Question

You are performing the audit of the JZ Limited (JZ) financial statements for its year ended September 30, 20X2. JZ is a private company that provides computer network repair services to businesses in the Greater Toronto Area (GTA). JZ’s audited financial statements are used mainly by its bank to support an ongoing operating loan arrangement. JZ has four shareholders who are all actively involved in the business. JZ’s accounting policy is to recognize revenue when each repair job is completed. All sales are on account. At their September 30, 20X2, year-end, JZ had completed a large job, but during your audit you have discovered that the company’s accountant did not record this sales revenue until October 10, 20X2, when the company issued the customer an invoice for $145,000.
Before correcting this error, JZ’s draft financial statements show sales revenues of $3,200,000 and accounts receivable, net of allowance for bad debts, of $450,000.

Required:
a. Explain how the accounts in the JZ financial statements will be affected by this error.
b. Explain the assertion that has been violated by this error.
c. Give one example of an audit procedure that would have discovered this error.
d. What is the impact of this error on JZ’s accounts receivable turnover?
e. Would you consider this error to be material? Justify your response.



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  • CreatedJanuary 09, 2015
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