Hi, see the attachment for details. and all instruction about the assignment.Need help with Questions number 3, 4, 6, 10 and 12
Unformatted Attachment Preview
Assume youre the external auditor of ABC Co and you are engaged to audit the
companys 2016 financial statements. Following are ABC Co. financial statements for the years
ABC Co. Comparative Income Statement for 2016 and 2015 For Years Ended December 31:
Cost of sales:
Goods available for sale
Cost of goods sold
Selling, general & administrative
Income taxes (30%)
ABC Co. Comparative Retained Earnings Statements for Years Ended December 31:
Beginning retained earnings
Add: Net income
Ending retained earnings
ABC Co Comparative Balance sheet for the Years Ended December 31:
Total current assets
Total fixed assets
Total current liabilities
Total liabilities and equity
1. An understanding with the client should be established for services to be performed for
each engagement. Such understanding should be written (engagement letter). Try to write
an engagement letter with ABC Co.
2. In the planning phase, you are required to obtain knowledge of the clients business and
industry. What do you think is the industry of the client?
3. Analytical procedures are evaluations of financial information made by a study of
plausible relationships among both financial and nonfinancial data. Analytical procedures
performed during planning consist of a review of data aggregated at a high level, such as
comparing financial statements to budgeted results in order to enhance the auditors
understanding of the clients business and to identify unusual transactions and events and
Perform analytical procedures on sales, purchases and inventories and comment, knowing
Inquiries were made with the management regarding sales; you were informed that on
2016, a new important customer began dealing with ABC for the first time which caused
the sales to increase significantly.
4. During the planning stage, the auditor uses professional judgment to establish a
preliminary level of materiality. According to your manager, materiality for ABC Co is
equal to 5% of total sales. Calculate materiality level for ABC Co.
5. As per your manager, risk of material misstatement is low. Determine the level of
6. An auditor uses relevant assertions to form a basis for assessing risk, and for the design
and performance of further audit procedures.
For the inventory, identify potential misstatements relevant to the following assertions:
& then design audit procedures to address those risks.
7. What are the procedures that you should perform regarding fraud? Your manager
concluded that significant fraud risk doesnt exit.
8. Your managers noticed an unusual significant transaction in utilities expense (part of
SG&A) account. What should be your response to such significant risk?
9. Your manager decided that the answer to the above identified risks should be a combined
approach (Both tests of the operating effectiveness of controls and substantive procedures
are used). You noticed a strong control environment and decided subsequently that
internal control is strong, should we perform tests of controls? Tests of substantive
10. Your manager decided that tests of details are generally more appropriate in obtaining
evidence regarding the existence and valuation of account balances, and ordered you to
perform some tests of details on utilities expenses account to ensure reliability of the
records. Knowing that total amount of utilities expenses account is SR 30,800 & tolerable
misstatement for this account as per your manager is SR 3,000, you were asked to vouch
all electricity invoices above SR2,000.
Records in ABCs books are as follows:
Electricity expenses of January 2016
Electricity expenses of Feb-March 2016
Electricity expenses of Apr-May 2016
Electricity expenses of June 2016
Electricity expenses of July-Aug 2016
Electricity expenses of Sep-Oct 2016
Electricity expenses of Nov-Dec 2016
Please fill in the below table according to your findings:
11. Prenumbering of documents helps to assure that:
All transactions are recorded(Completeness)
No transactions are recorded more than once (Existence)
While checking the sales invoices, you noticed that one invoice totaling SR200 is
missing, what may be the consequences?
12. Confirmation of receivables is considered to be a generally accepted auditing procedure.
Send an account receivable confirmation request to one client (Issa Co), whose total
balance as of December 31,2016 in our books is SR 52,000.
13. Write at the end of the audit a report showing your opinion on the financial statements as
of December 31, 2016, according to your findings.
Following are all utilities invoices in 2016:
Purchase answer to see full
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.Read more
Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.Read more
Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.Read more
Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.Read more
By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.Read more