INCOME STATEMENT 1) Come up with 6 questions for the client that you would like
ID: 2533099 • Letter: I
Question
INCOME STATEMENT
1) Come up with 6 questions for the client that you would like to dig deeper into based on the change from 2016 to 2017.
2) For each of the 6 questions, list audit steps you would take to check for material misstatements
3) Would you allow yourself to eventually sign off on the audit report.
*Capitalization threshold = $5000 2017 2016 Revenues and Gains Sales revenues Interest revenues Gain on sale of assets 120,000 150,000 1,000 1,500 2,000 136,000 153,500 15,000 Total revenue and gains Expenses and losses Cost of goods sold Office supplies e Maintenance expense Depreciation expense Office equipment expense Advertising expense Interest expense Loss from lawsuit 32,000 40,000 30,000 10,000 10,000 20,000 3,000 15,00025,000 3,000 2,500 5,0005,800 2,000 120,000 108,300 xpense 5,000 20,000 Total expenses and losses Net Income 256,000 261,800
Explanation / Answer
Please note that the following points are indicative. There are many other issues in the financial statements which can be queried and inquired into.
Six key points that I would ask, with audit steps to mitigate:
Audit steps:
Profit and loss account shows a gain of 15,000 on sale of asset. I would further probe into this and go into the details as follows:
Office supply expenses have increase 3 fold, despite reduction in turnover. This needs to be clarified with the client:
Audit steps
Prepaid insurance has significantly increase from the previous year, which needs to be queried with the client.
During the year, the company has make capital expenditure on trade names and equipment. Please provide additional details of these:
Audit steps:
The company has reported a loss from lawsuit. I would request the client for further details on the losses. Key audit steps:
Finally, in the given balance sheet, there are a lot of arithmetical errors. I would eventually not sign the financials till satisfactory answers are obtained and all the arithmetical errors are corrected