[jeff]

Welcome to the Q1 2016 CPA Exam Study Group for AUD.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[CPA2BEE]

Question: Is A/R Turnover calculated as Net Sales/Avg NET Receivables or Net Sales/Avg GROSS Receivables? The Becker book says it is Avg Net Rec but the NINJA MCQs have it as Avg Gross Rec. See the example problem from NINJA below, they use the Avg GROSS Receivables to come up with the correct answer:

For the fiscal year ending December 31, previous year and the current year, Justin Co. has net sales of $1,000,000 and $2,000,000; average gross receivables of $100,000 and $300,000; and allowance for uncollectible accounts receivable of $30,000 and $50,000, respectively. If the accounts receivable turnover and the ratio of allowance for uncollectible accounts receivable to gross accounts receivable are calculated, which of the following best represents the conclusions to be drawn?

A.
Accounts receivable turnovers are 10.0 and 6.6 and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.30 and 0.16, respectively. Examine allowance for possible overstatement of the allowance.

Correct B.
Accounts receivable turnovers are 10.0 and 6.6 and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.30 and 0.16, respectively. Examine allowance for possible understatement of the allowance.

C.
Accounts receivable turnovers are 14.3 and 8.0 and the ratios of uncollectible accounts receivable to gross accounts receivable is 0.42 and 0.20, respectively. Examine allowance for possible overstatement of the allowance.

D.
Accounts receivable turnovers are 14.3 and 8.0 and the ratios of uncollectible accounts receivable to gross accounts receivable are 0.42 and 0.20, respectively. Examine allowance for possible understatement of the allowance.

The ratio calculations are as follows:

Dec. 31, Dec. 31,
Formula Previous Year Current Year
—————- ————- ————
Accounts Net credit $1,000,000 / $2,000,000 /
receivable sales / Average $100,000 $300,000
turnover receivables = 10.0 = 6.6

Ratio of Allowance for $30,000 / $50,000 /
allowance for uncollectible $100,000 $300,000
uncollectible A/R / Avg. gross = .30 = .16
accounts receivables
receivable to
gross accounts
receivable

Does anyone know for certain what it is???

– See more at: https://www.another71.com/cpa-exam-forum/topic/ar-turnover-ratiogross-or-net#sthash.54yLkzDh.dpuf

FAR - 80
AUD - 82
BEC - 80
REG - 85

ETHICS - 90
EXPERIENCE - COMPLETE
Application for California license mailed 8/4/2016

[FAR_WARS]

Wiley says “Average net accounts receivable” if that helps. Can you find a question that makes you chose between Net and Gross? If not, I wouldn't worry about it. You would just always need to be consistent when calculating Avg AR. ie Don't take net for x1 and gross for x2

FAR- 80
BEC- 75
AUD- 78
REG- ?

[CPA2BEE]

@FAR_WARS – The answers in the question I posted reflect net and gross as possible answers, and the “correct” answer is calculated by using gross receivables. It even says in the question “with average GROSS receivables of $100,000 and 300,000” as it also provides allowances for uncollectible accounts in the question. So if it really is average NET receivables used in the calculation, then D would be the correct answer, not B as shown in NINJA. But if Wiley and Becker both state that it is average net receivables, you think this could just be an error in the NINJA software?

FAR - 80
AUD - 82
BEC - 80
REG - 85

ETHICS - 90
EXPERIENCE - COMPLETE
Application for California license mailed 8/4/2016

[FAR_WARS]

Nice catch.
A and B use Net AR TO
C and D use Gross AR TO

However for part 2 of the question, {0.30 and 0.16} are better answers than {.42 and .20}.

So B is still the best answer, but the question is making an unfair assumption.

FAR- 80
BEC- 75
AUD- 78
REG- ?

[FAR_WARS]

For Prospective statements, can a scope limit sometimes be Adverse? Why not Disclaimer?

Explanation for Ninja Question 995:

In the independent accountant's report for an examination of prospective financial statements, the CPA's opinion would be modified (changed from the standard, unmodified report) according to the following situations

Adverse opinion

There is a measurement departure, an unreasonable assumption, or a limitation on the scope of the practitioner's examination that prohibits the issuance of an unmodified opinion.

FAR- 80
BEC- 75
AUD- 78
REG- ?

[Pete]

Which of the following acts by a CPA who is in business most likely is a violation of the ethical standards of the profession?

A. The member accepts a commission for selling a product.
B. Compiling the CPA’s employer’s financial statements and referring to the CPA’s lack of independence.
C. The member sells a newsletter bearing his or her name.
D. Failing to disclose material facts when the employer’s external accountant has requested written representations.

[FAR_WARS]

D because we must never fail to disclose material facts!

FAR- 80
BEC- 75
AUD- 78
REG- ?

[Pete]

yes right answer, but why a is wrong answer ?

[csvirk]

how differentiate between audit strategy and Audit plan?

FAR: 71, 77!
AUD: 69, 80
BEC: 72
REG: 84

[FAR_WARS]

@peter:
just looked this up

Commissions will impair independence on Audits, Reviews, and Examinations.

Commissions will not impair independence on Compilations, Tax, and Advisory services, so long as they are adequately disclosed.

Since commissions do not always Impair Independence, D is the better answer.

FAR- 80
BEC- 75
AUD- 78
REG- ?

[Pete]

@csvirk look to this one

An auditor should design the audit plan to

A. Implement the audit strategy.
B. Perform either tests of controls or tests of transactions on each account balance.
C. Minimize substantive testing prior to the balance sheet date.
D. Select all material transactions for substantive testing.

[FAR_WARS]

@Peter

I think you said you have a Roger book? If so, can you look to see what his “CHIT” mnemonic stands for? I think the T stands for Tickmarks?

FAR- 80
BEC- 75
AUD- 78
REG- ?

[Pete]

For uncorrected misstatements, the auditor should document all of the following, except:

A.
all misstatements accumulated during the audit and whether they have been corrected.

Incorrect B.
the amount below which misstatements would be regarded as clearly trivial.

C.
the size and nature of the misstatement.

D.
the auditor's conclusion about whether uncorrected misstatements are material, individually or in the aggregate, and the basis for that conclusion.

I read in another mcq's answer from ninja the following

The auditor should document:

a. the levels of materiality and tolerable misstatement, including any changes thereto, used in the audit and the basis on which those levels were determined;
b. a summary of uncorrected misstatements, other than those that are trivial, related to known and likely misstatements;
c. the auditor's conclusion as to whether uncorrected misstatements, individually or in the aggregate, do or do not cause the financial statements to be materially misstated, and the basis for that conclusion; and

d. all known and likely misstatements identified by the auditor during the audit, other than those that are trivial, that have been corrected by management

I am confusing the auditor should document trivial or not ?

[Pete]

what chapter FAR_WARS ?

[FAR_WARS]

@csvirk: also,

Audit Strategy- An overall plan for the audit, typically used to develop the more detailed audit plan

Audit Plan- A listing of audit procedures necessary to accomplish the objectives of the audit; required for every audit.

FAR- 80
BEC- 75
AUD- 78
REG- ?

[Author]

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