Han 16-5,8,16,18 &21 16-1 Identity t three revenue accounts that are veifed duri
ID: 2591677 • Letter: H
Question
Han
16-5,8,16,18 &21
16-1 Identity t three revenue accounts that are veifed during the audit of halance sheet accounts also, identify the related balarice sheet accounts 16-2 How are analytical procedures used in the verification of revenue 16-3. Identify three items often misclassified as miscellaneours 16-4. Identify three expense accounts that are verified during the audit of balance sh also, identify the related balance sheet accounts For which expense ac aration of the client's income tax returms? sheet accounts, l6-5. counts should the auditors obtain or prepare analyses to be used prop 16-6. When you are first retained to audit the financial statements of Wabash Comp Whether a budget is used to control costs and expenses. The controller, Jan that he personally prepares such a badget each year. but that he regards it as a highl tial document. He states that you may that no employee of the firm sees any of the budget data. Comment on this use What auditing procedure can you suggest for determining the reasonableness of sellin eral, and administrative expenses? Describe how the auditors use analytical procedures in the examination of selling and administrative expenses rep refer to it if necessary. but he wants you to make sure of a budget 16-7. . general division of duties among independent departments is desirable to achieve m 16-9. What 16-10. What safeguards should be employed when the inaccessibility of banking facilities makes it 16-11. You are asked by a client to outline the procedures you would recommend for handling of internal control over payroll? desirable to pay employees in cash? unclaimed wages. What procedures do you recommend? 16- 12. What specific procedures are suggested by the phrase "test of controls over payroll transactions 16-13. Should the auditors make a complete review of all correspondence in the client's files? Explain. 16-14. What is the purpose of analytical procedures performed as a part of the overall review? 16-15. List the audit procedures that should be completed near the date of the audit report. 16 1 r·What are loss conringencies? How are such items presented in the tinancial statements? 16-17. What is the usual procedure followed by the CPA in obtaining evidence regarding pending and 6 B. Explain how a loss contingency exists with respect to an unasserted claim. Should unasserted 6-19. If the federal income tax returns for prior years have not as yet been reviewed by federal tax Explain threatened litigation against the client? claims be disclosed in the financial statements? authorities, would you consider it necessary for the client to disclose this situation in a note to the financial statements? Explain 6 What is the meaning of the term commitment? Give examples. Do commitments appear in 16-21. What are general risk contingencies? Do such items re 16-22. What are subsequent events? financial statements? Explain equire disclosure in the financia statements? 16-23. Describe the manner in which the auditors evaluate their audit findingsExplanation / Answer
Solution:-
16-5:- For which expense accounts should the auditors obtain or prepare analysis to be used in preparation of the client's income tax returns:-
Officers salaries
Directors fees
Taxes
Travel & entertainment
Contributions
Casualty Losses..
16-8 Describe how the auditors use analytical procedures in the examination of selling, general and administrative expenses:-
Analytical procedures include:-
16-16 What are loss contingencies? how are such irems presented in the financial statements? explain:-
Loss contingencies are possible losses, stemming from past events, which will be resolved as to existence and amount by some future event. Prior to the occurrence of the future event, uncertainty exists not only as to the amount of the loss, but also as to whether any loss has actually been sustained. Loss contingencies should be disclosed in notes to the financial statements whenever it is reasonably possible that a loss has been sustained (or when disclosure is warranted by tradition). If both (1) it is probable that a loss has been incurred and (2) the amount of the loss may be reasonably estimated, loss contingencies should be recognized as actual losses in the financial statements.
16-18 Explain how a loss contingency exists with respect to an unasserted claim. Should unasserted claims be disclosed in the financial statements:-
An unasserted claim is a potential legal claim for which no claimant has demonstrated an intent to pursue legal remedies. Often, however, it is merely a matter of time before an unasserted claim becomes pending litigation. It is not the act of litigation being filed which creates a loss contingency for the defendant. Rather, it is having performed the acts which provide the basis for that litigation. To illustrate an unasserted claim involving the likelihood of loss, assume an airliner crashes in a populated area. For a short period of time, no claimant may exhibit intent to sue. In the long run, however, litigation is inevitable. FASB ASC 450requires disclosure of unasserted claims when it is (1) probablethat a claim will be asserted and (2) reasonably possible that the outcome will be adverse. Unasserted claims not meeting these criteria need not be disclosed.
16-21 What are general risk contingencies? Do such items require disclosure in the financial statements:-
General risk contingencies are the many factors in the business environment of a particular entity that involve some risk of causing future loss. Examples include the risk of natural catastrophes, competition, strikes, and future raw material shortages. General risk contingencies should not be disclosed in financial statements. In the event that a loss actually occurs, that loss, of course, will be recognized in the financial statements.
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