The audit report is issued after the audit report

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The audit report is issued after the audit report date. c. The time line shows that 5, 9, 7 and 2 are frequently done before the balance sheet date.
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Cases 13-35 a. The major deficiencies in the audit and the reasons for their occurrence are: 1. The change in the accounting system to computerize the inventory, a change in accounting personnel, and the existence of a few more errors in the tests of controls should have alerted the auditors to expand the scope of the work. It was questionable to conclude that the internal controls were effective. 2. Reduction in the scope of the inventory work based on the lack of errors last year was improper since new internal controls were in use with new personnel this year and the inventory balance was higher. 3. The new division should have been audited more thoroughly. It came to Merkle through merger and was likely to have different operating characteristics and internal controls. 4. The determination that the errors in the sample were immaterial was improper. The errors should have been projected from the sample to the population, and the projected error should have been compared to tolerable misstatement, after considering risk. The obsolescence problem uncovered in the audit should have been evaluated carefully to consider the implications on potential obsolescence of inventory. 5. Given the new personnel on the engagement, Brewer apparently failed to adequately supervise and review the work of assistants. 6. There was an apparent lack of the use of analytical procedures. A decline in sales should have warned the auditor to a potential decline in profits and obsolete inventory. b. Brewer should have been aware that the inventory internal controls and the personnel in that department were new, that the interim tests revealed more errors than normal, and that the inventory tests revealed more errors than normal despite the reduction in scope. In this situation, the scope of the inventory work should have been increased to reveal the magnitude of the problems encountered. In addition, because of the staff turnover on this engagement, Brewer should have devoted more of his time to supervising the work of the staff on this engagement. c. The likelihood of Brewer losing the suit is high. The auditors appear not to have followed general standards 1 and 3 and standards of field work 1, 2, and 3 in the performance of the engagement. Although the misstatements result from fraud, the auditors may be held responsible because apparently the audit was not conducted in accordance with auditing standards.
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13-36 – Part I a. (1) Assess inherent risk . This would be done under both approaches. (2) Obtain an understanding of internal control . This would be done under both approaches, however, it may be more extensive where control risk is reduced below the maximum due to the knowledge gained through testing.
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  • Spring '08
  • Brady,J
  • Controls, substantive tests

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