ACCT 444 Week 3 Homework

ACCT 444 Week 3 Homework
To Download tutorial Copy and Paste below Link into your Browser
https://www.essayblue.com/downloads/acct-444-week-3-homework/?ref=182
for any inquiry email us at ( essayblue@gmail.com )
ACCT 444 Week 3 Homework
Chapter 7
7-27 (Objective 7-4) The following are examples of documentation typically obtained by
auditors:
1. Vendors’ invoices
2. General ledger files
3. Bank statements
4. Cancelled payroll checks
5. Payroll time records
6. Purchase requisitions
7. Receiving reports (documents prepared when merchandise is received)
8. Minutes of the board of directors
9. Remittance advices
10. Signed W-4s (Employee’s Withholding Exemption Certificates)
11. Signed lease agreements
12. Duplicate copies of bills of lading
13. Subsidiary accounts receivable records
14. Cancelled notes payable
15. Duplicate sales invoices

16. Articles of incorporation
17. Title insurance policies for real estate
18. Notes receivable
Required
1. Classify each of the preceding items according to type of documentation: (1) internal or (2)
external.
.
1. Explain why external evidence is more reliable than internal evidence.
7-30 (Objective 7-4) Eight different types of evidence were discussed. The following questions
concern the reliability of that evidence:
Required
.
1. Explain why confirmations are normally more reliable evidence than inquiries of the client.
.
1. Describe a situation in which confirmation will be considered highly reliable and another in
which it will not be reliable.
.
1. Under what circumstances is the physical observation of inventory considered relatively
unreliable evidence?

1. Explain why recalculation tests are highly reliable but of relatively limited use.
.
1. Give three examples of relatively reliable documentation and three examples of less reliable
documentation. What characteristics distinguish the two?
1. Give several examples in which the qualifications of the respondent or the qualifications of
the auditor affect the reliability of the evidence.
1. Explain why analytical procedures are important evidence even though they are relatively
unreliable by themselves.
.
7-31 (Objective 7-4) As auditor of the Star Manufacturing Company, you have obtained
1. A trial balance taken from the books of Star one month before year-end:
2. There are no inventories consigned either in or out.
3. All notes receivable are due from outsiders and held by Star.
Required
Which accounts should be confirmed with outside sources? Briefly describe from whom they
should be confirmed and the information that should be confirmed. Organize your answer in the
following format:*

Chapter 8
8-22 (Objective 8-7) Gale Gordon, CPA, has found ratio and trend analysis relatively useless as a
tool in conducting audits. For several engagements, he computed the industry ratios included in
publications by Standard and Poor’s and compared them with industry standards. For most
engagements, the client’s business was significantly different from the industry data in the
publication and the client automatically explained away any discrepancies by attributing them to
the unique nature of its operations. In cases in which the client had more than one branch in
different industries, Gordon found the ratio analysis no help at all. How can Gordon improve the
quality of his analytical procedures?
8-33 (Objectives 8-3, 8-7, 8-8) Your comparison of the gross margin percent for Jones Drugs for
the years 2008 through 2011 indicates a significant decline. This is shown by the following
information:
A discussion with Marilyn Adams, the controller, brings to light two possible explanations. She
informs you that the industry gross profit percent in the retail drug industry declined fairly
steadily for 3 years, which accounts for part of the decline. A second factor was the declining
percent of the total volume resulting from the pharmacy part of the business. The pharmacy sales
represent the most profitable portion of the business, yet the competition from discount
drugstores prevents it from expanding as fast as the nondrug items such as magazines, candy,
and many other items sold. Adams feels strongly that these two factors are the cause of the
decline.
The following additional information is obtained from independent sources and the client’s
records as a means of investigating the controller’s explanations:
Required

1. Evaluate the explanation provided by Adams. Show calculations to support your
conclusions.
.
1. Which specific aspects of the client’s financial statements require intensive investigation in
this audit?
.
Chapter 9
9-33 (Objectives 9-6) Below are ten independent risk factors:
1. The client lacks sufficient working capital to continue operations.
2. The client fails to detect employee theft of inventory from the warehouse because there are no
restrictions on warehouse access and the client does not reconcile inventory on hand to recorded
amounts on a timely basis.
3. The company is publicly traded.
4. The auditor has identified numerous material misstatements during prior year audit engagements.
5. The assigned staff on the audit engagement lack the necessary skills to identify actual errors in an
account balance when examining audit evidence accumulated.
6. The client is one of the industry’s largest based on its size and market share.
7. The client engages in several material transactions with entities owned by family members of
several of the client’s senior executives.
8. The allowance for doubtful accounts is based on significant assumptions made by management.
9. The audit plan omits several necessary audit procedures.
10. The client fails to reconcile bank accounts to recorded cash balances.
Required
Identify which of the following audit risk model components relates most directly to each of
the ten risk factors:

Acceptable audit risk
Inherent risk
Control risk
Planned detection risk