Learning Objectives

Required:
Assume that the items described above came to your attention prior to completion of your audit work on February 15, 20X5. For each item:

1. 
   Give the audit procedures, if any, that would have brought the item to your attention. Indicate other sources of information that may have revealed the item.
   
2. 
   Discuss the disclosure that you would recommend for the item, listing all details that you would suggest should be disclosed. Indicate those items or details, if any, that should not be disclosed. Give your reasons for recommending or not recommending disclosure of the items or details.
   

3. 
   Review of Financial Statement and Other Report Material
   

11.25 Board of Directors Disclosures. The board of directors of Celestial City Corporation of Taejon, Korea, is issuing a corporate governance report. In this audit year Celestial City lost 1,280,000,000 South Korean Won (won) due to a weakness in their internal controls in the treasury department which represents 11 percent of their current assets. The controller’s assistant, Dongsung Young, who, a Certified Public Accountant (CPA), is asked to write the first draft of the internal control portion of the report.
Required:
Pretend that you are Mr Dongsung and write a draft of the internal controls portion of Celestial City Corporation’s corporate governance report. Since Celestial City is publicly traded on the American Stock Exchange and a Depository Receipt use the Sarbanes-Oxley Act (SOX) section 404 requirements for the report. (See PCAOB, 2004, Auditing Standard No 2 An Audit Of Internal Control Over Financial Reporting Performed In Conjunction With An Audit Of Financial Statements,” Public Company Accounting Oversight Board, 9 March. At time of this writing, PCAOB website was at www.pcaobus.org/documents/rules_of_the_Board

3. 
   Wrap-up Procedures
   

26. 
    Independent Review Checklist. Compare the general checklist used by an audit firm to assure that the review of the audit work is thorough and complete (Illustration 11.11) with the checklist used by a person independent of the audit (Illustration 11.12).
    

Required:

1. 
   Which questionnaire is the longest?
   
2. 
   What questions does each questionnaire ask about the in-charge accountant? About the client?
   
3. 
   What questions does each checklist ask about the audit report?
   
4. 
   What is the primary difference between the review questionnaire and the independent review questionnaire? What are the similarities between the two?
   

26. 
    Working Paper Review: Berins & Trichet, Reviseurs d’Entreprises, of Brussels, Belgium has a policy of having their audit papers reviewed by both the partner in charge and an independent reviewer.
    

Required:

1. 
   Define “working paper”
   
2. 
   Describe the difference between a regular working paper review and an independent review.
   
3. 
   What items does the regular reviewer examine? The independent reviewer?
   

3. 
   Going Concern Issues
   

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QUESTIONS, EXERCISES AND CASES

11.28 Going Concern. When an auditor finds the ability of a company to continue as a going concern is questionable, the auditor will use certain audit procedures to obtain further evidence. Jocques Entremont, Expert Comptable, the external auditor for Japonaiseries S.A., a company which retails Japanese art and woodcuts in Boulogne, France, suspects that there is a going concern problem.