POST ACC522 Unit 2 Assignment Latest 2018 October

ACC522 Advanced Audit Issues

Unit 2 Assignment 

Case 2 – Exercise 1

Abernethy and Chapman

ANALYSIS OF POTENTIAL LEGAL LIABILITY

Potential Client:                                                     

Type of Engagement:                                              

Form Completed By:

Date:

(1)         Is the potential client privately held or publicly held?

(2)         Evaluate the possible liability to the client that Abernethy and Chapman might incur, if the engagement is accepted.

(3)         List the third parties that presently have a financial association with the potential client and could be expected to see the financial statements. These parties are also called primary and foreseen beneficiaries.

(4)         Discuss the possibility that other third parties will be brought into a position where they would be expected to see the financial statements of the potential client. These parties are also called foreseeable beneficiaries.

(5)         Evaluate the possible legal liability to third parties, both present and potential, that Abernethy and Chapman might incur if the engagement is accepted.

               Abernethy and Chapman

               INFORMATION FROM PREDECESSOR AUDITOR

Potential Client:                                                 

Form Completed By:                                            

Predecessor Auditor:                                             

Date of Interview:                                               

(1)         Discuss the predecessor auditor’s evaluation of the integrity of the management of the potential client.

(2)         Did the predecessor auditor reveal any disagreements with management as to accounting principles, auditing procedures, or other similarly significant matters?  If so, fully describe these disagreements.

(3)         What was the predecessor auditor’s understanding as to the reasons for the change in auditors?

(4)         Did the predecessor auditor give any indication of other signi¬ficant audit problems associated with the potential client?

(5)         Did the predecessor auditor indicate any problem in allowing Abernethy and Chapman to review prior years’ audit documentation for the potential client?  If “yes,” explain

(6)         Was the predecessor auditor’s response limited in any way?

Case 2 – Exercise 2

Abernethy and Chapman

Review of Predecessor Auditor’s Documentation

Client:

Predecessor Auditor:

Prepared by:

Date:

Prepare a list of the specific contents of the predecessor auditor’s documentation that should be examined by Abernethy and Chapman.  Indicate each area that should be reviewed and the purpose of studying these particular areas of the audit documentation.  Use the following format.

Area that Should be Reviewed	Purpose of Review
Proposed Adjusting Entries	To determine the type and materiality of the proposed adjustments

Case 2-3

Abernethy and Chapman

Preliminary Judgment about Materiality

Client: _____________________________

Balance Sheet Date: __________________

Prepared by: ________________________

Determine the preliminary judgment about materiality for the client as a whole. Express your answer as a dollar amount. Determine the appropriate level of materiality based on all analyses completed for the client thus far. Fully support and discuss the materiality level that you determine. 

Quantitative Considerations: Because materiality is relative, it is necessary to have bases for establishing whether misstatements are material. A base is a critical item of which users tend to focus while making decisions. The base will vary depending on the nature of the client’s business. Typical bases may include net income before taxes, net sales, total assets and stockholders’ equity. Percentages typically range from 1%-10% depending on the base.

Base (from previous year)	Dollar  Amount of Base	Percentage Range	Base x Percentage

Qualitative Considerations: Certain types of misstatements are likely to be more important to users than others, even if the dollar amounts are the same. For example, misstatements that involve fraud may be more important to users than misstatements due to unintentional errors. Fraud reflects on the integrity of management and other employees of the client.

Item to be Considered	Impact on Materiality (Increase or Decrease)

Preliminary Judgment about Materiality: Combine the quantitative and qualitative considerations into one overall materiality level.

Materiality level:            $

Discussion: Discuss how you arrived at this dollar amount for the preliminary judgment about materiality. That is, how did you combine the qualitative and quantitative considerations to arrive at this dollar amount?

Case 2 – Exercise 4

Abernethy and Chapman

PRO FORMA AUDITOR’S REPORT                                                                                                    

To:  [Insert appropriate recipients here]:

We have audited the accompanying balance sheet of [insert company name here] as of [insert balance sheet date here], and the related statements of income, retained earnings, and cash flows for the year then ended.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. [Incorporate appropriate references to predecessor auditor here].

We conducted our audit in accordance with generally accepted auditing standards in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion.                 

               [if qualification, insert reasons here]

               In our opinion, [insert qualification (if any) here], the aforementioned financial statements present fairly, in all material respects, the financial position of the [insert company name here] at [insert balance sheet date here], and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles in the United States of America.

               [if explanatory paragraph needed, insert here]

                              Abernethy and Chapman (signed), Certified Public Accountants

                              Date:  [insert last day of audit fieldwork here]