Principles of Auditing

A fraternity has non followed generally accepted accounting principles In the recording of its leases. 7 2. A gild has not followed generally accepted accounting principles In the recording of its leases. The amounts involved are immaterial. 1 3. A company valued its inventory at current replacement cost. While the attendant believes that the inventory costs do approximate replacement costs, these costs do not approximate any GAAP inventory paygrade method. 7 4.A client changed Its depreciation method for production equipment from the traight-line method to the units-of-production method based on hours of utilization. The tender concurs with the change. 2 5. A client changed its depreciation method for production equipment from the straight-line to a units-of-production method based on hours of utilization. The listener does not concur with the change. 7 6. A client changed the depreciable life of reliable assets from 10 historic period to 12 years.The auditor concurs with the change. 3 7. A client changed the depreciable life of certain assets from 10 years to 12 years. The auditor does not concur with the change. Confined to fixed assets and ccumulated depreciation, the misstatements involved are not considered pervasive. 3 8. A client changed from the method it uses to calculate postemployment benefits from one acceptable method to another one. The effect of the change Is apathetic this year, but is expected to be material in the future. 1 9.A client changed the salvage value of certain assets from 5 part to 10 percent of original cost. The auditor concurs with the change. 1 10, A client uses the detail identification method of accounting for valuable Items in inventory, and LIFO for less valuable items. The auditor concurs that this is a reasonable practice. 1 tOf3 has substantial doubt about an entitys ability to continue as a vent concern for a reasonable period of time. The notes to the financial statements adequately disclose the situatio n. 12. Due to recurring operate losses and working capital deficiencies, an auditor reasonable period of time. The notes to the financial statements do not adequately disclose the substantial doubt situation, and the auditor believes the omission fundamentally affects the users understanding of the financial statements. 4 13. An auditor reporting on group financial statements decides to take responsibility for the work of a component auditor who audited a 70 percent owned subsidiary and issued an unmodified opinion.The total assets and revenues of the subsidiary are 5 percent and 8 percent, respectively, of the total assets and revenues of the entity creation audited. 1 14. An auditor reporting on group financial statements decides not to take responsibility for the work of a component auditor who audited a 70 percent owned subsidiary and issued an unqualified opinion. The total assets and revenues of the ubsidiary are 5 percent and 8 percent, respectively, of the total assets and revenues of the entity being audited. 10 15.An auditor was hired after year-end and was unable(p) to observe the counting of the year-end inventory. She is unable to contribute other procedures to determine whether ending inventory and related information are properly stated. 8 16. An auditor was hired after year-end and was unable to observe the counting of the year-end inventory. However, she was able to apply other procedures and determined that ending inventory and related information are properly stated. 1 17. An auditor discovered that a client made unlawful political payoffs toa candidate for president of the United States.The auditor was unable to determine that amounts associated with the payoffs because of the clients inadequate record- retention policies. The client has added a note to the financial statements to describe the mislabeled payments and has stated that the amounts of the payments are not determinable. 1 18. An auditor discovered that a client made illega l political payoffs toa candidate retention policies, although there is no likelihood that the financial statements are ervasively misstated, they may be materially misstated.The client refuses to disclose the payoffs in a note to the financial statements. 3 19. In auditing the semipermanent investments account of a new client, an auditor finds that a large contingent liability exists that is material to the consolidated company. It is probable that this contingent liability will be resolved with a material loss in the future, but the amount is not estimable. Although no adjusting entry has been made, the client has provided a note to the financial statements that describes the bet in etail. 1 20.In auditing the long-term investments account ofa new client, an auditor finds future, and this amount is reasonably estimable as $2,000,000. Although no adjusting entry has been made, the client has provided a note to the financial statements that describes the matter in detail and includ es the $2,000,000 gauge in that note. 7 21. A client is issuing two years of comparative financial statements. The start year was audited by another auditor who is not being asked to reissue her audit report. (Reply as to the renewal auditors report.