may exceed 6 631 John Wells CPA is planning the audit of CVG

may exceed 6 6-31. John Wells, CPA, is planning the audit of CVG Services, Inc. As a res ment procedures, Wells has identified several fraud risks. of th sstatement Explain in detail how Wells might respond to risks of material misstatem cial statements due to fraud. Describe the auditors\' communication responsibilities in situations in whic believe fraud has occurred he 6-32. Listed below are several of the auditors\" general objectives in performing st procedures on an asset account: Establish the existence of assets. 1. 2. Establish that the company has rights to the assets. 3. Establish the completeness of recorded assets 4. Verify the cutoff of transactions. assets. 6. Establish the clerical accuracy of the underlying records. 7. Determine the appropriate financial statement presentation and disclosure of ndicate the general objective (or objectives) of each of the following audit proc a. Observe the client\'s physical inventory. b. Locate on the client\'s premises a sample of the equipment items listed in plant and equipment ledger. Obtain a listing of inventory and reconcile the total to the general ledger. d. Trace a sample of shipping documents to recorded sales transactions. e. Identify related parties. f Vouch selected purchases of securities to brokers\' advices. In designing further audit procedures, the auditors should assess the risks of n ment of the financial statements a. Describe the auditors\' general approach to such risk assessment. b. Identify potential responses to financial statement level risks. t risk. d. Describe how a significant risk should be treated in an audit. ichard Foster, an assistant auditor, was assigned to the year-end aud orporation. Sipher is a small manufacturer of language translation equi signment, Foster was instructed to test the cutoff of year-end sales transa

Solution

a. Auditors observe the transactions of clients and what ever they observed on the paper or financial statements of business, they search for their accuracy and physical existance. In this regards, if they find any mistake or inproper transactions in the events or transactions, they inform the same and ask to rectify it. Usually, some times they may find small errors and mistakes in the process and they find solutions for those.

b. If they find any variations in financial statements, they works on correcting those. If those stataments continues in the same way, it leads to non-accuracy of transactions, and creates more manipulations by them. Hence, the auditing team will collect all thsoe mistakes and works on those.

c. In auditing, significance risk means, is the process which performed by auditorys to understand the business firm, its transactions, the business environment, its internal control and process, and study the risks arised because of any mismatch of transactions, which are material in nature. These kinds of frauds or errors must be correct at the entry level and their effect must be erased on financial statements. Studying and identifying these errors and frauds in financial statements is called significant risk in audit.

d. The risk must be identified, must be writeoff by considering the original transactions. if not, the same continues, they are going to effect the accuracy of financial statements, it damages the firm value in the market, and in the minds of investors. There will be some reasons for these risks like, the failure of functioning of information systems using by the firm, the personnel who do not have experience in preparation of accounts, the transactions done with external parties to the business may not record correctly etc. These mistakes must be correct by auditors, by performing any of the following: