Considering only 2018 balance sheet evidence, what would be reasonable auditor's expectation for 2019 prepaid expenses?

Hayens End

                                  Dec 31, 2019                                       Dec 31, 2018

Cash                            193405                                               194581

Restricted Cash            1948                                                   2356

Account Receivable 34549                                                   49860

Inventories, net      321905                                                  332297

Prepaid Expenses   56574                                                   26659

Total current asset 608381                                                 606753

Property and Equipment 149894                                        136501

Goodwill                    110000                                                110000

Intangible Asset   257000                                                   257000

Other Assets           5636                                                     13881

Total Asset          1130911                                                   1123135

Assumption 1 The target acceptable audit risk for the Hayens' risk is %8

Assumption2 At the beginning of the audit estimated risk of material misstatement for Hayens is 22%

Assumption3 The tolerable misstatement for each account within the balance sheet has been set at

10 000 000 [or 10 000 in 1000's]

Question 1. Considering only 2018 balance sheet evidence, what would be reasonable auditor's expectation for 2019 prepaid expenses?

Question 2. Indicate the evidence you used and provide your reasoning why your answer to question 1 is reasonable auditor's expectations.

Question 3.Recognize that some of the variables in Audit Risk Model should be updated or revised each time the auditor discovers new audit relevant evidence such as the balance sheet above.

Given the audit relevant evidence concerning prepaid expenses indicate how each ARM variables needs to be revised, indicating the direction of the revision (increased or decreased) and why is so?

Question4. If there's a misstatement in prepaid expenses, is this account likely to be overstated or understated .

Question5. If there is misstatement in prepaid expenses, is this misstatement likely to be audit important or not audit important? Why?

Question6. Given the possible misstatement in prepaid expenses, what other balance sheet accounts are possibly misstated and would they be overstated or understated.

Question7 Given the possibly misstatement in prepaid expenses, what are the main income statement accounts that are possibly misstated and would they be understated or overstated

Question8 Considering only 2018 balance sheet evidence, what would be a reasonable auditor's expectation for the 2019 cash balance? Why is a reasonable expectation?

Question 9. Given the trend evidence concerning cash explain how each variables of ARM needs to be revised ( increased or decreased) Why your response is so?

Answer rating: 100% (QA)

a Assuming that the auditors ... View the full answer