Explore BrainMass
Share

Auditing Homework

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

7-37 Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and non-financial data. They range from comparisons to use the complex models involving many relationship and elements of data. They involve comparisons of recorded amounts, or ratios developed from recorded amounts, to expectations developed by the auditors.

Required

a. Describe the broad purposes of analytical procedures
b. When are analytical procedures required during an audit? Explain why auditors use analytical procedures extensively in all parts of the audit.
c. Describe the factors that influence the extent to which an auditor will use the results of analytical procedures to reduce detailed tests in meeting audit objectives.

© BrainMass Inc. brainmass.com October 25, 2018, 8:42 am ad1c9bdddf
https://brainmass.com/business/external-auditing/auditing-homework-549774

Solution Preview

(a) Analytical procedures are tests devised by the auditor to determine if the auditing assertions have been met by management. The auditor determines both the substantive and analytical procedures that are needed given the various elements specific to the audit and the auditor is then able to test and the levels relevant to the audit (low risk, average risk, high risk). The analytical procedures will vary based upon the type and size of the company, and are suited to the specific company. The auditor uses the results of the analytical procedures to determine if additional ...

Solution Summary

This solution discusses the purpose of analytical procedures, when they are required during an audit and why auditors use these types of procedures. This solution also discusses the factors that influence the extent to which an auditor can use the results of analytical procedures to reduce detailed testing.

$2.19
See Also This Related BrainMass Solution

Homework Assistance

Corporate governance has become increasingly important over the years. The Sarbanes-Oxley (SOX) Act was enacted to improve transparency in financial accounting and to prevent fraud. Which of the following is correct?

a) fraud has not occurred since enactment of SOX
b) SOX has not increased auditing costs
c)government agencies are not required to comply with SOX
d) SOX requires companies to have a strong board of directors
e) none of the above

Tactics that firms use to avoid hostile takeovers include:

a) none of the items below
b) shareholder rights provisions.
c) restricted voting rights.
d) poison pills.
e) all of the above

Both Flipper and Lawton are large public corporations with subsidiaries throughout the world. Flipper uses a centralized approach and makes most of the decisions for its subsidiaries. Lawton uses a decentralized approach and its subsidiaries make most of their own decisions. Which of the following is correct?

a) the agency problem would probably be more pronounced for Flipper because of a higher probability that subsidiary decisions would conflict with the parent
b) agency costs would be the same for both companies
c) a decentralized approach is almost always better
d) a centralized approach is almost always better
e) none of the above

With convertible bonds,

a) the company receives additional cash money when the convertibles are converted.
b) Investors are willing to accept a lower interest rate on a convertible than on otherwise similar straight debt
c) Investors require a higher interest rate than on otherwise similar straight debt
d) the convertibles cannot be converted for at least 10 years
e) none of the above

A firm's common stock currently sells for $17.50. Its 10% convertible bonds (issued at par $1000) now sell for $900 and the conversion price is $20. What is the conversion ratio?

a) 87.5
b) 17.5
c) 50.0
d) 45.00
e) none of the above

Convertible bonds are:

a) considered equity on the balance sheet
b) similar in risk to the company's common stock
c) riskier than the company's common stock
d) less risky than the company's common stock
e) none of the above

Beam Corporation's common stock currently sells for $27.50. Its 8% convertible bonds (issued at par $1000) now sell for $950. The bonds can be converted into 40 shares of common stock. What is the conversion price?

a) $25
b) $40
c) $23.50
d) $38
e) none of the above

Beam Corporation's common stock currently sells for $27.50. Its 8% convertible bonds (issued at par $1000) now sell for $950. The bonds can be converted into 40 shares of common stock. What is the conversion value of the bond?

a) $688
b) $593.75
c) $950
d) $1,100
e) none of the above

Which of the following is correct?

a) Warrants are similar to long-term put options
b) The company receives additional funds when warrants are exercised
c) The company receives additional funds when bonds are converted
d) Warrants can sometimes be detached and traded separately from the debt with which they were issued, but this is unusual.
e) none of the above

A company will issue 20-year bonds with annual interest payments. Each bond will include 20 warrants that give the holder to purchase one share of stock per warrant. Each warrant is expected to have a value of $5.75. A similar straight-debt issue would require an 8% coupon. What coupon rate should be set on the bonds with warrants so that the package will sell for $1,000?

a) 5.76%
b) 6.83%
c) 7.94%
d) 6.98%
e) none of the above

View Full Posting Details