8243206 Shupei Miao AU2 - Assignment 4

CGA/100-2 Client: Year end: AU2, Assignment 4 Student No.:  8243206 Student Name:  SHUPEI MIAO Course Name: AU2 Session: S3 08 Assignment 4 Question 1 (15 marks) (Multiple choice) (1½ marks each) a. 1 b. 4 c. 4 d. 1 e. 1 f. 1 g. 1 h. 3 i. 4 j. 4 Question 2 (15 marks) a. (3 marks) Violate. The audit is required to be appropriately planned and performed. Team meeting before the audit should be planned and should not be sacrificed due to e limitation of the audit budget. b. (3 marks) Violate. Treating all leases as operating leases is not allowed by differential reporting. c. (3 marks) Not Violate. d. (3 marks) Violate. According to the Handbook, the management representation can only be a complement. e. (3 marks) Not violate. Question 3 (14 marks) a. (2 marks) Disagree. The CGA should not assume the integrity based on previous audit or any other understanding. The integrity should be tested each year. b. (2 marks) Disagree. Testing control and assess control risk is required although the auditor plans to reply on substantive testing for small business audit. c. (2 marks) Disagree. When subsidiaries are audited using GAAS other than that used for the consolidated financial statements, the parent company auditor should ensure that the auditors of these subsidiaries are informed of and perform any additional procedures necessary to comply with the GAAS used for the audit of the consolidated financial statements. The subsidiaries’ audit could be performed under GAAS other than the Canadian GAAS. d. (2 marks) Agree. Since the auditor will issue unqualified audit report with respect to completeness of donations, there is no need to verify the completeness at a higher level. So, the auditor will do less audit work to testing the completeness. e. (2 marks) Agree f. (2 marks) Disagree. g. (2 marks) Disagree. Since the audit reports of public companies are required for consolidation and other purposes with tight deadline, the audit reports for public companies should be issued earlier than those for small businesses with the same year end. Question 4 (20 marks) 30,000 x (1-35%) = 19,500 previous year understatement. Bad Debt Provision understatement 10,000 since the controller has agreed to increase the bad debt provision by $10,000. There is another 10,000 discrepancy left which is Bad Debt Provision understatement and AR overstatement. AR, income, assets and closing equity will be overstated. Capital asset overstatement which is 9,000 will overstate income, assets and closing equity. The inventory was overstated. Since the control corrected the identified errors with respect to the inventories, the identified misstatement will be zero. The likely misstatement is (5,000/20%) – 5,000 which is $20,000 overstatement of income, assets, and closing equity. Since the control corrected the identified errors with respect to accounts payable and property tax accrual. There is no identified misstatement of AP and property tax accrual. The likely understatement of AP is 6000/20%-6000=24,000. There is no likely misstatement of property tax accrual. Possible adjustments sheet — Audit engagement Question 5 (11 marks) First paragraph: We have examined audited the accompanying statement of financial position…… …….operating statements, statement of fund balances at December 31, 2006, and statements of cash flows of Global Relief for the year ended December 31, 2006. Second paragraph: These standards require that we plan and perform an audit to obtain reasonable assurance that the financial statements are free of material misstatement. Third paragraph: In our opinion, except for any adjustments which might have been necessary subject to the determination of the ultimate cost of settling the legal claim against the organization, By the end: Ottawa, Ontario Date (Signed) Gandhi and Green, CGAs Question 6 (12 marks) Required a. (4 marks) · Whether the financial statements of an audited entity present fairly the financial position · Whether the entity and the management has complied with laws and regulations for transactions · Whether the entity complied with specified authorities or whether its transactions were carried out in compliance with the provincial Ministry of Agriculture. b. (4 marks) · Personal use of the purchasing truck or delivery truck; · Over-employed and low productivity; · Whether the purchase price is higher than market and the employee involves in purchasing process and benefits from the purchasing commission. · Whether there is purchasing for the needy purpose but sell to the market with higher price for business profit instead of public benefit. c. (4 marks) · General standards · Performance standards · Reporting standards Question 7 (13 marks) Dear Madam, As per our understanding, you have received an offer of a very generous annual donation, renewable from year to year with the provision that the organization must obtain an unqualified audit report each year. You would like us to design and implement internal controls over donation revenue that you consider necessary to guarantee that you will receive an unqualified audit report each year. Based on the above understanding, we would like to set out below our comments for your reference. First, it is not possible to provide a guarantee of an unqualified audit report each year. Normally, we conduct the audit by assessing the inherent risk, control risk and performing substantive test which will support us to obtain reasonable assurance that the financial statements are free of material misstatement. According to the GAAS, we can not issue an audit report with absolute guarantee an unqualified audit report each year. According to the CGA-Canada's Public Practice Manual F-110, the auditor will have to examine the NFP's processes and records relating to donations and fundraising to see that appropriate systems are in place to ensure that all contributions reach the organization's bank account, it will often not be possible to get sufficient assurance about the completeness of donations from substantive testing alone, and the auditor will have to test the controls in this area or else issue a report containing a reservation with respect to the completeness of donated revenues. Since we were unable to obtain enough evidence to gain high assurance that all donations had been accounted for, we issued audit report contained the standard qualification with respect to completeness of recording of revenues but has otherwise been unqualified. In this connection, it is not possible for us to design or implement controls to reduce the misstatement to an acceptable level so that that we could issue an unqualified report in terms of the completeness. Hope you can understand. Should you have any questions, please feel free to contact us. Bes regards, CGA Date & initials Prepared Reviewed Index January 1998 Financial statement preparation