Barrientos-Activity Audit Planning
.docx
School
Naga College Foundation**We aren't endorsed by this school
Course
CBA 3B
Subject
Accounting
Date
Dec 17, 2024
Pages
1
Uploaded by ColonelCheetahMaster93
NAGA COLLEGE FOUNDATION, INC.M.T. Villanueva Avenue, Naga CityCOLLEGE OF ACCOUNTANCY AND FINANCEAUDITING AND ASSURANCE PRINCIPLESClass Activity – Audit PlanningName: JUDIE L. BARRIENTOSSection:BSA 3BExercise:Below items pertain to an auditor’s risk analysis of an entity. Select the best answer for each item.Bond, CPA, is considering audit risk at the financial statement level in planning the audit of Toxic Waste Disposal (TWD) Company’s financial statements for the year ended December 31, 1993. TWD is a privately-owned entitythat contracts with municipal governments to remove environmental wastes. Audit risk at the financial statement level is influenced by the risk of material misstatements, which may be indicated by a combination of factors related to management, the industry, and the entity.Required: Based only on the information below, indicate whether each of the following factors (Items 1 to 15) would most likely increase audit risk, decrease audit risk, or have no effect on audit risk. Items to be Answered:Company ProfileDecrease Audit Risk____1. This was the first year TWD operated at a profit since 1989 because the municipalities received increased federal and state funding for environmental purposes.Increase Audit Risk_____2. TWD’s Board of Directors is controlled by Mead, the majority stockholder, who also acts as the chief executive officer. Increase Audit Risk_____3. The internal auditor reports to the controller and the controller reports to Mead. Increase Audit Risk_____4. The accounting department has experienced a high rate of turnover of key personnel. Decrease Audit Risk_____5. TWD’s bank has a loan officer who meets regularly with TWD’s CEO and controller to monitor TWD’s financial performance. No Effect on Audit Risk___6. TWD’s employees are paid biweekly. Decrease Audit Risk_____7. Bond has audited TWD for five years. Recent DevelopmentsIncrease Audit Risk______8. During 1993, TWD changed its method of preparing its financial statements from the cash basis to generally accepted accounting principles. Increase Audit Risk______9. During 1993, TWD sold one half of its controlling interest in United Equipment Leasing (UEL) Co. TWD retained significant interest in UEL. Decrease Audit Risk_____10. During 1993, litigation filed against TWD in 1988 alleging that TWD discharged pollutants into state waterways was dropped by the state. Loss contingency disclosures that TWD included in prior years’ financial statements are being removed for the 1993 financial statements. Increase Audit Risk_____11. During December 1993, TWD signed a contract to lease disposal equipment from an entity owned by Mead’s parents. This related party transaction is not disclosed in TWD’s notes to its 1993 financial statements. Increase Audit Risk_____12. During December 1993, TWD completed a barter transaction with a municipality. TWD removed waste from a municipally owned site and acquired title to another contaminated site at below market price. TWD intends to service this new site in 1994. No Effect on Audit Risk__13. During December 1993, TWD increased its casualty insurance coverage on several pieces of sophisticated machinery from historical cost to replacement cost. Increase Audit Risk_____14. Inquiries about the substantial increase in revenue TWD recorded in the fourth quarter of 1993 disclosed a new policy. TWD guaranteed to several municipalities that it would refund the federal and state funding paid to TWD if any municipality fails federal or state site clean-up inspection in 1994. Increase Audit Risk_____15. An initial public offering of TWD’s stock is planned for late 1994.
