What are the relevant audit objectives for the following inherent risks? Inheren
ID: 2464077 • Letter: W
Question
What are the relevant audit objectives for the following inherent risks?
Inherent Risk
Accounts Affected
Relevant Audit Objectives
1)
None
None
None
2)
Obsolete Inventory
Inventory/COGS
3)
Related party transaction that could affect the valuation of transaction and requires a disclosure
Equipment - Manufacturing/Footnotes
4)
Transaction where there is a risk that materials and labor were applied incorrectly to accounts.
Property, inventory, and cost of sales
5)
15% of accounts receivable is made up of 1 customer that hasn't made a payment in months. Could turn into a collections problem which would result in an understatement of allowance for uncollectible accounts.
Accounts receivable/bad debt expense/allowance for uncollectible accounts
6)
None
None
7)
Related party transaction that requires disclosure and could affect the transaction value.
Repairs & maintenance expense/account payable/footnotes
8)
Increased risk of fraudulent financial reporting.
All accounts
9)
Risk of fraudulent financial reporting.
All accounts
10)
Dispute with IRS may affect income tax accounts.
Income tax expense/income taxes payable
11)
Intercompany loan may not have been eliminated from consolidated financial statements.
Notes payable/notes receivable/interest expense/interest income
Inherent Risk
Accounts Affected
Relevant Audit Objectives
1)
None
None
None
2)
Obsolete Inventory
Inventory/COGS
3)
Related party transaction that could affect the valuation of transaction and requires a disclosure
Equipment - Manufacturing/Footnotes
4)
Transaction where there is a risk that materials and labor were applied incorrectly to accounts.
Property, inventory, and cost of sales
5)
15% of accounts receivable is made up of 1 customer that hasn't made a payment in months. Could turn into a collections problem which would result in an understatement of allowance for uncollectible accounts.
Accounts receivable/bad debt expense/allowance for uncollectible accounts
6)
None
None
7)
Related party transaction that requires disclosure and could affect the transaction value.
Repairs & maintenance expense/account payable/footnotes
8)
Increased risk of fraudulent financial reporting.
All accounts
9)
Risk of fraudulent financial reporting.
All accounts
10)
Dispute with IRS may affect income tax accounts.
Income tax expense/income taxes payable
11)
Intercompany loan may not have been eliminated from consolidated financial statements.
Notes payable/notes receivable/interest expense/interest income
Explanation / Answer
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