The following information was obtained from the accounts of Lukes, Inc., as of December 31, 2008

P 3-2 The following information was obtained from the accounts of Lukes, Inc., as of December 31, 2008. It is presented in scrambled order.

Common stock, no par value, 10,000 shares
authorized, 5,724 shares issued $ 3,180
Retained earnings 129,950
Deferred income tax liability (long term) 24,000
Long-term debt 99,870
Accounts payable 35,000
Buildings 75,000
Machinery and equipment 300,000
Land 11,000
Accumulated depreciation 200,000
Cash 3,000
Receivables, less allowance of $3,000 58,000
Accrued income taxes 3,000
Inventory 54,000
Other accrued expenses 8,000
Current portion of long-term debt 7,000
Prepaid expenses 2,000
Other assets (long term) 7,000

Required
Prepare a classified balance sheet in report form. For assets, use the classifications of current assets, plant and equipment, and other assets. For liabilities, use the classifications of current liabilities and long-term liabilities.


Click here for the solution: The following information was obtained from the accounts of Lukes, Inc., as of December 31, 2008

The following are examples of documentation typically obtained by auditors

Auditing P 7-29 The following are examples of documentation typically obtained by auditors:

1. Vendors invoices
2. General ledgers
3. Bank statements
4. Cancelled payroll checks
5. Payroll time cards
6. Purchase requisitions
7. Receiving reports (documents prepared when merchandise is received)
8. Minutes of board of directors
9. Remittance advices
10. Signed W-4s (Employee's withholding exemption certificates)
11. Signed lease agreements
12. Duplicate copies of bills of lading
13. Subsidiary accounts receivable records
14. Cancelled notes payable
15. Duplicate sales invoices
16. Articles of incorporation
17. Title insurance policies for real estate
18. Notes receivable

Required:
a. Classify each of the preceding items according to type of documentation:(1) internal or (2) external.
b. Explain why external evidence is more reliable than internal evidence.


Click here for the solution: The following are examples of documentation typically obtained by auditors

Whitehead, CPA, is planning the audit of a newly obtained client, Henderson Energy Corporation, for the year ended December 31, 2009

P 9.35 Whitehead, CPA, is planning the audit of a newly obtained client, Henderson Energy Corporation, for the year ended December 31, 2009. Henderson Energy is regulated by the state utility commission and because it is a publicly traded company the audited financial statements must be filed with the Securities and Exchange Commission (SEC).

Henderson Energy is considerably more profitable than many of its competitiors, largely due to its extensive investment in information technologies used in its energy distribution and other key business processes. Recent growth into rural markets, however, has placed some strain on 2009 operations. Additionally, Henderson Energy expanded its investments into speculative markets and is also making greater use of derivative and hedging transactions to mitigate some of its investment risks, Because of the complexities of the underlying accounting associated with these activities, Henderson Energy added several highly experienced accountants within its financial reporting team. Internal audit, which has didrect reporting responsibility to the audit committee, is also actively involved in reviewing key accounting assumptions and estimates on a quarterly basis.

Whiteheads discussions with the predeccessor auditor revealed that the client has experienced some difficulty in correctly tracking existing property, plant, and equipment items. This largely involves equipment located at its multiple energy production facilities. During the recent year, Henderson acquired a regional electric company, which expanded the number of energy production facilities.
Whitehead plans to staff the audit engagement with several members of the firm who have experience in auditing energy and public companies. The extent of partner review of key accounts will be extensive.

Based the above information, identify factors that affect the risk of material misstatement in the December 31, 2009 financial statements of Henderson Energy. Indicate whether the factor increases or decreases the risk of material misstatement. Also, identify which audit risk model component is affected by the factor. Use the format below:

Factor-Effect on the Risk of Material Misstatement-Audit Risk ModelcComponent
Henderson is a new client - Increases - Inherent risk

Click here for the solution: Whitehead, CPA, is planning the audit of a newly obtained client, Henderson Energy Corporation, for the year ended December 31, 2009