Question

You were engaged to audit the financial statements of Karachi Company for the year ended December 31, 20X1.
On June 1, 20X1, Karachi initiated a product warranty program to help it stay competitive with other companies in its industry. The warranty covers parts, labor, and shipping to repair any defect within one year of purchase.
During 20X1, Karachi paid $50,000 in warranty costs on product sales of $4,000,000 (approximately 80,000 units). Based on this, management estimates its warranty liability at December 31 is $80,000.

Required:
Describe a complete audit program for collecting relevant evidence for the audit of the estimated warranty liability.

Approach:
Develop specific assertions related to warranty liability based on the five principle assertions.



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  • CreatedJanuary 09, 2015
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