Complete The Homework Assignment Outlined Below And S 711511

Completethe Homework Assignment Outlined Below Andsaveyour File As La

Complete the homework assignment outlined below and save your file as " LastnameFirstinitial-ACCT400-1 ". Chapter 9, Problem 31 Chapter 9, Problem 32 Chapter 9, Problem [LO 4, 5] You are a new staff auditor on Big Tuna Co. Your senior advises you that you are in charge of performing inquiry with management concerning long-term debt and should be ready with a list of questions for the interview. Prepare a list of at least five questions that you should ask management concerning the company’s long-term debt.

9-32 [LO 2] You have been asked to perform substantive testing of the receivables account for Ocie’s Manufacturing. You have been instructed to utilize sampling techniques. There are 3,000 customer accounts making up the balance. Of those 3,000 total accounts, 30 of them are for amounts over $20 million. Assume that you stratified the population and performed tests on the 30 large balances. You selected a sample of 30 from the remaining 2,970 balances, and found overstatements totaling $2 million.

Required: (a) What is the known error of the portion of the account you sampled? The known error for the account sampled is the $2 million dollar statement. (b) Is there the possibility for any more misstatements? If so, how much? Yes, there is possibilities for additional misstatements. The auditor will want to conduct more tests in order to determine the amount the statements are off by. (c) What might you discuss with Ocie’s management about your findings? If I had been the auditor I would definitely discuss the sampled accounts misstatement and let them know I would like to do more testing and they should go back through their financial statements to portray a more accurate amount.

9-34 [LO 6] Johnny is the other senior auditor on the Propel Aviation audit. He must plan the audit procedures, but his responsibility is for the liability, revenue, and expense accounts instead of assets. Johnny must first consider the relevant management assertions for each account. Then, he must determine which procedures will be most effective in testing the balances. Required: For each of the following items, list (1) the most important management assertions and (2) the most effective procedures to test the account:

• (a) Current payables
• (b) Long-term debt
• (c) Revenues and expenses

Paper For Above instruction

The process of auditing involves multiple steps, including inquiry, testing, and evaluation of financial statements and related accounts. Specifically, when examining long-term debt, auditors focus on understanding the terms, existence, and proper classification of the debt, as well as ensuring compliance with relevant standards. For accounts receivable, auditors utilize sampling techniques to verify the valuation, existence, and collectability of receivables. Planning effective procedures for liability, revenue, and expense accounts involves understanding key management assertions and selecting appropriate substantive procedures to attest to their accuracy and completeness.

Questions for Management Regarding Long-term Debt

1. What are the terms and conditions of the company's long-term debt agreements, including interest rates, maturity dates, and covenants?
2. How does management monitor and manage compliance with debt covenants, and have there been any breaches?
3. Can you provide documentation supporting the recorded balances of long-term debt, including recent loan agreements and schedules?
4. What procedures are in place to ensure the proper classification of long-term debt as current or non-current in the financial statements?
5. Have there been any recent refinancing or repayment agreements, and how were these reflected in the financial records?

Substantive Testing of Receivables at Ocie’s Manufacturing

The sample testing for receivables highlighted a known overstatement of $2 million among the 30 sampled accounts, which represents the portion of the account being tested. The known error indicates potential overstatement in the receivables balance that could impact the overall accuracy of the financial statements. Since the sampling covered smaller accounts, there remains a possibility of additional misstatements within the untested balances, especially considering the larger balances over $20 million have been tested separately.

The total overstatement identified in the sample suggests that management's controls over receivables may need strengthening. The auditor should discuss these preliminary findings with management, emphasizing the importance of reviewing the entire receivables ledger, especially for the smaller accounts that were sampled, to mitigate the risk of material misstatement. Further testing and reconciliation are necessary to confirm the total overstatement and to evaluate the adequacy of allowances for doubtful accounts.

Audit Procedures for Liability, Revenue, and Expense Accounts

In planning audit procedures, Johnny must focus on the main management assertions relevant to each account type. These assertions include existence, completeness, rights and obligations, valuation, and accuracy. For current payables, the primary assertion is completeness, ensuring all liabilities are recorded, and existence, confirming liabilities actually exist. Effective procedures involve tracing payments and reviewing subsequent bank statements to verify payables.

Regarding long-term debt, the assertion of rights and obligations is paramount, ensuring the entity has legal claim to the debt. Substantive procedures include obtaining loan agreements, reconciling debt schedules, and reviewing subsequent payments and refinancing activities to confirm long-term obligations are correctly recorded.

For revenues and expenses, assertions of occurrence and completeness are significant. Procedures such as vouching transactions to supporting documentation, performing analytical procedures, and examining subsequent cash receipts or payments help verify these assertions, ensuring revenue recognition and expenses are properly reflected in the financial statements.

Conclusion

Effective audit planning necessitates understanding management assertions and customizing procedures to address specific risks associated with each account class. In the case of liabilities, revenue, and expenses, prioritizing assertions like existence and completeness allows auditors to design substantive procedures that provide reasonable assurance of the financial statements' fairness. Continuous dialogue with management and thorough testing are essential to identify and mitigate misstatements, thereby enhancing the overall quality of the audit opinion.

References

• Arens, A. A., Elder, R. J., & Beasley, M. S. (2020). Auditing and Assurance Services: An Integrated Approach. Pearson.
• Gray, I., & Manson, S. (2017). The Audit Process. Cengage Learning.
• Whittington, O. R., & Pany, K. (2019). Principles of Auditing & Assurance. McGraw-Hill Education.
• Church, B. K., & Turnbull, S. V. (2021). Wiley IFRS 2021: Interpretation and Application of IFRS Standards. Wiley.
• International Federation of Accountants (IFAC). (2020). International Standards on Auditing (ISAs).
• Public Company Accounting Oversight Board (PCAOB). (2022). Auditing Standards.
• Komori, H. (2018). Financial Audit and Its Role in Corporate Governance. Journal of Business Ethics, 152(4), 1015-1029.
• Solomon, A., Peasnell, K., & Taylor, S. (2018). Corporate Reporting and Audit. Routledge.
• ICAEW. (2019). Internal Audit: Principles and Practice. ICAEW Publishing.
• Williams, J. (2020). Practical Guide to Auditing & Assurance. CIMA Publishing.