ACC 521 Lecture Notes - Lecture 3: Analytical Review, Engagement Letter, Bloomberg Businessweek

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4 Oct 2014

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Accounting systems may differ, so the solution below accommodates most possibilities. [formatting request from reviewer: can this be converted to a table format with grid lines?] Sales revenue accounts (contra return account) cash (cash. Review prior years" files auditee correspondence engagement letter or obtain one. Dc5-2 audit engagement acceptance amounts and in the proper period. a. b. c. Inquiry, including prior working papers--prior audit working papers, personnel who worked on the audit in prior years are available to convey their understanding of the business, inquiry and interviews with the company"s management, directors, and audit committee. Observation--take a tour of the company"s physical facilities, keeping eyes open for activities and things that should be reflected in the accounting records. The tour is the time to see company personnel in their normal workplaces. Numerous sources--cica and aicpa industry accounting and auditing guides, specialized trade magazines and journals, registration statements and.

Related Questions

Unter Components manufactures low-cost navigation systems forinstallation in ride-sharing cars. It sells these systems tovarious car services that can customize them for their locale andbusiness model. It manufactures two systems, the Star100 and theStar150, which differ in terms of capabilities. The followinginformation is available:

Costs per Unit	Star100		Star150
Direct materials	$	70	$	80
Direct labor		24		30
Variable overhead		10		15
Fixed overhead		95		125
Total cost per unit	$	199	$	250
Price	$	280	$	380
Units sold		4,000		2,000

The average wage rate is $15 per hour. Variable overhead varieswith the quantity of direct labor-hours. The plant has a capacityof 20,000 direct labor-hours, but current production uses only10,400 direct labor-hours.

Required:

a. A nationwide car-sharing service has offeredto buy 2,400 Star100 systems and 2,400 Star150 systems if the priceis lowered to $190 and $240, respectively, per unit.

a-1. If Unter accepts the offer, how manydirect labor-hours will be required to produce the additionalsystems?

a-2. Complete the following table to determinethe differential profit increase (or decrease) if Unter acceptsthis proposal. Prices on regular sales will remain the same. .

b-1. Supposed that the car-sharing service hasoffered instead to buy 3,400 each of the two models at $190 and$240, respectively. This customer will purchase the 3,400 units ofeach model only in an all-or-nothing deal. That is, Unter mustprovide all 3,400 units of each model or none. Unter's managementhas decided to fill the entire special order for both models. Inview of its capacity constraints, Unter will reduce sales toregular customers as needed to fill the special order. Complete thetable below to determine the total contribution margin with thespecial order added.

b-2. How much will the profits change if theorder is accepted? Assume that the company cannot increase itsproduction capacity to meet the extra demand.

c-1. Assume that, in the situation presented inrequirement b-1, the plant can work overtime. Direct labor costsfor the overtime production increase to $22.50 per hour. Variableoverhead costs for overtime production are $4 per hour more thanfor normal production. Complete the table below to determine thetotal contribution margin.

c-2. How much will the profits change in thissituation?

You are an assistant in the accounting department of HasherElectronics, a small electronics retailer. Hasher has a loan thatrequires the company to maintain a minimum cash balance of $125,000, as reported on its year- end balance sheet. AlthoughHasher has struggled in recent years, as of yesterday it looked asthough Hasher would be able to meet this requirement. The cashbalance in Hasher's general ledger was $ 130,000 and the company'scredit manager was expecting to receive a $ 30,000 electronic fundstransfer that day on account from your biggest customer. Yourdepartment supervisor had been worried about meeting the loanrequirement, so she had delayed making payments to Hasher'ssuppliers for several days. But in anticipation of receiving theEFT, she decided yesterday to issue checks to suppliers totaling $15,000.

It is now the last day of the fiscal year and your supervisorapproaches you with a problem. Your big customer had backed out atthe last minute, indicating it had some financial issues to sortout before it can transfer money to Hasher. The supervisor says theonly way Hasher can meet its loan requirement is to put the $15,000 back into the Cash account and pretend as if the supplierchecks were not issued until after year- end. You questionedwhether this would be ethical. Her reply was, well, we don't reallyhave a choice. Either we do this, or we violate the terms of theloan agreement and possibly are forced to repay the loanimmediately. That could put us out of business. Think of all thepeople who would lose their jobs! Just make a journal entry todayto increase Cash and Accounts Payable. Then tomorrow we can reduceCash and Accounts Payable probably before many of our supplierseven get the checks we have written to them.

Required:

1. Who might suffer in the short term if you go along with yoursupervisor's request? What might happen in the future if you goalong with her request this time? If you do not go along, who mightsuffer in the short term and what could be the long-termconsequences?

2. You want to be loyal to your supervisor but honest to otherswho rely on your work. As an accounting assistant, which of theseconcerns should be most important? Why?

3. What alternative courses of action can you take? Which ofthese is best given the circumstances?

azuremole741

In connection with an audit of our financial statements at December 31, 2014, and for the year then end, management of the Company has prepared, and furnished to our auditors, Cole & Cole, CPAs, a description and evaluation of certain contingencies, including those set forth below, involving matters with respect to which you have been engage and to which you have devoted substantive attention on behalf of the company in the form of legal consultation or representation. Your response should include matters that existed at December 31, 2014. Because of the confidentiality of all these matter, your response may be limited.

In November 2014, an action was brought against the company by an outside salesman alleging breach of contract for sales commissions and asking an accounting with respect to claims for fees and commissions. The causes of action claim damages of $3, 000,000, but the company believe it has meritorious defenses to the claims. The possible exposure of the company to a successful judgement on behalf of the plaintiff is slight.

In July 2014, an action was brought against the company by industrial Manufacturing company (industrial) alleging patent infringement and seeking damages of $20,000,000.

On October 16, 2014, the U.S. District Court decided that the company had infringed on seven Industrial patents and awarded damages of 14,000,000. The company vigorously denies these allegations and has filed an appeal with the U.S. Court of Appeals. The appeal process is unexpected to take approximately two years, but there is some chance that consolidated may ultimately prevail.

Please furnish to our auditors such explanation, if any that you consider necessary to supplement this information, including an explanation, if any, that you consider necessary to supplement this information, including an explanation of those matters as to which you views may differ from those stated, and an identification of the omission of any pending or threatened litigation, claims and assessments or a statement that the list of such matters is complete. Your response may be quoted or referred to in the financial statements without further correspondence with you.

You also consulted on various other matters considered to be pending or threatened litigation. However, you may not comment on these matters because publicizing them may alert potential plaintiffs to the strengths of their cases. In addition, various other matters probable of assertion that have some chance of an unfavorable outcome, as of December 31, 2014, are presently considered unasserted claims and assessments.

Respectfully,
C.R. Brown
Chief Financial Officer

Read problem 11.56 Client Request for Attorney Letter on pages 491 and 492 of the textbook. Describe the omissions, ambiguities, and inappropriate statements and terminology in Brownâs letter. Remember that this is Brownâs letter requesting a response to auditors, but it must request responses in the manner most useful to auditors.

Reference

Louwers, T. J., Ramsay, R. J., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C. (2015). Auditing & assurance services (6th ed.). New York, NY: McGraw-Hill.

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ACC 521 Lecture Notes - Lecture 3: Analytical Review, Engagement Letter, Bloomberg Businessweek

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