Eliot Rey, the owner of a publicly held technology company, asked Mary Messup, CPA, to conduct...

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Accounting

Eliot Rey, the owner of a publicly held technology company,asked Mary Messup, CPA, to conduct an audit of the company’srecords. The financial statements to be audited covered a two-yearperiod. The statements needed to be ready to submit to the SEC bySeptember 30, 2017. Rey also needed to provide the auditedfinancial statements to their bank as part of a large loanapplication. Messup immediately accepted the engagement and agreedto provide an auditor’s report within one month. Rey agreed to payMessup her normal audit fee plus a percentage of the loan if it wasapproved. Messup hired two Sac State accounting graduates (bothgraduated in May 2017) to conduct the audit. She spent severalhours going over what they needed to do. She told the new hires notto spend any time reviewing the client’s system of internal controlbut to concentrate on checking the mathematical accuracy of thegeneral ledger and summarizing the data in the accounting recordsthat supported Rey’s financial statements. The new hires followedMessup’ instructions. They competed the audit procedures in twodays. They did notice that the company failed to include the termsof a large note payable in the footnotes, but they were nervousabout talking to Mr. Rey about that. They did talk to Mr. Rey aboutthe fact that although 25% of the accounts receivable were over 120days old, there was no allowance for doubtful accounts included.Mr. Rey said they shouldn’t be concerned about that. They made anote of his response in the workpapers. They turned over theworkpapers to Messup along with the financial statements preparedby the client. Messup gave an unmodified (clean) opinion on thefinancials.
REQUIRED: For each of the auditing principles listed, identifythe action(s) taken (or not taken) by Messup or her assistants thatsupport(s) their compliance with the requirement. 1. Auditors mustbe technically competent.
2. Auditors must comply with professional ethics.
3. Auditors must use professional judgment and maintainprofessional skepticism.
4. Auditors must plan work and supervise assistants.

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3.9 Ratings (413 Votes)

1 Auditors must be technically competent Competency is the ability to carry out an assignment in a proper manner ie giving the just care caution as is required Here even though Mary Messup has the required qualifications experience her methodology of skipping testing of internal controls seems to be questionable showing lack of required care diligence She her assistants must have testchecked satisfied themselves as to the adequacy reliability of the existing internal control system 2 Auditors must comply See Answer

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Transcribed Image Text

Eliot Rey, the owner of a publicly held technology company,asked Mary Messup, CPA, to conduct an audit of the company’srecords. The financial statements to be audited covered a two-yearperiod. The statements needed to be ready to submit to the SEC bySeptember 30, 2017. Rey also needed to provide the auditedfinancial statements to their bank as part of a large loanapplication. Messup immediately accepted the engagement and agreedto provide an auditor’s report within one month. Rey agreed to payMessup her normal audit fee plus a percentage of the loan if it wasapproved. Messup hired two Sac State accounting graduates (bothgraduated in May 2017) to conduct the audit. She spent severalhours going over what they needed to do. She told the new hires notto spend any time reviewing the client’s system of internal controlbut to concentrate on checking the mathematical accuracy of thegeneral ledger and summarizing the data in the accounting recordsthat supported Rey’s financial statements. The new hires followedMessup’ instructions. They competed the audit procedures in twodays. They did notice that the company failed to include the termsof a large note payable in the footnotes, but they were nervousabout talking to Mr. Rey about that. They did talk to Mr. Rey aboutthe fact that although 25% of the accounts receivable were over 120days old, there was no allowance for doubtful accounts included.Mr. Rey said they shouldn’t be concerned about that. They made anote of his response in the workpapers. They turned over theworkpapers to Messup along with the financial statements preparedby the client. Messup gave an unmodified (clean) opinion on thefinancials.REQUIRED: For each of the auditing principles listed, identifythe action(s) taken (or not taken) by Messup or her assistants thatsupport(s) their compliance with the requirement. 1. Auditors mustbe technically competent.2. Auditors must comply with professional ethics.3. Auditors must use professional judgment and maintainprofessional skepticism.4. Auditors must plan work and supervise assistants.