Reference no: EM132741124

Question: You have also been asked to take the lead on auditing the accrued warranty account for Manitoba. This account balance estimates the future warranty costs to be incurred on sales made in 20X1 and prior (Manitoba offers its customers a two-year product warranty). The account has a high RMM. The client has provided you with an Excel worksheet that they have prepared to estimate the liability.

In general their approach to estimating the liability is to quantify the average annual warranty repair cost over the last twelve months for each of their many product lines and apply that average warranty cost to the number of sold units that are still under warranty. In addition to the Excel file that performs and summarizes these calculations, they have given you access to the supporting electronic data files from where all of their applicable data was drawn.

- Explain your intended approach to auditing completeness and valuation assertion.

- Identify the three most important questions you would ask the client about their accrual estimation process that would assist you in fine-tuning your intended audit approach.

- Based on what you know about the account, identify the three most significant risks you have identified as you plan the audit procedures for this account.