Case Study, Business
Accounting Auditing Case

Audits of financial statements are designed to de
termine whether account balances are materially
correct. Assume that your client
is a manufacturing company that
has the following assets on its
balance sheet

Machinery: $1,278,000

Accumulated depreciation: $386,000

Leased equipment: $550,000

a.Describe a substantive audit procedure that
can be used to determine that all leased
equipment that should have
been capitalized during the ye
ar was actually capitalized.
Please refer to the knowledge from intermed
iate accounting and the requirements of an
audit working paper to design a
template audit working paper th
at can be used to examine
whether a leased equipment should have been
capitalized or treated as lease expense

b.The machinery account shows that the co
mpany retire approximately $400,000 of old
machinery this year. Identify a substantive audit procedure that will determine the
machinery account was properly
accounted for during the year

c.Assuming the auditor determines that the m
achinery were properly retired, what other
information does the auditor need to know
to have reasonable assurance that the
machinery-net of depreciation-is prop
erly reflected on the balance sheet?

d.How can an auditor determine that all the m
achinery and leased equipment on the account
actually exist?

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Case Study, Business
Accounting Auditing Case

Audits of financial statements are designed to de
termine whether account balances are materially
correct. Assume that your client
is a manufacturing company that
has the following assets on its
balance sheet

Machinery: $1,278,000

Accumulated depreciation: $386,000

Leased equipment: $550,000

a.Describe a substantive audit procedure that
can be used to determine that all leased
equipment that should have
been capitalized during the ye
ar was actually capitalized.
Please refer to the knowledge from intermed
iate accounting and the requirements of an
audit working paper to design a
template audit working paper th
at can be used to examine
whether a leased equipment should have been
capitalized or treated as lease expense

b.The machinery account shows that the co
mpany retire approximately $400,000 of old
machinery this year. Identify a substantive audit procedure that will determine the
machinery account was properly
accounted for during the year

c.Assuming the auditor determines that the m
achinery were properly retired, what other
information does the auditor need to know
to have reasonable assurance that the
machinery-net of depreciation-is prop
erly reflected on the balance sheet?

d.How can an auditor determine that all the m
achinery and leased equipment on the account
actually exist?

Leave a Reply

Your email address will not be published. Required fields are marked *