefully evaluated on all audits. WP 3-5 XYZ Corp. Measurement base Preliminary materiality Judgment Percentage Applied Preliminary materiality (e.g., income, revenue, assets) $ (put the name of the base here) % $ (rounded) Liquidity: Please write your conclusions and comments on the client liquidity ratios here. Profitability: Please write your conclusions and comments on the client profitability ratios here. Account Solvency: AccountS NUUCivⱭuit Luau ShtUT name and Please write your conclusions and comments on the client Solvency ratios here. receivable Going concern: ?? ts ?? ?? Please write your conclusions and comments on the client's ability to continue as a going concern based on the above ratio analysis here. Conclusions: The accounts receivable account is ????? (fairly on NOT fairly stated) XYZ Balance Sheet XYZ Income Statement XYZ Corporation ANNUAL BALANCE SHEET ($ thousands) 12/31/16 12/31/15 ASSETS Cash & Equivalents 24991 29514 Net Receivables 26388 25606 Inventories 13764 13642 Prepaid Expenses 0 12864 0 14908 12/31/14 ཉཱངྒཱཎྜ དྷཎྜཎ། ཉཱཎྜཎྜཔྤནྡྷ ཎཱ ཎྞབྷཱབྷུསྨཱ༤༠ སྤྲེ॰… ཎྜཱ ཎྜཱ॰ Other Current Assets Total Current Assets 78007 83670 Gross Plant Property & Equipment 63750 44078 Accumulated Depreciation 12349 9275 Net Plant Property & Equipment 51401 34803 Investments at Equity 9201 Other Investments 18500 Intangibles 5947 8350 16006 6410 Deferred Charges 0 0 Other Assets 31464 28438 TOTAL ASSETS 194520 177677 LIABILITIES Long Term Debt Due In One Year 0 0 Notes Payable 19562 14988 Accounts Payable 24062 22529 Taxes Payable 0 0 Accrued Expenses 5865 Other Current Liabilities 21977 5726 22458 Total Current Liabilities 71466 65701 Long Term Debt 43549 31853 Deferred Taxes 0 0 Investment Tax Credit 0 0 39182 44099 སྤྱི རྞནྟི I, དྷཙཎྜཀིཊྛི ༢༠ནིཎྜ ཙྩེཝབྷཱ॰ ཎྜཱ དྷརཎྞ ཝཱ རཱ Other Liabilities TOTAL LIABILITES 154197 141653 Redeemable Noncontrolling Int. 0 0 EQUITY Preferred Stock - Redeemable Preferred Stock - Nonredeemable 0 0 0 0 Total Preferred Stock Common Stock Capital Surplus Retained Earnings 0 0 15 16 27607 28937 28780 12249 6504 10703 0 0 0 Less: Treasury Stock Common Equity 39871 35457 39498 Stockholder's Equity - Parent 39871 35457 42607 Nonredeemable Noncontrolling Int. 452 567 567 Stockholder's Equity - Total 40323 36024 43174 37000 TOTAL LIABILITIES & EQUITY 194520 177677 166344 149422 COMMON SHARES OUTSTANDING 1500 1600 1500 1366.374 Your firm, ACTG 307 & Associates, is engaged to audit the financial statements of XYZ Corporation. It is a private manufacturing company that is considering going public in three to four years. Your firm has been preforming audit services to this client for the past five years. The client requires financial statements audits for monitoring purposes, but mainly to receive finance and loans from banks. The management team has high level of competence and integrity, and based on the other team's assessment of internal control, the control risk is low. Another team did most of the audit tests and completed most of the audit workpapers. Your team is assigned to complete the workpapers and audit tests of the engagement. Specifically, your team is required to do the following: 1. Write an engagement letter, dated 11/6/2016, by completing WP 2-1. 2. Perform the preliminary analytical procedure WP 3-1 and 3-2 and comment on: a. The client liquidity, profitability and solvency. b. The client ability to continue as a going concern. 3. Assess the preliminary materiality based on the policy. provided (WP 1-13), and complete WP 3-5, assuming moderate risk and satisfactory results of the analytical procedures. 4. Complete the audit of the accounts receivables: a. Calculate the sample size for A/R confirmation by following steps in WP 25-2. b. Assume that you received answers for all of the confirmations and only one of them indicated that the balance is wrong. The balance recorded is $598,000, but the correct amount is $589,000. Prepare an adjusting entry on WP 25-5. c. Complete the A/R lead sheet WP 25-1, and complete the conclusions box by stating whether this account is fairly stated or not. (Ignore the allowance for doubtful accounts). d. Assuming that all other tests came to be satisfactory, prepare an audit report (dated 2/21/2017) assuming that: 1. The client made the suggest adjusting entry. 2. The client did not do the adjusting entry (only if different from the above one). Your firm, ACTG 307 & Associates, is engaged to audit the financial statements of XYZ Corporation. It is a private manufacturing company that is considering going public in three to four years. Your firm has been preforming audit services to this client for the past five years. The client requires financial statements audits for monitoring purposes, but mainly to receive finance and loans from banks. The management team has high level of competence and integrity, and based on the other team's assessment of internal control, the control risk is low. Another team did most of the audit tests and completed most of the audit workpapers. Your team is assigned to complete the workpapers and audit tests of the engagement. Specifically, your team is required to do the following: 1. Write an engagement letter, dated 11/6/2016, by completing WP 2-1. 2. Perform the preliminary analytical procedure WP 3-1 and 3-2 and comment on: a. The client liquidity, profitability and solvency. b. The client ability to continue as a going concern. 3. Assess the preliminary materiality based on the policy. provided (WP 1-13), and complete WP 3-5, assuming moderate risk and satisfactory results of the analytical procedures. 4. Complete the audit of the accounts receivables: a. Calculate the sample size for A/R confirmation by following steps in WP 25-2. b. Assume that you received answers for all of the confirmations and only one of them indicated that the balance is wrong. The balance recorded is $598,000, but the correct amount is $589,000. Prepare an adjusting entry on WP 25-5. c. Complete the A/R lead sheet WP 25-1, and complete the conclusions box by stating whether this account is fairly stated or not. (Ignore the allowance for doubtful accounts). d. Assuming that all other tests came to be satisfactory, prepare an audit report (dated 2/21/2017) assuming that: 1. The client made the suggest adjusting entry. 2. The client did not do the adjusting entry (only if different from the above one). Notes: 1. Comparative income statements and balance sheets are provided. 2. Make sure to initial every document. [If you are from the morning (evening) class group # 1, your initial will be MG1 (EG1)]. 3. In the analytical procedure section, do not explain the ratios, rather provide the conclusions that you arrived to based on the results of the ratio analysis. WP 1-13 ACTG 307 & ASSOCIATES, CPAs POLICY STATEMENT Professional judgment is to be used at all times in setting and applying materiality guidelines. As a general guideline, the following policies are to be applied: 1. The combined total of misstatements in the financial statements exceeding 10 percent is normally considered material, less than 5 percent is presumed to be immaterial in the absence of qualitative factors. Between 5 percent and 10 percent require the greatest amount of professional judgment to determine their materiality. 2. The 5 percent to 10 percent must be measured in relation to the appropriate base. Many times there is more than one base to which misstatements should be compared. The following guides are recommended in selecting the appropriate base: a. Income statement. Combined misstatements in the income statement should ordinarily be measured at 5 percent to 10 percent of operating income before taxes. A guideline of 5 percent to 10 percent may be inappropriate in a year in which income is unusually large or small. b. Balance sheet. Combined misstatements in the balance sheet should originally be evaluated for current assets, current liabilities, and total assets. For current assets and current liabilities, the guidelines should be between 5 percent and 10 percent. For total assets, the guidelines should be between 3 percent and 6 percent. 3. Qualitative factors should be carefully evaluated on all audits. Notes: 1. Comparative income statements and balance sheets are provided. 2. Make sure to initial every document. [If you are from the morning (evening) class group # 1, your initial will be MG1 (EG1)]. 3. In the analytical procedure section, do not explain the ratios, rather provide the conclusions that you arrived to based on the results of the ratio analysis. WP 1-13 ACTG 307 & ASSOCIATES, CPAs POLICY STATEMENT Professional judgment is to be used at all times in setting and applying materiality guidelines. As a general guideline, the following policies are to be applied: 1. The combined total of misstatements in the financial statements exceeding 10 percent is normally considered material, less than 5 percent is presumed to be immaterial in the absence of qualitative factors. Between 5 percent and 10 percent require the greatest amount of professional judgment to determine their materiality. 2. The 5 percent to 10 percent must be measured in relation to the appropriate base. Many times there is more than one base to which misstatements should be compared. The following guides are recommended in selecting the appropriate base: a. Income statement. Combined misstatements in the income statement should ordinarily be measured at 5 percent to 10 percent of operating income before taxes. A guideline of 5 percent to 10 percent may be inappropriate in a year in which income is unusually large or small. b. Balance sheet. Combined misstatements in the balance sheet should originally be evaluated for current assets, current liabilities, and total assets. For current assets and current liabilities, the guidelines should be between 5 percent and 10 percent. For total assets, the guidelines should be between 3 percent and 6 percent. 3. Qualitative factors should be carefully evaluated on all audits. WP 3-5 XYZ Corp. Measurement base Preliminary materiality Judgment Percentage Applied Preliminary materiality (e.g., income, revenue, assets) $ (put the name of the base here) % $ (rounded) Liquidity: Please write your conclusions and comments on the client liquidity ratios here. Profitability: Please write your conclusions and comments on the client profitability ratios here. Account Solvency: AccountS NUUCivⱭuit Luau ShtUT name and Please write your conclusions and comments on the client Solvency ratios here. receivable Going concern: ?? ts ?? ?? Please write your conclusions and comments on the client's ability to continue as a going concern based on the above ratio analysis here. Conclusions: The accounts receivable account is ????? (fairly on NOT fairly stated) WP 3-5 XYZ Corp. Measurement base Preliminary materiality Judgment Percentage Applied Preliminary materiality (e.g., income, revenue, assets) $ (put the name of the base here) % $ (rounded) Liquidity: Please write your conclusions and comments on the client liquidity ratios here. Profitability: Please write your conclusions and comments on the client profitability ratios here. Account Solvency: AccountS NUUCivⱭuit Luau ShtUT name and Please write your conclusions and comments on the client Solvency ratios here. receivable Going concern: ?? ts ?? ?? Please write your conclusions and comments on the client's ability to continue as a going concern based on the above ratio analysis here. Conclusions: The accounts receivable account is ????? (fairly on NOT fairly stated) XYZ Balance Sheet XYZ Income Statement XYZ Corporation ANNUAL BALANCE SHEET ($ thousands) 12/31/16 12/31/15 ASSETS Cash & Equivalents 24991 29514 Net Receivables 26388 25606 Inventories 13764 13642 Prepaid Expenses 0 12864 0 14908 12/31/14 ཉཱངྒཱཎྜ དྷཎྜཎ། ཉཱཎྜཎྜཔྤནྡྷ ཎཱ ཎྞབྷཱབྷུསྨཱ༤༠ སྤྲེ॰… ཎྜཱ ཎྜཱ॰ Other Current Assets Total Current Assets 78007 83670 Gross Plant Property & Equipment 63750 44078 Accumulated Depreciation 12349 9275 Net Plant Property & Equipment 51401 34803 Investments at Equity 9201 Other Investments 18500 Intangibles 5947 8350 16006 6410 Deferred Charges 0 0 Other Assets 31464 28438 TOTAL ASSETS 194520 177677 LIABILITIES Long Term Debt Due In One Year 0 0 Notes Payable 19562 14988 Accounts Payable 24062 22529 Taxes Payable 0 0 Accrued Expenses 5865 Other Current Liabilities 21977 5726 22458 Total Current Liabilities 71466 65701 Long Term Debt 43549 31853 Deferred Taxes 0 0 Investment Tax Credit 0 0 39182 44099 སྤྱི རྞནྟི I, དྷཙཎྜཀིཊྛི ༢༠ནིཎྜ ཙྩེཝབྷཱ॰ ཎྜཱ དྷརཎྞ ཝཱ རཱ Other Liabilities TOTAL LIABILITES 154197 141653 Redeemable Noncontrolling Int. 0 0 EQUITY Preferred Stock - Redeemable Preferred Stock - Nonredeemable 0 0 0 0 Total Preferred Stock Common Stock Capital Surplus Retained Earnings 0 0 15 16 27607 28937 28780 12249 6504 10703 0 0 0 Less: Treasury Stock Common Equity 39871 35457 39498 Stockholder's Equity - Parent 39871 35457 42607 Nonredeemable Noncontrolling Int. 452 567 567 Stockholder's Equity - Total 40323 36024 43174 37000 TOTAL LIABILITIES & EQUITY 194520 177677 166344 149422 COMMON SHARES OUTSTANDING 1500 1600 1500 1366.374 XYZ Balance Sheet XYZ Income Statement XYZ Corporation ANNUAL BALANCE SHEET ($ thousands) 12/31/16 12/31/15 ASSETS Cash & Equivalents 24991 29514 Net Receivables 26388 25606 Inventories 13764 13642 Prepaid Expenses 0 12864 0 14908 12/31/14 ཉཱངྒཱཎྜ དྷཎྜཎ། ཉཱཎྜཎྜཔྤནྡྷ ཎཱ ཎྞབྷཱབྷུསྨཱ༤༠ སྤྲེ॰… ཎྜཱ ཎྜཱ॰ Other Current Assets Total Current Assets 78007 83670 Gross Plant Property & Equipment 63750 44078 Accumulated Depreciation 12349 9275 Net Plant Property & Equipment 51401 34803 Investments at Equity 9201 Other Investments 18500 Intangibles 5947 8350 16006 6410 Deferred Charges 0 0 Other Assets 31464 28438 TOTAL ASSETS 194520 177677 LIABILITIES Long Term Debt Due In One Year 0 0 Notes Payable 19562 14988 Accounts Payable 24062 22529 Taxes Payable 0 0 Accrued Expenses 5865 Other Current Liabilities 21977 5726 22458 Total Current Liabilities 71466 65701 Long Term Debt 43549 31853 Deferred Taxes 0 0 Investment Tax Credit 0 0 39182 44099 སྤྱི རྞནྟི I, དྷཙཎྜཀིཊྛི ༢༠ནིཎྜ ཙྩེཝབྷཱ॰ ཎྜཱ དྷརཎྞ ཝཱ རཱ Other Liabilities TOTAL LIABILITES 154197 141653 Redeemable Noncontrolling Int. 0 0 EQUITY Preferred Stock - Redeemable Preferred Stock - Nonredeemable 0 0 0 0 Total Preferred Stock Common Stock Capital Surplus Retained Earnings 0 0 15 16 27607 28937 28780 12249 6504 10703 0 0 0 Less: Treasury Stock Common Equity 39871 35457 39498 Stockholder's Equity - Parent 39871 35457 42607 Nonredeemable Noncontrolling Int. 452 567 567 Stockholder's Equity - Total 40323 36024 43174 37000 TOTAL LIABILITIES & EQUITY 194520 177677 166344 149422 COMMON SHARES OUTSTANDING 1500 1600 1500 1366.374
Expert Answer:
Answer rating: 100% (QA)
1 Engagement Letter WP 21 To prepare the engagement letter include the following key elements Date November 6 2016 Addressee XYZ Corporation Introduction Introduce your firm ACTG 307 Associates as the ... View the full answer
Related Book For
Intermediate Accounting Volume 2
ISBN: 9781119497042
12th Canadian Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy
Posted Date:
Students also viewed these accounting questions
-
The firm of Buy and Best, CPAs, is engaged to conduct the audit of Radio Hut, a retailer of electronic and other high- technology products. Because of technological advances in Radio Huts inventory...
-
Lanny Beaudean joined Cardinal & Coyote LLP in 2011 after working for two years for the IRS in Phoenix, Arizona. Cardinal & Coyote is a second-tier CPA firm just below the Big Four in size....
-
You are the Accounts Clerk for B2B Enterprises.You have been asked to complete the banking questions and bank reconciliation tasks below.To Do all tasks, the B2B EnterprisesOrganisationalPolicies and...
-
Assume that you are an antitrust regulator. How important is properly defining the market segment in which the acquirer and target companies compete in determining the potential increase in market...
-
Where do earthquakes occur?
-
The relatively high resistivity of dry skin, about\(1 \times 10^{6} \Omega \cdot \mathrm{m}\), can safely limit the flow of current into deeper tissues of the body. Suppose an electrical worker...
-
Referring to Exercise 1: A study of 86 savings and loan associations in six northwestern states yielded the following cost function: Where C = average operating expense ratio, expressed as a...
-
Problem 1: Workout Create an empty list called workout. 50 points Now using a loop take 5 numbers as inputs from keyboard. These inputted numb represent the number of hours you worked out per day in...
-
Under Armour, Inc. is an American supplier of sportswear and casual apparel. Following are selected financial data for the company for the period 20092013. a. Calculate Under Armours annual...
-
Use the following information for the next 2 questions: Forecast of demand 5600 units/week Weekly forecast error, standard deviation 1276 units Lead time 2 weeks Lead time variability, standard 0.9...
-
Efficiency means O resources are distributed in a fair manner. O the production of one good cannot be increased without decreasing the production of another good. O all material wants are satisfied....
-
In a monopolistic industry, there is (are) O a. a single; free entry of new firms a single; entry of new firms is blocked O b. O c. many; free entry of new firms O d. many; entry of new firms is...
-
If the price of gasoline increases, the substitution effect amid price change will decrease in the quantity of gasoline demanded. a decrease in the demand (shift) for natural gas, a substitute for...
-
Sam is a member of a software development team. His job is to identify the system functions that must be validated, and to decide how to test new software. What is Sam's role on the software...
-
Which statement is NOT true regarding the way the Federal Reserve controls the money supply? a.) The Fed gives bondholders cash in exchange for securities (bonds). b.) If the Fed wants to reduce the...
-
Find Vi&V2 for the network in the fig (2) using nodal analysis. 5 Vi 8 Fig(2) 30 20 2. 3.
-
Suppose the market is semistrong form efficient. Can you expect to earn excess returns if you make trades based on? a. Your brokers information about record earnings for a stock? b. Rumors about a...
-
The following information is available for Huntley Corporation's pension plan for the year 2020: Instructions a. Calculate pension expense for the year 2020, and provide the entries to recognize the...
-
Tudor Services Ltd., a private company following ASPE, has an August 31 fiscal year end. The company?s trial balance prior to adjustments follows: Additional data: 1. The equipment has an expected...
-
Lessee Corp. agreed to lease property from Lessor Corp. effective January 1, 2020, for an annual payment of $30,877, beginning January 1, 2020. The property is made up of land with a fair value of...
-
The financial records of Dunbar Inc. were destroyed by fire at the end of 2015. Fortunately, the controller had kept the following statistical data related to the income statement. 1. The beginning...
-
Maher Inc. reported income before income tax during 2015 of 790,000. Additional transactions occurring in 2015 but not considered in the 790,000 are as follows. 1. The corporation experienced an...
-
Presented below is the trial balance of Thompson Corporation at December 31, 2015. Instructions Prepare an income statement and a retained earnings statement. Assume that the only changes in retained...
Study smarter with the SolutionInn App