Accounting Capstone Project - Auditing Assignment Questions

This document presents solutions to an auditing assignment focusing on materiality and ethics within accounting. The assignment addresses four independent scenarios where materiality influences an auditor's reporting decisions: the inability to confirm accounts receivable, unrecorded revenue, the improper treatment of capital leases, and a pending lawsuit with uncertain penalties. The solution analyzes each scenario, explaining how materiality impacts the auditor's opinion, potentially leading to qualified opinions or disclaimers. The second part of the assignment delves into an ethical dilemma concerning an auditor completing work from home, discussing issues such as data confidentiality, the use of personal resources, and time budgeting. The solution provides a detailed analysis of the ethical implications, highlighting the importance of maintaining client confidentiality and exercising professional judgment.

AUDITING 1
AUDITING

AUDITING 2
Question 1:
Part a:
If the confirmation of accounts receivables cannot be obtained, then that would mean that
there is a limited scope by an auditor to express his opinion. This matter is of an utmost
importance since accounts receivable is a current asset and if confirmation cannot be
obtained, then that could hinder the liquidity, solvency and the going concern assumption of
the company (PACOBUS, 2020).
Part b:
If the amounts are not billed but earned, then that would mean lower amount of revenue
being reported in the books of accounts. This means lower revenue and hence, losses. As per
the accountings standard, revenue has to be recorded as and when the services have been
rendered or when the risks and rewards connected with the products have been transferred on
to the customer. There is a high risk of misstatement if the revenue has not been recorded. An
auditor should express a disclaimer with regard to his opinion on the financials of the
company (Accounting tools, 2020).
Part c:
If the lease is not being treated as a capital lease, then there shall be many issues in
accounting done in the books of accounts. Hence, if the client is doing so, then the auditor
should limit his opinion on true facts, other than the capital leases. An auditor should express
a qualified opinion on the financials of the company.
Part d:
In this case, the exact amount of penalty payable is still awaited and so, the company should
create a provision for this amount and report this in the footnotes to the financial liabilities.
This cannot be treated as a contingent liability since the company has already lost the lawsuit.
An auditor can exercise his judgement or obtain an external confirmation with regard to the

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payable amount. And then, state the same in his audit report. He can express an unqualified
opinion after the company has created a provision for this loss.
Question 2:
There is no ethics issue if a person works from home on the basis of the knowledge or
documents obtained during her working hours. But the ethics body clearly state that an
auditor is duty bound not to disclose any fact with regard to the client’s business to anyone
outside, except when required by law. Further, if Elia has exercised her judgment to complete
the work at home, then there is no issue. Also, she should have exercised her reasonable
judgment when doing or completing her. It is very common that staff completes her work at
home. This is fine, there is no violation any ethics (Fresh books, 2020).
Her budget time of 6 ours is for internal purposes only. So, if the management decides to
keep this billable hours of only 6 hours, then also it is fine. This would just help her in
improving her efficiency in the future. The ethics does not state anything in this regard. Till
the time, she has not compromised on her judgment, disclosed facts about her client to any
outsider, it is fine. It is at least better than not doing her work diligently. She can get help
from her husband provided she does not disclose the facts about her client to him. But if he
gets the work done by her husband, then it is against ethics and she could be held guilty.

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References:
AU 330 The Confirmation Process. (2020). Retrieved 19 April 2020, from
https://pcaobus.org/Standards/Archived/PreReorgStandards/Pages/AU330.aspx
Auditor's opinion — AccountingTools. (2020). Retrieved 19 April 2020, from
https://www.accountingtools.com/articles/2017/5/7/auditors-opinion
What Are Billable Hours? Time Tracking Tips To Get You Paid. (2020). Retrieved 19 April
2020, from https://www.freshbooks.com/hub/accounting/billable-hours