HW chap 1-2-19 PDF

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Name: Võ Nguyễễn Ph ương Uyễn ID: 31161024233

Class: Auditing_S219DH42ISB-2

HOMEWORK 1-24 Greenbloom Garden Centers is a small, privately held corporation that has two stores in Orlando, Florida. The Greenbloom family owns 100 percent of the company's stock, and family members manage the operations. Sales at the company's stores have been growing rapidly, and there appears to be a market for the company's sales concept—providing bulk garden equipment and supplies at low prices. The controller prepares the company's financial statements, which are not audited. The company has no debt but is considering expanding to other cities in Florida. Such expansion may require long-term borrowings and is likely to reduce the family's day-to-day involvement in all of the company's operations. The family does not intend to sell stock in the company. Required: Discuss the factors that may make an audit necessary and potentially valuable for the company.  The company needs an audit if they want to expand to other cities in Florida. When company become larger, they will need to raise capital to finance the expansion. The investors and creditors are willing to invest or lend money if the company has audited documents that are relevant and reliable. For investors, an auditor provides them with a form of insurance. The auditor can provide a monitoring activity for the Greenbloom and get insurance. For creditors, a clean audit report might reduce the lender's risk and make the loan more favorable to the company. Furthermore, expanding the company makes accounting more complex and complicated, and auditors have expertise to ensure that the information in the financial statement is fairly performed. Lastly, auditing plays an important role in the principal-agent relationship. The manager generally has more information about the "true" financial position and the operations of the entity if the Greenbloom will hire managers in the future. 2-24 Types of audits: a. Evaluate the policies and procedures of the Food and Drug Administration in terms of bringing new drugs to market. => Operational. Government b. Determine the fair presentation of Ajax Chemical's balance sheet, income statement, and statement of cash flows. => Financial Statement. External c. Review the payment procedures of the accounts payable department for a large manufacturer. => Compliance or operational or possibly internal control. Internal or external d. Examine the financial records of a division of a corporation to determine if any accounting irregularities have occurred. => Forensic/Financial. Internal, external or forensic

Name: Võ Nguyễễn Ph ương Uyễn ID: 31161024233

Class: Auditing_S219DH42ISB-2

e. Evaluate the feasibility of forecasted rental income for a planned low-income public housing project. => Operational. Government, external, or internal f. Evaluate a company's computer services department in terms of the efficient and effective use of corporate resources. => Operational. Internal or external g. Audit the partnership tax return of a real estate development company. => Compliance. Government h. Investigate the possibility of payroll fraud in a labor union pension fund. => Compliance or forensic. Government, external, or forensic. 19-28 a) Julia Roberto, a sole practitioner, has provided extensive advisory services for her audit entity, Leather Ltd. She has interpreted the financial statements, provided forecasts and other analyses, counseled on potential expansion plans, and counseled on banking relationships but has not made any management decisions. Leather is a privately held entity.  NOT IMPAIRED. In Julia’s case, no rule has been broken; Julia performs as an advisory party and has just interpreted the prepared financial statements. The independence had not been impaired as Julia has given only advise and not performed any management decisions. b) Steve Rackwill, CPA has been asked by his audit entity, Petry Plumbing Supply, to help implement a new control system. Rackwill will arrange interviews for Petry's hiring and instruct and oversee training of current entity personnel. PP is a privately held company. Petry will make all hiring decisions and supervise employees once they are trained.  NOT IMPAIRED, because even when Steve helps in the process when implementing a new IT control system and arrange interviews, the final decisions are made by the company. c) Kraemeer & Kraemeer recently wont the audit of Gavin Clothiers, a large manufacturer of women's clothing. Jock Kraemeer had a substantial investment in Gavin prior to bidding on the engagement. In anticipation of winning the engagement, Kraemeer placed his shares of Gavin stock in a blind trust.  IMPAIRED. Kraemeer violated the Independence violation because of their self-interest. d) ZEKE & ASSOCIATES audits a condo association in which parents of a member of the firm own a unit and reside. The unit is material to the parent's and the member participating in the engagement.  IMPAIRED. Independence of appearance. e) Jimmy Salad, a sole practitioner, audited Dallas Conduit Inc's financial statements for the year ended June 30 and was issued stock by the entity as payment for the audit fee. Salad disposed of the stock before commencing fieldwork planning for the audit of the next year's June 30th financial statements.

Name: Võ Nguyễễn Ph ương Uyễn ID: 31161024233

Class: Auditing_S219DH42ISB-2

 IMPAIRED. When Salas disposed of the stock before commencing fieldwork planning, he made the Independence violation. f) Dip-it paint corporation requires an audit for the current year. However, Dip-it hasn't paid Allen & Allen the fees due for tax related serviced performed 2 years ago. Dip-it issued Allen & Allen a note for the unpaid fees, and Allen & Allen proceeded with the audit services.  IMPAIRED...