1.Below is an audit report – please explain what is wrong

1.Below is an audit report – please explain what is wrong with this report.  Note:  There are at least 17 deficiencies – please give at least 5 of those deficiencies:An audit report prepared by Henry and George, CPAs, is provided below. The audit for the year ended December 31, 2010 was completed on March 1, 2011, and the report was issued to Nelson Corporation, a publicly held company, on March 13, 2011. List any deficiencies in this report. Do not rewrite the report.We have examined the accompanying financial statements of Novak Corporation as of December 31, 2010. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these statements based on our audit.We conducted our audit in accordance with generally accepted accounting principles. Those principles require that we plan and perform the audit to provide reasonable assurance about whether the financial statements are free of misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. We believe that our audit provides a reasonable basis for our opinion.In our opinion, except for the effects of not capitalizing certain lease obligations that should be capitalized in order to conform with generally accepted accounting principles, the financial statements referred to above present accurately the financial position of Novak Corporation as of December 31, 2010, in conformity with generally accepted accounting principles. Henry and George, CPA2. Kent, CPA is a staff auditor participating in the audit engagement of Fort, Inc.  Based upon each of the circumstances below, indicate whether or not Kent’s actions impair his independence.  Explain your response for each situation:· During the period of the professional engagement, Fort gives Kent tickets to a football game worth $30 – they are great seats.· Kent owns stock in a corporation that Fort’s 401(k) plan also invests in.  These interests are immaterial to Kent.3. You are a CPA, you worked 2 years for a CPA firm doing audits and now you have just completed your first year in your own CPA firm. Your Physician audit client, whom you just issued an Unqualified Opinion, has just determined that his accountant has been stealing about $300,000 per year from their Physician Medical Practice which you failed to detect during your audit.  You had warned the Managing Partner that they did not have adequate Internal controls – are you liable?  Explain your defense and possible legal liability.4.Sarbanes Oxley requires that per Section 404 that Internal Controls within a publicly held company are to be reviewed, evaluated and tested at year end to insure that adequate controls are in place. Explain and describe two of the three major methods to obtain and document their understanding of a company’s controls.5. What is COSO?  Describe the 5 elements of COSO’s Internal Control-Integrated Framework.  Provide an example of each of those components and explain why they are important in providing “Reliable Financial Reporting” for a company.  6.The 1136 Tenants v. Max Rothenberg and Company case (Chapter 5) established the need for an Engagement Letter at the start of an audit.  Discuss at least six of the matters that should be specified in an engagement letter.  Explain why this upfront Engagement Letter is so important.7.One objective of audit of a water utility for a small city is to determine whether all customers are being billed.  Select the best “direction of testing” from the options below and explain why you selected that option.  (a)  Meter Department records to the sales register.  (b)  Sales Register to the meter department records.  (c)  Accounts receivable ledger to the sales register.  (d)  Sales Register to the Accounts receivable ledger8.Auditing standards define a confirmation as the “process of obtaining and evaluating a direct communication from a third party in response to a request for information about a particular item affecting financial statement assertions.”  What are the two assertions for which confirmation of accounts receivable balances provides primary evidence.  Select one of the below options and EXPLAIN your reasons why you selected that option.   (a)  Completeness and Valuation  (b)  Valuation and Rights and Obligations.  (c)  Rights and obligations and existence.  (d)  Existence and Completeness9.1) Identify the Processing Controls associated with a Computerized System and identify the types of tests to be performed. (2) Identify the issues which an E-Commerce System presents for an auditor. 10. When considering the use of Management’s written representations as audit evidence about the completeness of an assertion, an auditor should understand that such representations – select one of the answers that best completes this sentence and explain your response:  (a)  Constitute sufficient evidence to support the assertion when considered in combination with a sufficiently low assessed level of control risk.   (b) Complement, but do not replace, substantive tests designed to support the assertion.  (c)  Are not part of the evidence considered to support the assertion.  (d)  Replace a low assessed level of control risk as evidence to support the assertion.

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