Chapter 14_Student.pdf - Chapter 14 Activities Required in Completing a Quality Audit ACCT 640 PRINCIPLES OF AUDITING THE AUDIT OPINION FORMULATION

Chapter 14_Student.pdf - Chapter 14 Activities Required in...

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1 Chapter 14: Activities Required in Completing a Quality Audit ACCT 640: PRINCIPLES OF AUDITING THE AUDIT OPINION FORMULATION PROCESS
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2 ACCT 640 Completing the Audit Summarize misstatements found during audit See Materiality Notes ACCT 640
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3 Completing the Audit Review for contingent liabilities Potential future obligation to a 3rd party for an unknown amount resulting from activities that have already taken place Three conditions required for a contingent liability to exist: Potential future payment to a 3rd party or impairment of asset Uncertainty about the amount of payment or decline in value The outcome will be resolved by some future event What differentiates a contingency and a regular liability? Examples – litigation, purchase and sale commitments ACCT 640 Completing the Audit Likelihood Levels Remote Reasonably probable Probable and estimable Accounting Treatment ACCT 640
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4 Completing the Audit Legal Letters On letterhead, client sends letter to legal counsel Includes a list of pending threatened litigation, asserted claims, or unasserted claims Requests additional information from the attorney: assess the likelihood of an unfavorable outcome for each item provide an estimate of the amount (or range) of potential loss identify unlisted items or indicate that the client’s list is incomplete Asks attorney to communicate about items up to anticipated audit report date What is the auditor required to do if the attorney does not provide information about material asserted or unasserted claims? ACCT 640 Completing the Audit Reviewing estimates Are estimates: Reasonable? In conformity with GAAP? Adequately disclosed? Done throughout the course of the audit, but should also be done at the end of the audit at a high level. Taken together, are there indications of overly aggressive (or conservative) accounting? ACCT 640
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5 Completing the Audit Examples of Judgmental estimates Fair value of many assets Net realizable values of inventory and receivables Property and casualty insurance loss reserves Revenues from contracts accounted for by percentage-of-completion method Warranty expenses and associated liabilities Depreciation and amortization methods Impairment of depreciable assets and goodwill
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  • Spring '14
  • JaredM.Hamburg

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