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Situation Analysis Instructions: Read and Analyze The Situation Below. Answer The Following Items On The Space Provided

Louie, a CPA, is auditing the financial statements of Judah Company for the year ending December 31, 201A. Louie obtained an understanding of internal controls related to purchasing and set control risk at the maximum level. Louie requested and received a schedule of prepaid insurance from Judah as of December 31, 201A and sent a confirmation request to Judah's insurance broker. To verify the schedule, Louie should examine supporting documents, confirm the policy with the broker, check with the insurance company, determine the expired and unexpired portions of the policy, and ensure proper financial statement presentation and disclosure. The audit evidence gathered is important because it allows the auditor to form an opinion on the financial statements and

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Argie Mae Salvador
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236 views1 page

Situation Analysis Instructions: Read and Analyze The Situation Below. Answer The Following Items On The Space Provided

Louie, a CPA, is auditing the financial statements of Judah Company for the year ending December 31, 201A. Louie obtained an understanding of internal controls related to purchasing and set control risk at the maximum level. Louie requested and received a schedule of prepaid insurance from Judah as of December 31, 201A and sent a confirmation request to Judah's insurance broker. To verify the schedule, Louie should examine supporting documents, confirm the policy with the broker, check with the insurance company, determine the expired and unexpired portions of the policy, and ensure proper financial statement presentation and disclosure. The audit evidence gathered is important because it allows the auditor to form an opinion on the financial statements and

Uploaded by

Argie Mae Salvador
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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SITUATION

Instructions: Read and analyze the situation below. Answer the following items on the space provided.

Louie, a CPA, is engaged to audit the financial statements of Judah Company for the year ended December
31, 201A. Louie obtained and documented an understanding of internal control relating to the purchasing
process and set control risk at the maximum level. Louie requested and obtained from Judah a schedule
analyzing prepaid insurance as of December 31, 201A, and sent confirmation request to Judah’s broker.

a. What substantive procedures should Louie conduct in verifying the schedule of prepaid insurance and to
respond appropriately to the following assertions?
1) Existence and completeness -- Examine supporting source documentation and confirm policy with
insurance broker.

2) Rights and obligations -- Check with the insurance company to make sure the policy beneficiary is
right.

3) Valuation or allocation --Determine the part of the policy that hasn't expired and the cost of
insurance.

4) Presentation and disclosure – Determine if the overall presentation of the financial statements,
including relevant disclosure, complies with the applicable financial reporting framework.

b. What is the importance of the audit evidence gathered from the audit procedures?

Audit evidence is significant because it includes all of the information gathered by an auditor in
order to form an audit opinion on an organization's financial statements and/or internal control
environment. It is important to the audit and internal controls processes because it helps public
corporate executives to trust the opinions of their auditors. A number of policies and guidelines
state unequivocally that it is the executives of public corporations, not the auditors, who are
responsible for maintaining internal control over financial statements, as well as determining the
efficacy of such internal controls.

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