- The subsequent period in an audit is the time extending from the balance sheet date to the date of the auditors’ report.
ANSWER:
Discuss the importance of the subsequent period in the audit of trade accounts payable
- You are retained by Columbia Corporation to audit its financial statements for the fiscal year ended June 30. Your consideration of internal control indicates a fairly satisfactory condition, although there are not enough employees to permit an extensive separation of duties. The company is one of the smaller units in its industry, but it has realized net income of about $500,000 in each of the last three years. Near the end of your fieldwork, you overhear a telephone call received by the president of the company while you are discussing the audit with him. The telephone conversation indicates that on May 15 of the current year, the Columbia Corporation made an accommodation endorsement of a 60-day $430,000 note issued by a major customer, Brill Corporation, to its bank. The purpose of the telephone call from Brill was to inform your client that the note had been paid at the maturity date. You had not been aware of the existence of the note before overhearing the telephone call.
ANSWER
- From an ethical standpoint, do you think the auditors would be justified in acting on information acquired in this manner?
- Should the balance sheet as of June 30 disclose the contingent liability? Give reasons for your answer
c. Prepare a list of auditing procedures that might have brought the contingency to light. Explain fully the likelihood of detection of the accommodation endorsement by each procedure listed.
- During your annual audit of Walker Distributing Company, your assistant, Jane Williams, reports to you that, although a number of entries were made during the year in the general ledger account Notes Payable to Officers, she decided that it was not necessary to audit the account because it had a zero balance at year-end.
ANSWER:
Do you agree with your assistant’s decision? Discuss.
- In the examination of interest-bearing debt, auditors identify audit objectives, and then determine appropriate procedures.
a. List the audit objectives for substantive tests of interest-bearing debt.
b. List seven substantive tests for interest-bearing debt to help the auditors meet the audit objectives.
