Reference no: EM132113020
Problem - The BakFirn Corporation, a publicly traded firm, has contracted with YOUCPA, your public accounting firm, for an audit. The BakFirn Corporation manufactures specialty construction tools. The tools are used in the unique construction of homes, warehouses, and multiunit dwellings. The prices range from $1,000 to $5,000 per unit.
During the audit, the audit team has determined the risk assessment of the client. Consequently, the audit has to respond to the assessed risks of material misstatement at the financial statement and assertion levels. The YOUCPA audit team has asked you, the auditor, to prepare a list of actions that you will take to assess the audit risk.
The following information is available in the year just finished:
- The BakFirn Corporation end-of-year is 12/31/20XX.
- Sales for the previous year were $10,000,000. Sales this year are coming in at $9,500,000.
- The firm is in the construction machine industry, making specialty tools.
- Account receivable days sales outstanding (DSO) has been averaging 90-120 days. The year before, it was 80-90 days.
- Inventory turns have decreased from 3 to 2 per year.
- Account receivable and inventory make up 80% of total assets.
- Internal auditing has been reduced by one person to reduce costs.
- An initial test of controls in cash receipt indicated a lack of following procedures.
- The construction industry is in the third year of a downturn. It is forecasted to last two more years.
- The audit team has defined materiality to be focused on account receivable and inventory with $3,000 being the initial threshold. Net income for last year was $1,000,000.
- Inventory at the end of the year was $2,500,000.
- Account receivable at the end of the year was $2,740,000, or 100 DSO.
- The previous auditors did not disclose any fraud or any management issues at the meeting with BakFirn and YOUCPA. The reason for the auditor change was explained as a costs reduction program.
Assignment Guidelines:
1. Audit Assessment Steps:
1. What is the initial audit risk? High, medium or low?
2. What factors made you decide on this level?
2. Audit Plan Assertions
1. What would you include in the audit plan, and why?
2. Would you plan a test of controls or substantive tests? Why or why not?
3. Would these tests make a difference in the nature, timing, and extent of audit procedures? If so, how?
3. Audit Plan Evidence
1. Would you plan to put reliance on prior-year evidence? Why, or why not?
2. Would your evidence come from observation, analytical procedures, or other means? Explain your reasoning.
3. Would the evidence prove or disprove an assertion on the reliance of a specific balance sheet account or financial statement account? Explain your reasoning.
Reflect on your personal experiences of learning from change
: Identify a past situation in which you experienced a significant change. This experience may be in a professional, personal, or academic setting.
|
Analyze the alignment and consistency
: Your small marketing consulting firm was recently hired by Costa's Customs. Costa's Customs is a clothing retail company considering a complete rebranding.
|
What must be done before jack can claim the exemption
: Jane, age 65, who lives with her unmarried son, Jack, received $7,000, What must be done before Jack can claim the exemption
|
Write a scope document for this project
: What is the net reduction in annual expenses if this project was implemented? Write a scope document for this project.
|
What is the initial audit risk
: Sales for the previous year were $10,000,000. Sales this year are coming in at $9,500,000. What is the initial audit risk
|
Why is it important that human resources communicate
: Why is it important that Human Resources communicate this information to the hiring department?
|
How does the application of erp and cloud computing mean
: Discuss how does the application of ERP and Cloud computing mean to you, your field (as MIS/Business Student), career or your future in general.
|
Describe how you coded these items
: Then visit the company's forum section on their website and code the forum for at least five items. Describe how you coded these items.
|
Implement a business process approach
: What difficulties might be expected when management attempts to implement a business process approach with members of the firm's supply chain?
|