1.Identify anomalies found during substantive and control testing for each audit report. 

2.Analyze materiality of control deficiencies and financial misstatements that impact materiality for each audit report. 

3.Identify critical matters for each audit report.
4. Formulate an opinion of the audit based on audit results for each audit report. 

5. Create audit reports (a financial statement report and an internal controls report) based on Generally Accepted Auditing Standards. Include the following: 

   a. Type of audit report to be communicated to client 

   b. Title 

   c. Client information 

   d. Introductory paragraph 

   e. Auditor's opinion 

   f. Basis of the opinion 

        i. Client's responsibility 

       ii. Auditor's responsibility 

6. Critical audit matters

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Based on the Audit Teams' findings, the following will be used to formulate the audit opinion of 1) the financial statements, and 2) the effectiveness of internal controls over financial reporting. Financial Test Results Result #1 Sharon prepares a draft management representation letter for Jo, the partner, to review before presenting it to Cloud9's CEO and CFO to sign. The letter includes a statement about management's responsibility for critical accounting policies and critical accounting estimates. Sharon also drafts a report to be used for communication with Cloud9's audit committee. The report includes critical items for Cloud9. Revenue recognition is a critical accounting policy to discuss with the audit committee. Key items that impact revenue recognition include the opening of a new company-owned store and sales and sales returns to retailers such as department stores. Some of the critical accounting estimates to discuss with the audit committee include compliance with standard ASC 606. The details to be discussed are: ASC 606 Revenue Recognition You've identified the contract with a customer with specified performance obligations, payment terms, and rights of the buyer and seller. Cloud9 charges customers for consulting services and workshops. The company accounts for all its contracts the same way. All parties have agreed on a two-year contract that includes consulting fees of $120,0000 and an onboarding fee of $10,000. The company has entered 100 contracts for the year. Each customer paid $120,000 in advance of receiving promised goods or services. The entry recorded by Cloud9 for each contract was as follows: Account Cash Revenue DR $120,000 Account Deferred Revenue Service Revenue CR Record payment received on a 24-month contract for all services. The onboarding fee is a one-time, upfront fee for set up and training and is recorded when the contract begins. It was recorded as follows: DR $10,000 $120,000 CR $10,000 Record onboarding fee revenue earned on a 24-month contract. Based on the Audit Teams' findings, the following will be used to formulate the audit opinion of 1) the financial statements, and 2) the effectiveness of internal controls over financial reporting. Financial Test Results Result #1 Sharon prepares a draft management representation letter for Jo, the partner, to review before presenting it to Cloud9's CEO and CFO to sign. The letter includes a statement about management's responsibility for critical accounting policies and critical accounting estimates. Sharon also drafts a report to be used for communication with Cloud9's audit committee. The report includes critical items for Cloud9. Revenue recognition is a critical accounting policy to discuss with the audit committee. Key items that impact revenue recognition include the opening of a new company-owned store and sales and sales returns to retailers such as department stores. Some of the critical accounting estimates to discuss with the audit committee include compliance with standard ASC 606. The details to be discussed are: ASC 606 Revenue Recognition You've identified the contract with a customer with specified performance obligations, payment terms, and rights of the buyer and seller. Cloud9 charges customers for consulting services and workshops. The company accounts for all its contracts the same way. All parties have agreed on a two-year contract that includes consulting fees of $120,0000 and an onboarding fee of $10,000. The company has entered 100 contracts for the year. Each customer paid $120,000 in advance of receiving promised goods or services. The entry recorded by Cloud9 for each contract was as follows: Account Cash Revenue DR $120,000 Account Deferred Revenue Service Revenue CR Record payment received on a 24-month contract for all services. The onboarding fee is a one-time, upfront fee for set up and training and is recorded when the contract begins. It was recorded as follows: DR $10,000 $120,000 CR $10,000 Record onboarding fee revenue earned on a 24-month contract.

Answer rating: 100% (QA)

Anomalies found during substantive and control testing for each audit report a Substantive testing 1 Misstatements in financial statements anomalies related to material misstatements in financial stat... View the full answer