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Auditing: Restatement of financial statements. Define the deficiency.

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PROBLEM:
The company has found it necessary to restate its financial statements for the past two years due to a material overstatement of revenues two years ago and an equal understatement last year. The errors are due to sales of certain software that allowed the purchasers extremely lenient rights of return. The errors were discovered shortly after the end of the current accounting year. Members of management indicated that the misstatements occurred because they simply didn't know the accounting rules. Now they know the rules, and they won't let it happen again.

REQUIRED:

(1) State the highest level of deficiency that you think the circumstances represent. Is it a control deficiency, significant deficiency, or material weakness?

(2) Explain your decision in the case.

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ACCT/auditing
PROBLEM:

-The company has found it necessary to restate its financial statements for the past two years due to a material overstatement of revenues two years ago and an equal understatement last year.

-The errors are due to sales of certain software that allowed purchasers extremely lenient rights of return.

-The errors were discovered shortly after the end of the current accounting year.

-Members of management indicated that the misstatements occurred because they simply didn't know the accounting rules.

-Now they know the rules, and they won't let it happen again.

REQUIRED:

(1) State the highest level of deficiency that you think the circumstances represent. Is it a control deficiency, significant deficiency, or material ...

Solution Summary

The cited solution explains the differences between control deficiency, significant deficiency, and material weakness. It also concludes the type of deficiencies presented in the problem.

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Auditing Questions

Here I have about 45 review questions, about half of them are multiple choice.

Please complete in Excel or Word.

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Response starts with:

Question 7-1

Before you begin to answer this question, the first thing you may want to note is that, "Section 404 of the Sarbanes-Oxley Act calls for companies to report on the internal control over financial reporting (ICFR) and requires auditors to render an opinion on that report and an opinion on the effectiveness of the internal control." (see response for rest)

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