Question

Assume you are engaged to audit ABC corp. They are a privately held construction company with two shareholders.. They are seeking a bank loan of $1,000,000 for expansion. All of their construction projects are of similar nature and are in the state of Georgia. The shareholders place great emphasis on the quality of their financial statements and adherence to ethical business practices. One of the shareholders was a former auditor and places great emphasis on having robust and effective internal controls.

INDICATE YOUR INITIAL PLANNING JUDGMENTS: (Low, Medium, High)

AR	IR	CR	DR
Initially set at _____	You assessed	You assessed	You computed

Based on your INITIAL Planning judgments, do you expect the amount of audit evidence required to be (LOW, MEDIUM, or HIGH).

If it was determined that the internal controls of the company were weak instead of strong, would control risk Increase or Decrease?

If ABC corp. was a publicly traded company instead of a privately held company would your AR (Audit Risk) Increase or Decrease?

If for the above client you set the following materiality levels: Planning Materiality: $100,000 Tolerable Error: $ 10,000 Posting Materiality: $ 1,000 During the audit you determined that ABC’s supplies expense was understated by $550. What is the most likely course of action you will take? Send a memo to management informing them of the discrepancy Advise the Partner in charge of the audit Make an adjusting entry to correct the discrepancy Pass (perform no additional work or action) due to the immateriality of the amount

Answer 1