I need the solution to the following: F. Estimate the total misstatement in accounts payable in the same way you did for the income statement in requirement e. Hint: A misstatement caused by the fa
I need the solution to the following:
F. Estimate the total misstatement in accounts payable in the same way you did for the income statement in requirement e. Hint: A misstatement caused by the failure to record an FOB origin purchase is an understatement of accounts payable and inventory and has no effect on income.
Attached are the rest of the questions and info for this assignment for reference.
16-35 (Objectives 16-2, 16-3, 16-4)
Parts III, V, and VI of this case study dealt with obtaining an
understanding of internal control and assessing control risk for transactions affecting accounts
payable of Pinnacle Manufacturing. In Part VII, you will design analytical procedures and design
and perform tests of details of balances for accounts payable.
Assume that your understanding of internal controls over acquisitions and cash disbursements
and the related tests of controls and substantive tests of transactions support an assessment of a
low control risk. The listing of the 519 accounts making up the accounts payable balance of
$12,969,686 at December 31, 2011 is included under the Pinnacle link on the textbook Web site.
a. List those relationships, ratios, and trends that you believe will provide useful
information about the overall reasonableness of accounts payable. You should consider
income statement accounts that affect accounts payable in selecting the analytical
) containing balance-related audit objectives and tests of
details of balances for accounts payable to be sure you understand each procedure and its
purpose. Prepare an audit program for accounts payable in a performance format, using
the audit procedures in
. The format of the audit program should be similar to
). Be sure to include a sample size for each procedure.
c. Assume for requirement b that (1) assessed control risk had been high rather than low
for each transaction-related audit objective, (2) inherent risk was high for each balance-
related audit objective, and (3) analytical procedures indicated a high potential for
misstatement. What would the effect have been on the audit procedures and sample sizes
for requirement b?
d. Confirmation requests were sent to a stratified sample of 51 vendors listed in
). Confirmation responses from 45 vendors were returned indicating no
difference between the vendor’s and the company’s records.
presents the six replies that indicate a difference between the vendor’s balance and the
company’s records. The auditor’s follow-up findings are indicated on each reply. Prepare
an audit schedule similar to the one illustrated in
) to determine the
misstatements, if any, for each difference. The audit schedule format shown in
can be downloaded using the Pinnacle link on the textbook Web site. The exception
for Fiberchem is analyzed as an illustration. Assume that Pinnacle Manufacturing took a
complete physical inventory at December 31, 2011, and the auditor concluded that
recorded inventory reflects all inventory on hand at the balance sheet date. Include the
balances confirmed without exception as one amount on the schedule for each stratum,
and total the schedule columns.
e. Estimate the total misstatement in the income statement, not just the misstatements in
the sample, based on the income statement misstatements you identified in requirement d.
The total misstatement should include a projected misstatement and an estimate for
for guidance on calculating the point estimate.
Note that the misstatements should be projected separately for each stratum. You will
need to determine the size of each stratum using the accounts payable listing. Use your
judgment to estimate sampling error, considering the size of the population and the
Unlock Solution Unlocking…
Show entire document