ACCT 404 Week 8 Group Discussion Board Forum 4 Replies Example

Group Discussion Board Forum 4 Replies: Responding on Completing the Audit

ACCT 404 Assurance and Attestation, Group Discussion Board Forum 4 Replies

Thread by [Student Name]

The classmates and their clients are composites; the textbook and the peer-reviewed research cited are real.

Reply to Isaac

Isaac, your search for unrecorded liabilities at the restaurant chain found $900,000 of December invoices still unpaid in late January, and you rightly proposed an adjustment to payables. I think the finding also raises a larger question. A company that leaves that many invoices unpaid weeks after delivery may be stretching its vendors because it lacks cash, and Louwers et al. (2018) explain that the auditor must evaluate whether conditions like recurring losses, negative operating cash flow or difficulty paying suppliers cast substantial doubt on whether the company can keep operating for the coming year. If they do, the auditor considers management's plans, such as new financing or cost reductions, and whether those plans are likely to be carried out. When doubt survives that review, the report must say so in a going-concern paragraph. These judgments are hard. Carson et al. (2013) synthesized research on going-concern opinions and organized it around their determinants, their accuracy and their consequences, noting that auditors face errors in both directions: issuing a going-concern opinion to a company that survives, or failing to issue one to a company that fails. Your evidence about the unpaid invoices belongs in that evaluation. It is exactly the kind of condition the standards list. I would suggest adding a review of the chain's cash forecast and its loan covenants to your plan, so that the payables finding informs the opinion as well as the balance sheet.

Reply to Madison

Madison, you proposed replacing sample-based tests of payables entirely with analytics that compare every January payment with receiving dates, and I agree this is a stronger test of completeness than examining a sample. Appelbaum et al. (2017) describe how full-population testing has become practical with modern data tools, and they also identify research needs that show what the tools do not yet settle. Three things still depend on the auditor. First, the data must be complete and reliable: if the client's receiving system is missing records, a perfect match between payments and receipts proves nothing, so the team has to test the controls over the data or reconcile it to an independent source. Second, every exception the analytics flag must be investigated, and a full-population test can produce hundreds of exceptions that need judgment to sort into errors, timing differences and false alarms. Third, analytics find only the patterns the auditor tells them to look for; a liability for a lawsuit or an unrecorded service contract would not appear in receiving records at all. Louwers et al. (2018) emphasize that sufficient appropriate evidence comes from combining procedures, so I would keep your analytics as the core test and add inquiry of legal counsel and a review of contracts and board minutes to cover the liabilities the data cannot reach. That mix would give the engagement both breadth and judgment.

References

Appelbaum, D., Kogan, A., & Vasarhelyi, M. A. (2017). Big data and analytics in the modern audit engagement: Research needs. Auditing: A Journal of Practice & Theory, 36(4), 1-27. https://doi.org/10.2308/ajpt-51684

Carson, E., Fargher, N. L., Geiger, M. A., Lennox, C. S., Raghunandan, K., & Willekens, M. (2013). Audit reporting for going-concern uncertainty: A research synthesis. Auditing: A Journal of Practice & Theory, 32(Suppl. 1), 353-384. https://doi.org/10.2308/ajpt-50324

Louwers, T. J., Blay, A. D., Sinason, D. H., Strawser, J. R., & Thibodeau, J. C. (2018). Auditing & assurance services (7th ed.). McGraw-Hill Education.