Reference no: EM132318514
Question
BACKGROUND:Like many cyclical businesses, auditors (and clients) have periods of each year with peak demand on their time. In order to remain efficient, effective, and deliver high-quality client service, many auditors have shifted some of the work to other, less demanding times of the year.
Property and its related accounts is a good example of work that can easily be shifted. Clients may make acquisitions at varying times through the year, allowing the auditor to test activity to date as of an interim date. At year-end, procedures can be performed to roll forward from the interim date to the period being opined on.
Very Best CPA is conducting a second year audit on its client, Advanced Manufacturing, Inc. The client's lender, State Bank, has asked for the financial statements 30 days earlier than prior periods in order to meet internal compliance deadlines.
As a result, Very Best is concerned about its ability to finish the audit in a timely manner. One Very Best partner suggested that the audit team could audit property and its related accounts as of 09/30/XX, 3 months earlier than the year end of 12/31/XX. Very Best had never taken this approach previously, so this idea was listed as an item to be discussed in the auditor-client planning meeting to be held.
1. What is the advantage of testing property and its related accounts as of an interim date?
2. If property is audited at an interim date, what procedures will need to be done at year-end?
3. What difference would it make if Advanced Manufacturing, Inc. was a first year audit instead of a second year audit?
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