Justin Kealey, CPA, is auditing Tustin Companies, Inc. Kealey has accumulated known and likely misstatements for the current year to evaluate whether there is a sufficiently low risk of material misstatement of the financial statements to issue an opinion. However, Kealey notes that there are several misstatements that have been carried over from prior years.
a. Distinguish between the iron curtain and the rollover approaches to considering the misstatements from prior years.
b. Describe how SEC Staff Accounting Bulletin No. 108 requires auditors to consider misstatements carried over from prior periods.
The following are typical questions that might appear on an internal control questionnaire for payroll activities:
1. Is there adequate separation of duties between employees who maintain human resources records and employees who approve payroll disbursements?
2. Is there adequate separation of duties between personnel who maintain timekeeping or attendance records for employees and employees who distribute payroll checks?
a. Describe the purpose of each of the above controls.
b. Describe the manner in which each of the above controls might be tested.
c. Assuming that the operating effectiveness of each of the above controls is found to be inadequate, describe how the auditors might alter their substantive procedures to compensate for the increased level of control risk.
While performing your audit of Williams Paper Company, you discover evidence that indicates that Williams may not have the ability to continue as a going concern.
a. Discuss types of information that may indicate substantial doubt about a client's ability to remain a going concern.
b. Explain the auditors' obligation in such situations.
For each of the following brief scenarios, assume that you are reporting on a client's financial statements. Reply as to the type(s) of opinion possible for the scenario. In addition.
Unless stated otherwise, assume the matter involved is material.
If the problem does not state that a misstatement (or possible misstatement) is pervasive, assume that it may or may not be pervasive (thus, the appropriate reply may include two possible reports).
Do not read more into the circumstance than what is presented.
Do not consider an auditor discretionary circumstance for modification of the audit report unless the situation explicitly suggests that the auditors wish to emphasize a particular matter. Report Types may be used once, more than once, or not at all.
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a. The roll over approach means quantifying a misstatement based on the amount of error originating in the current income statements. On the other hand, the iron curtain approach means quantification of a misstatement based on the effects of correcting the misstatement or misstatements that have accumulated in the balance sheet at the end of the current year.
b. The SEC Staff Accounting Bulletin No. 108 requires auditors to consider misstatements carried over from prior periods. The auditor should check if the management has performed quantitative analysis in accordance with SAB 108. The quantitative analysis should consider the size of the error to each individual financial statement line item and in the aggregate using the iron curtain approach and the rollover approach. The dual approach requires that entities apply both approaches for assessing the materiality of misstatements in the current-year financial statements. The auditor should check if the misstatement is material using either approach, the entity would adjust its current year financial statements.
Internal control questionnaire:
a) The purpose of this control is to check if the employees who are currently employed by the company are the ones who get payroll disbursements. The purpose of this control is to ensure that employees are paid payroll checks ...
The answer to this problem explains how misstatements are addressed during auditing . The references related to the answer are also included.