ACCT$411\_$Financial Auditing Problem $5$ In connection with your audit of the financial statements of Echo Corporation $($the Company$),$ the CFO provided your engagement team with the following information related to the Company$$s cost of goods sold for the year ended December $31,2024.$ For the purpose of this problem assume that inventory and cost of goods sold are material to the financial statements taken as a whole. $$ Additional Information $2024$ is the first year of the Company$$s operations. $$ According to the CFO, the Company uses FIFO for financial reporting on a GAAP basis and LIFO for tax reporting. $$ On December $31,2024,$ management of the Company did a full count of all of the Company$$s inventory and representatives of your firm observed this counting. $$ For the purpose of this problem assume that your firm does not intend to place any reliance on controls. $$ Required $1.$ By reference to AU$-$C Section $501\mathrm{.}12$ through $501\mathrm{.}16$ and AU$-$C Section $330,$ describe the documentation of inventory audit procedures that you would expect to see in your inventory audit workpapers. $2.$ Is there anything about the Company$$s use of different cost flow assumptions for book and tax purposes that causes you pause? $$

Problem $6$

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You are reviewing the audit workpapers associated with your firm$$s audit of the financial

statements of Foxtrot Corporation $($the Company$)$ as of and for the year ended December $31,$

$2024.$ Staffing is really tight on this engagement and inexperienced staff accountants

performed all of the audit work associated with the Company$$s accounts receivable and

revenues, which are material to the financial statements taken as a whole. Selected

documentation for this part of your firm$$s audit follows.

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Notes

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A decision was made not to confirm accounts receivable. They were confirmed last year, and

response was good. We covered it all in subsequent cash collects. Think balance look good.

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A decision was also made not to perform any test of revenue. We nailed down the receivable

balances with good with subsequent collections. Customer would not pay if we did not

properly record revenue under GAAP.

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Trial Balance This amount does not agree to the trial balance by $$2,000$ but that number is

less that overall financial statement materiality, pass further work.

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