As the partner in charge of audits at Dewey, Wright, and Moore, you have decided to accept AV Imports and Exports as a new audit client. You have gone through all necessary planning, such as the requirements of SAS 56 as well as other pronouncements. You are now at the stage of preparing a planning memorandum.
You have been working on the audit engagement of the company for the previous year-end, and you are in the final stages of completing the audit. You plan to have all the fieldwork completed and the report signed by May 10 of the current year. You are concerned about some transactions that have occurred just after year-end that may affect the financial statements you are auditing. You are aware that this area is governed by Statement of Financial Accounting Standards (SFAS) 165. You research the details of the standard.
Prior to accepting the audit, you became aware that the company's financial statements may have been misstated due to the possible occurrence of errors, fraud, or illegal acts that ultimately led to the going concern opinion expressed by the previous auditor Morris & Clark. As auditor, you need to determine your course of action. Create a 10 -12 page report starting with a prepared formal audit planning memorandum showing all these activities as the firm Dewey, Wright, and Moore, for AV Imports and Exports.
After the memorandum is complete, continue to complete your report by researching SFAS 165 using the textbook, the Argosy University online library resources, and the Internet and respond to the following questions:
Describe the type of subsequent events that you must consider and evaluate as stated in SFAS 165.
List the auditing procedures you should consider performing to gather evidence concerning subsequent events.
What is your responsibility to report errors and fraud as detected to management, the board of directors, and parties outside the entity?
Research an auditor's responsibilities using your textbook, the Argosy University online library resources, and the Internet. What are your responsibilities to detect fraud while performing a financial statement audit? (Do not discuss specific audit procedures, only the responsibilities.)
Use the Internet to find an example of three audit planning memoranda. Prepare a matrix to organize the similarities and differences between the three. Give a complete citation for each example.
Based on your research and reading, list the items of information you will include in the memorandum to finalize the engagement of the firm Dewey, Wright, and Moore with AV Imports and Exports.
The auditor has encountered the five scenarios described below during an audit engagement:
The client has decided not to include the statement of cash flows in its financial statements.
After year-end, the client learns that one of its major customers has filed for bankruptcy. Knowing this, the client refuses to write off any portion of the customer's current account receivable.
The client has engaged the auditor to perform a first-time audit but will not agree to providing information regarding the opening balances.
After year-end, the auditor has been engaged to audit a distribution company. Due to the timing of the engagement, the auditor is not able to observe inventory at year-end. The auditor is able to perform alternative procedures and make an estimate of year-end inventory to determine whether the balance appears reasonable at year-end.
For the previous engagement, the auditor has selected another CPA firm to complete 20 percent of the audit. After reviewing the work papers, the auditor has decided that sufficient evidence has been obtained. Examine each scenario and determine what type of audit report should be issued. Give reasons for your decisions.