Chapter+12+HW+Solutions+to+Cases

Chapter+12+HW+Solutions+to+Cases - Solutions to Cases 1...

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Solutions to Cases 1. Reading something like this about an audit client may cause you to reassess whether you want the client. It will definitely cause you to reevaluate any audit plans that have been made to date. Additionally, given that the item has made the newspaper, you will want to keep in mind the increased political visibility of the audit. While there are numerous factors you would want to consider, factors related to the SAS risk assessment suite (SAS 104-111) and other information discussed in the chapter include: 1. Management assertions, particularly with regard to internal control procedures for data systems security and capital asset management procedures. 2. Risk assessment – it would appear that the probability of the risk of material misstatement is high. To determine the risk of material misstatement a better understanding is needed concerning what the theft indicates and the impact on the financial reports. Following the risk assessment suite: You will want an in-depth understanding of the entity. What is the tone at the top? Are policies and procedures implemented and monitored? You will want an in-depth understanding of internal control. Do control problems extend beyond the tax collector and or property management (exactly who was responsible)? How was someone able to walk off with two servers? What impact does the data or the pervasiveness of the problem have on material misstatement in the financial reports? 3. Once risks are assessed, further audit procedures will likely need to be performed in response to the identified risks.
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Ch. 12, Solutions, Case 12-1 (Cont’d) 4. GAGAS requirements would encompass all risk assessment performed for a GAAS audit. However, when assessing the risk of material misstatement, GAAS does not ask the auditor to consider abuse as a possible source of risk. Given the information in the news article it is possible abuse is occurring or has occurred. 12-2. This case highlights two issues: (1) determining whether an organization has expended sufficient federal awards to require either a single audit or program-specific audit (not always an easy task); and (2) the auditor’s responsibilities to communicate to the auditee that a single audit is required and to exercise due professional care in planning and conducting the audit. These issues are addressed in the following solutions to the three requirements of the case. a. Analysis of expenditures of federal awards shows that Mountain Lake Mental Health Affiliates expended more than $500,000 in federal awards and therefore is required to have a single audit. Total expenditures of federal awards is determined as follows: Item Federal Awards Expended 1. Grant from City $ 75,000 (50% of $150,000 expended) 2. Private gifts - 0 - (not applicable) 3. Medicare services - 0 - (excluded) 4. Free rent 30,000 5. Counseling services 400,000 (maximum) Total $505,000 b . As with any good case, formulating a solution for this requirement may require some independent research of the authoritative literature (AICPA
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Chapter+12+HW+Solutions+to+Cases - Solutions to Cases 1...

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