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Chapter 8 Auditing Homework
Course: ACCOUNTING AC 403, Spring 2012School: Mississippi Valley...
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7 Tiffany Chapter Watt Auditing Homework AC 302 01 8-26 [LO 3,6] C. Ronaldo is an auditor working on the ICFR audit for the Manchester Corporation. Interest expense is an account that could produce a material misstatement on the financial statements, so it is tested in the ICFR audit. After performing a walkthrough the senior determines that the controls over interest expense are designed effectively. The audit...
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7
Tiffany Chapter Watt
Auditing Homework
AC 302 01
8-26 [LO 3,6] C. Ronaldo is an auditor working on the ICFR audit for the Manchester
Corporation. Interest expense is an account that could produce a material misstatement on the
financial statements, so it is tested in the ICFR audit. After performing a walkthrough the senior
determines that the controls over interest expense are designed effectively. The audit plan for
the ICFR audit includes testing an automated control for calculating interest expense
transactions. In the audit planning stages, the senior sets the tolerable rate of error for this
particular automated control at 2%. The audit plan directs C. Ronaldo to conducts his tests
using a sample based on a nonstatistical approach. C. Ronaldo selects the sample and
conducts the reperformance procedure the audit plan calls for to test the operating effectiveness
of the control. He finds instances in 3% of his sample where the control did not operate as
intended.
Does C. Ronaldos testing indicate a deficiency the in control tested? If so, what is the next
step? If C. Ronaldos results are valid, do you think the deficiency is severe enough to be a
significant deficiency or a material weakness? What impact does that have on the ICFR audit
opinion? What impact do the findings have on the financial statement audit plan?
Answer: Not necessarily. The result could be cause by sampling risk (AU 350.10) that the
sample does not represent the population from which it was drawn. If the auditor concludes the
control is not operating effectively, then additional testing is warranted since the account the
control monitors is material. This testing can take the form of either additional control testing to
determine if the error rate continues above 2%. OR additional detailed tests of balances during
the substantive portion of the audit. IF the control is not operating as designed, then this is a
material weakness and warrants discussion with the audit committee, inclusion in the ICFR, and
additional substantive work.
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Mississippi Valley State University - ACCOUNTING - AC 403
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Mississippi Valley State University - ACCOUNTING - AC 403
Chapter 11Tiffany WattAuditing HomeworkAC 302 0121. When separate reports are used for the ICFR and financial statement audits, eachreport includes a paragraph identifying the other report. Below is an example ofwording that might be used in the sep
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Mississippi Valley State University - ACCOUNTING - AC 443
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Mississippi Valley State University - ACCOUNTING - AC 443
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Mississippi Valley State University - ACCOUNTING - AC 443
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Mississippi Valley State University - ACCOUNTING - AC 443
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Mississippi Valley State University - ACCOUNTING - AC 443
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Mississippi Valley State University - ACCOUNTING - AC 443
Chapter 20Tax Homework26.Tiffany WattAC 302 01The tax results of these transactions to Helen are as follows:Helen may defer gain on the receipt of the notes to the point of collection under theinstallment method.Helen must allocate her $80,000 bas
Mississippi Valley State University - ACCOUNTING - AC 443
Chapter 21Tiffany WattTax HomeworkJanuary 31, 2011AC 302 0132.a.AssetsBasisFMVCash$ 50,000$ 50,000Land50,00075,000Land improvements25,00025,000Total assets$125,000$150,000Bens capital$ 50,000$ 75,000Beths capital75,00075,000$12
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Chapter 21Tax Homework18.Tiffany WattAC 302 01The partnerships debts are allocated to the partners in determining the partners basesin their partnership interests. Any increase in partnership liabilities is treated as a cashcontribution to the part
Mississippi Valley State University - ACCOUNTING - AC 443
Chapter 22Tax HomeworkTiffany WattAC 302 013.If shareholders have high marginal rates relative to C corporation rates, it may bedesirable to avoid S corporation status. Although C corporation earnings can be subject todouble taxation, good tax plan
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Chapter 23Tax HomeworkTiffany WattAC 302 0110.The statement is false. There is no direct relationship between intermediate sanctionsand unrelated business gross income or unrelated business net income. Intermediate sanctionson public charities take
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Chapter 24Tax Homework14.Tiffany WattAC 302 01The unitary theory can increase the taxpayers income taxes as the apportionmentformula includes operations in locations where payrolls, property values, and sellingprices are higher than normally experi
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Chapter 25Tax Homework29.a.Tiffany WattAC 302 01Interest expense is allocated and apportioned based on location of assets.Book ValueAssets producing foreign-source incomeAssets producing U.S.-source incomeFMV$3,000,000 $12,000,000200,00050,00
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