1. ASHFORD ACC410 Entire Course
(Auditing) NEW UPDATE VERSION
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Internal vs. External Audit Staffs. Spacecraft, Inc., is a large corporation that is
audited regularly by a public accounting firm but also maintains an internal
auditing staff. Explain briefly how the relationship of the public accounting firm to
Spacecraft differs from the relationship of the internal auditing staff to Spacecraft.
Do not forget to show the necessary steps and explain how you attained that
outcome. Respond to at least two of your classmates’ postings
Audit Reports. Evaluate the following question: “If a CPA firm completes a
nonpublic company audit of Adam Company’s financial statements following
IACPA generally accepted auditing standards and is satisfied with the results of
an audit, an unmodified report may be issued. On the other hand, if no audit is
performed of the current year’s financial statements, but the CPA firm has
performed satisfactory audits in prior years, has confidence in the management of
the company, and makes a quick review of the current year’s financial
statements, a qualified report may be issued.” Do you agree? Give reasons to
support your answer. Do not forget to show the necessary steps and explain how
you attained that outcome. Respond to at least two of your classmates’ postings.
Generally Accepted Auditing Standards. Complete problem below and submit
to your instructor. Write under the generally accepted auditing standards column
the specific standard that was violated and how the action of Jones resulted in a
failure to comply with each standard. Organize your answer as shown below;
specifically with a column for the standard that was violated and a column for the
required action. The paper should be 2-3 pages.
Problem:
John Clinton, owner of Clinton Company, applied for a bank loan and was
informed by the banker that audited financial statements of the business had to
be submitted before the bank could consider the loan application. Clinton then
retained Arthur Jones, CPA, to perform an audit. Clinton informed Jones that
audited financial statements were required by the bank and that the audit must be
completed within three weeks. Clinton also promised to pay Jones a fixed fee
plus a bonus if the bank approved the loan. Jones agreed and accepted the
engagement.
The first step taken by Jones was to hire two accounting students to conduct the
audit. He spent several hours telling them exactly what to do. Jones told the
students not to spend time reviewing controls but instead to concentrate on
proving the mathematical accuracy of the ledger accounts and summarizing the

2. data in the accounting records that support Clinton Company’s financial
statements. The students followed Jone’s instructions and after two weeks gave
Jones the financial statements, which did not include any notes. Jones reviewed
the statements and prepared an unqualified audit report. The report, however, did
not refer to generally accepted accounting principles.
Required:
List on the left side of a sheet of paper the generally accepted auditing standards
that were violated by Jones, and indicate how the actions of Jones resulted in a
failure to comply with each standard. Organize your answers as
follows: Generally Accepted Auditing Standards
Actions by Jones Resulting in Failure to Comply with Generally Accepted
Auditing Standards
General Standards
(1) The auditor must have adequate technical training and proficiency to perform
the audit.
(1)
Balance Sheet Verification. “The best means of verification of cash, inventory,
office equipment, and nearly all other assets is a physical count of the units; only
a physical count gives the auditors complete assurance as to the accuracy of the
amounts listed on the balance sheet.” Evaluate this statement. Remember to
complete all parts of the problems. Do not forget to show the necessary steps and
explain how you attained that outcome. Respond to at least two of your
classmates’ postings
Accounting Principles. Discuss what is meant by the phrase “shopping for
accounting principles.” What mechanisms have served to prevent this practice by
management? Remember to complete all parts of the problems. Do not forget to
show the necessary steps and explain how you attained that outcome. Respond
to at least two of your classmates’ postings.
Analytical Procedures. In a 2-3 page paper, complete the case below and
submit to instructor. Review the income statement for Uden Supply Company and
answer the following:
a. Describe the purpose of analytical procedures performed in the planning stage
of the audit.
b. Uden Supply has projected its 2004 gross profit at 31% of sales despite
expectation for some shrinkage in margins. On the basis of Uden's operating
performance in years 2001 - 2003 project your best guess for 2004. Project 2004
based on the incremental changes for each line item over the last three years.

3. c. Uden’s unaudited financial statements for the current year show a 31 percent
gross profit rate. Assuming that this represents a misstatement from the amount
that you developed as an expectation, calculate the estimated effect of this
misstatement on net income before taxes for 20X4.
d. Indicate whether you believe that the difference calculated in part (c) is
material. Explain your answer. (50-100 words).
Comparative income statement information for Uden Supply Company is
presented in the accompanying table.UDEN SUPPLY COMPANY
Comparative Income Statement
Years Ended December 20X1, 20X2, and 20X3
(Thousands)
20X1 Audited
20X2 Audited
20X3 Audited
20X4 Expected
Sales
8,700
9,400
10,100
Cost of goods sold
6,000
6,500
7,000
Gross profit
2,700
2,900
3,100

4. Sales Commissions
610
660
710
Advertising
175
190
202
Salaries
1,061
1,082
1,103
Payroll taxes
184
192
199
Employee benefits
167
174
181
Rent
60
61
62
Depreciation

5. 60
63
66
Supplies
26
28
30
Utilities
21
22
23
Legal and accounting
34
37
40
Miscellaneous
12
13
14
Interest expense
210
228
240
Net income before taxes
80

6. 150
230
Incomes taxes
18
33
50
Net income
62
117
180
Audit Programs. “All experienced auditors would design exactly the same audit
program for a particular audit engagement.” Do you agree? Explain. Remember
to complete all parts of the problems. Do not forget to show the necessary steps
and explain how you attained that outcome. Respond to at least two of your
classmates’ postings.
Internal Control Procedures. Describe what is meant by a “walk-through.” Must
walk-throughs be performed during audits of internal control over financial
reporting? May the client perform a walk-through and the auditors then review the
client’s work? Remember to complete all parts of the problems. Do not forget to
show the necessary steps and explain how you attained that outcome. Respond
to at least two of your classmates’ postings.
Internal Control Case. Complete Case 18-37 (p. 724-725) and submit to
instructor. For each of the following independent cases state the highest level of
deficiency that you believe the circumstances represent--a control deficiency, a
significant deficiency, or a material weakness. Explain your decision in each case.
Legal Case. Compare the rights of plaintiffs under common law with the rights of
persons who purchase securities registered under the Securities Act of 1933 and
sustain losses. In your answer, emphasize the issue of who must bear the burden
of proof. Remember to complete all parts of the problems. Do not forget to show
the necessary steps and explain how you attained that outcome. Respond to at
least two of your classmates’ postings.
Ethics Case. Harris Fell, CPA and member of the AICPA, was engaged to audit
the financial statements of Wilson Corporation. Fell had half-completed the audit
when he had a dispute with the management of Wilson Corporation and was

7. discharged. Hal Compton, CPA, was promptly engaged to replace Fell. Wilson
Corporation did not compensate Fell for his work to date; therefore, Fell refused
to allow Wilson Corporation’s management to examine his working papers. Some
of the working papers consisted of adjusting journal entries and supporting
analysis. Wilson Corporation’s management had no other source for this
information. Did Fell violate the AICPA Code of Professional Conduct? Explain
fully. Remember to complete all parts of the problems. Do not forget to show the
necessary steps and explain how you attained that outcome. Respond to at least
two of your classmates’ postings.
Program Comprehensive Exam. Complete the comprehensive exam, which will
take
approximately one to two hours and will be graded based on your score. The full
instructions for the exam
are posted in the classroom.
Audit Reporting. Wade Corporation has been your audit client for several years.
At the beginning of the current year, the company changed its method of
inventory valuation from average cost to last in, first out (LIFO). The change,
which had been under consideration for some time, was in your opinion a logical
and proper step for the company to take. What effect, if any, will this situation
have on your audit report for the current year? Remember to complete all parts of
the problems. Do not forget to show the necessary steps and explain how you
attained that outcome. Respond to at least two of your classmates’ postings.
Audit Reports. The auditors do not believe that certain lease obligations have
been reflected in conformity with generally accepted accounting principles in the
client’s financial statements. What type of opinion should the auditors issue if they
decide that the exceptions are immaterial? Material?Very material? Remember to
complete all parts of the problems. Do not forget to show the necessary steps and
explain how you attained that outcome. Respond to at least two of your
classmates’ postings.
Audit Report Modifications. Complete problem below. List a represents the
types of opinions the auditor ordinarily would issue and List B represents the
report modifications [if any] that would be necessary. Select as the best answer
for each situation [items 1 to 6] the type of opinion and modifications, if any, the
auditor would normally select. The types of opinions in List A and the report
modifications in List B may be selected once, more than once, or not at all. The
paper should be 2-3 pages.
Problem:
Items 1 through 6 present various independent factual situations an auditor might
encounter in conducting an audit. For each situation assume:

8. Assume:
The auditor is independent.
The auditor previously expressed an unqualified opinion on the prior year’s
financial statements.
Only single-year (not comparative) statements are presented for the current
year.
The conditions for an unqualified opinion exist unless contradicted in the factual
situations.
The conditions stated in the factual situations are material.
· No report modifications are to be made except in response to the factual
situation.
Situations:
1. In auditing the long-term investments account, an auditor is unable to obtain
audited financial statements for an investee located in a foreign country. The
auditor concludes that sufficient appropriate audit evidence regarding this
investment cannot be obtained.
2. Due to recurring operating losses and working capital deficiencies, an auditor
has substantial doubt about an entity’s ability to continue as a going concern for a
reasonable period of time. However, the financial statement disclosures
concerning these matters are adequate.
3. A principal auditor decides to take responsibility for the work of another CPA
who audited a wholly owned subsidiary of the entity and issued an unqualified
opinion. The total assets and revenues of the subsidiary represent 17 percent and
18 percent, respectively, for the total assets and revenues of the entity being
audited.
4. An entity issues financial statements that present financial position and results
of operations but omits the related statement of cash flows. Management
discloses in the notes to the financial statements that it does not believe that
statement of cash flows to be a useful financial statement.
5. An entity changes its depreciation method for production equipment from
straight-line to a units-of-production method based on hours of utilization. The
auditor concurs with the change, although it has a material effect on the
comparability of the entity’s financial statements.

9. 6. An entity discloses certain lease obligations in the notes to the financial
statements. The auditor believes that the failure to capitalize these leases is a
departure from generally accepted accounting principles.
Required:
List A represents the types of opinions the auditor ordinarily would issue and List
B represents the report modifications (if any) that would be necessary. Select as
the best answer for each situation (items 1 through 6) the type of opinion and
modifications, if any, the auditor would normally select. The types of opinions in
List A and the report modifications in List B may be selected once, more than
once, or not at all.
(AICPA, adapted) List A
List B
Types of Opinions
Report Modifications
A. An "except for" qualified opinion
H. Describe the circumstances in a explanatory paragraph preceding the opinion
paragraph without modifying the three standard paragraphs.
B. An unqualified opinion
I. Describe the circumstances in an explanatory paragraph following the opinion
paragraph without modifying the three standard paragraphs.
C. An adverse opinion
J. Describe the circumstances in an explanatory paragraph preceding the opinion
paragraph, and modify the opinion paragraph.
D. A disclaimer of opinion
K. Describe the circumstances in an explanatory paragraph following the opinion
paragraph, and modify the opinion paragraph.
E. Either an "except for" qualified opinion or an adverse opinion.
L. Describe the circumstances in an explanatory paragraph preceding the opinion
paragraph, and modify the scope and opinion paragraphs.
F. Either a disclaimer of opinion or an "except for" qualified opinion.

10. M. Describe the circumstances in an explanatory paragraph following the opinion
paragraph, and modify the scope and opinion paragraphs.
G. Either an adverse opinion or a disclaimer of opinion
N. Describe the circumstances within the scope paragraph without adding an
explanatory paragraph.
O. Describe the circumstances within the opinion paragraph without adding an
explanatory paragraph.
P. Describe the circumstances within the scope and opinion paragraphs without
adding an explanatory paragraph.
The final paper will be based on Appendix 6C Illustrative Audit Case: Keystone
Computers at pages 237-244 in your text. Write, in outline format but in complete
sentences, a 6 to 10 page audit plan. It is recommended that you look at Figure
18.8 on page 708, which shows the control objectives related to accounts
receivable.
In your audit plan cover the steps necessary to determine if you should select the
client, the internal control procedures which need to be reviewed, the substantive
tests [using accounts receivable a guide], and the final reporting steps. Based on
the actual facts in the case determine the emphasis you want to place on various
accounts. Also reflect back over your entire accounting program and think about
how the accounts are interrelated. For example, when allowance for doubtful
accounts is credited the offset is to bad debt expense. Therefore one of the steps
should be to trace the debit side of the entry to the balance for bad debt expense.
Make your comments as specific as possible. Rather than say look for unusual
entries, say look for entries from unusual sources and rounded amounts with
focus on those near an accounting cut off. Use precise language. Rather than
saying you “vouched accounts payable,” say that you looked at the item to
determine that it was a bona fide business expense. Remember to focus on the
key audit objectives and support needed after applying the audit risk model.
Remember, the purpose of the Final Paper is for you to culminate the learning
achieved in the course by describing your understanding and application of
knowledge in the field of accounting.
The Final Paper should focus on real life, real time application of topics covered
in this course; the uses you have seen and the uses you can envision. The paper
must be submitted to your instructor no later than the last day of class.
Earliersubmittalisappreciated.