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Case Study and Analysis 4 ? Audit Reporting

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Question;You are the;auditor of Glaxoa Corporation (Glaxoa) for the current year. For each situation;Describe the corrections, if any, you;would propose to management to make the financial statements conform to GAAP.Identify the type of opinion you would;issue if management refused to make your proposed changes along with any;effects on your audit report.Provide a brief (one to three;sentences) reason for your decision.EXAMPLEYou found that;Glaxoa incorrectly included the value of a large accounts receivable account;twice in its financial statements by incorrectly recording the related sale;twice. The amount of the account was;material. You found no other material misstatements or encountered any;significant problems in conducting the audit.Proposed;Corrections to the Financial Statements:AJE to reduce Accounts Receivable and Sales for the;unsupported amount Type of Opinion;if Management Refuses to Make Proposed Corrections:Modified Opinion ? Qualified with basis for modification paragraphReason(s):The misstatement was material but was not pervasive. The financial statements, while materially;misstated, were not so misleading as to not present fairly in conformity with;GAAP.Situation 1You;completed your audit of Glaxoa and found no material misstatements. You;encountered no significant problems in conducting the audit.Proposed;Corrections to the Financial Statements:Type of Opinion;if Management Refuses to Make Proposed Corrections: Reason(s):Situation 2You found that;Glaxoa had changed its accounting principles relating to its cost flow method;for inventory from LIFO to FIFO this year.;Glaxoa did not disclose the change in the notes to the financial;statements. You determined the impact of;the change in accounting principles was material with respect to the financial;statements. Upon further inquiry and testing, you determined the change was justified;and that both methods are consistent with GAAP. You found no material;misstatements or encountered any significant problems in conducting the audit.Proposed;Corrections to the Financial Statements:Type of Opinion;if Management Refuses to Make Proposed Corrections: Reason(s):Situation 3You were unable;to obtain sufficient, appropriate evidence about the value of Glaxoa?s;investment in a foreign business because audited financial statements for that;business were not available. The;investment amount was material to Glaxoa?s financial statements. You found no material misstatements or;encountered any significant problems in conducting the audit.Proposed;Corrections to the Financial Statements:Type of Opinion;if Management Refuses to Make Proposed Corrections:Reason(s):Situation 4You found that Glaxoa;had a material notes receivable due from Glaxoa?s Chief Executive Officer that;was properly disclosed in the financial statement footnotes in accordance with;GAAP. You decide additional disclosure;should be made because of the significance of the asset. You found no material misstatements or;encountered any significant problems in conducting the audit.Proposed;Corrections to the Financial Statements:Type of Opinion;if Management Refuses to Make Proposed Corrections: Reason(s):Situation 5You found that;Glaxoa used an accounting principle for its cost flow method related to;inventory that was not consistent with GAAP.;Glaxoa disclosed the accounting principle in the notes to the financial;statements. You determined the impact on;the financial statements was material.;Upon further inquiry and testing, you determined the departure from GAAP;was justified because following GAAP in Glaxoa?s unique situation would have;resulted in misleading financial statements. You found no material;misstatements or encountered any significant problems in conducting the audit.Proposed;Corrections to the Financial Statements:Type of Opinion;if Management Refuses to Make Proposed Corrections: Reason(s):Situation 6You found that;Glaxoa failed to properly expense general repairs and maintenance costs related;to its plant and equipment assets.;Glaxoa improperly capitalized those costs causing both assets and net;income for the year to be overstated by a material amount. You also found an unrecorded liability;resulting from civil litigation.;Glaxoa?s legal counsel had concluded that the potential loss was both;probable as of the balance sheet date and the amount of the loss could be;reasonably estimated. The amount of the estimated loss was material to the;financial statements. The total effect on the financial statements of the;misstatements and non-disclosures was both material and pervasive. You found no;other material misstatements or encountered any significant problems in;conducting the audit.Proposed;Corrections to the Financial Statements:Type of Opinion;if Management Refuses to Make Proposed Corrections:Reason(s):Situation 7You found that Glaxoa;had a material notes receivable due from Glaxoa?s Chief Executive Officer that;was only disclosed as a Notes Receivable on the balance sheet. You also found a;material unrecorded liability resulting from civil litigation. Glaxoa?s legal counsel had concluded that the;potential loss was both reasonably possible as of the balance sheet date and;the amount of the loss could be reasonably estimated. The total effect on the;financial statements of the non-disclosures was both material and pervasive.;You found no other material misstatements or encountered any significant;problems in conducting the audit.Proposed;Corrections to the Financial Statements:Type of Opinion;if Management Refuses to Make Proposed Corrections:Reason(s):Situation 8You found that;Glaxoa failed to properly expense general repairs and maintenance costs related;to its plant and equipment assets.;Glaxoa improperly capitalized those costs causing both assets and net;income for the year to be overstated by a material amount. You also found an unrecorded liability;resulting from civil litigation.;Glaxoa?s legal counsel had concluded that the potential loss was both;reasonably possible as of the balance sheet date and the amount of the loss;could be reasonably estimated. The amount of the estimated loss was material to;the financial statements. The total effect on the financial statements of the;misstatements and non-disclosures was material. You found no other material;misstatements or encountered any significant problems in conducting the audit.Proposed;Corrections to the Financial Statements:Type of Opinion;if Management Refuses to Make Proposed Corrections:Reason(s):Situation 9Glaxoa?s;management refused to allow you observe the taking of physical inventory at two;of its main warehouse citing concerns that company trade secrets might be;revealed. The value of inventory held at;those two locations was material to the financial statements. You found no material misstatements or;encountered any other significant problems in conducting the audit.Proposed;Corrections to the Financial Statements:Type of Opinion;if Management Refuses to Make Proposed Corrections;Reason(s);Situation 10;You found that;Glaxoa failed to properly expense general repairs and maintenance costs related;to its plant and equipment assets.;Glaxoa improperly capitalized those costs causing both assets and net;income for the year to be overstated by a material amount. You found no other material misstatements or;encountered any significant problems in conducting the audit.;Proposed;Corrections to the Financial Statements;Type of Opinion;if Management Refuses to Make Proposed Corrections;Reason(s);Situation 11;You found that;Glaxoa had changed its accounting principles relating to its cost flow method;for inventory from LIFO to a method based on current fair market value (FMV);this year. You determined the impact of;the change in accounting methods was a material increase in the value of;inventory reported on the financial statements. Upon further inquiry and;research, you determined that Glaxoa?s use of FMV was not consistent with;GAAP. You found no other material;misstatements or encountered any significant problems in conducting the audit.;Proposed;Corrections to the Financial Statements;Type of Opinion;if Management Refuses to Make Proposed Corrections;Reason(s)

 

Paper#49831 | Written in 18-Jul-2015

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