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SCENARIO
You work as an audit senior for a national CPA firm and have been assigned to audit the revenue cycle of the company’s 2020 calendar year-end annual financial statements. You work out of the Las Vegas, Nevada, branch office and are very familiar with the manufacturing and the gaming industry. The audit client, KMHS Manufacturing Company Inc., has been an audit client of your firm for the last three years, but this will be the first year you have worked on the engagement. During the brainstorming session held prior to fieldwork, the audit partner noted that that the company was having financial difficulties due to reduced revenue as a result of a global pandemic. An emphasis was added to the audit for the team to carefully consider management override.
KMHS began operations on January 1, 2005, in Las Vegas. The company is a nonpublicly traded, closely held S corporation with three shareholders: the CEO, who owns 40% of KMHS: the COO and general manager, who owns 35%; and the CFO, who owns 25%. The shareholders chose Las Vegas for the central location to casinos on the West Coast, low risk for natural disasters, and favorable gaming outlook by the banking industry. The three shareholders have 75 years’ experience between them in the gaming industry. The shareholders invested $1.4 million into the company when it began operations (see the attached “Appendix C: Financial Statements”). There are no related party transactions.
The company sales are classified under two groups: commercial customers and individual consumers. The company sells three products: casino chips (chips), dice, and playing cards (cards). Sales of chips, dice, and cards to commercial operations are conducted through KMHS’s Sales Department. The company’s final revenue stream is through slot machines (see the attached °Appendix A: Products, Sales, and Revenue” and “Appendix B: Customers, Warranties, Economic Conditions, and Accounts Receivable”).
During 2005, KMHS negotiated a $1 million bank loan to cover development of casino chips. In addition, it negotiated a $1 million line of credit. During 2012, the company negotiated an additional bank loan to cover the production of slot machines. In 2019, the company then negotiated a consolidated loan to finance production costs for dice technology. The negotiated loan required KMHS shareholders to add additional capital to lower the debt-to-equity ratio to no greater than 0.8%. The bank loans are collateralized by all the assets of the company and are guaranteed individually by the shareholders. Average interest rates for 2020, 2019, and 2018 were 6.0%, 6.0%, and 4.5%, respectively.
A. Describe the purpose of the audit risk model and explain the relationship between eachcomponent. Use the scenario and the attached Appendixes A-F to complete the following
B. Assess the engagement risk (auditor business risk) at high or low. based off the attached “Appendix D: Client Business Risks.” Justify your response using three or more aspects from Appendix D.
C. Address the following risks related to the revenue cycle:
1. Assess inherent risk for the revenue cycle at high or low. Justify your response using three ormoreaspects from the attached “Appendix E: Inherent Risks—Revenue and Accounts Receivable:
2. Assess control risk for the revenue cycle at high or low. Justify your response using three ormoreaspects from the attached “Appendix F: Control Risks and Internal Controls Walkthrough:
3. Determine whether the risk of material misstatement is high. moderate. or low based on your response in parts C1 and C2. Justify your response.
4. Set and interpret the desired level of audit risk at 1% or 5%. based off your response in part C3.
5. Determine whether the detection risk is high. moderate. or low based off your responses in parts C3 and C4. Justify your response.
D. Based off your responses in parts C1-05. determine an approach to obtaining audit evidence for each of the following assertions. including the percentage of tests of details. analytical procedures. and tests of controls. Justify your responses using the attached “Appendix F: Control Risks and Internal Control Walkthrough”:
1. existence/occurrence
2. completeness
3. valuation
E. Acknowledge sources. using APA-formatted in-text citations and references. for content that is quoted. paraphrased. or summarized.

 

Sample Answer

Compelling correspondence is essential to the achievement all things considered but since of the changing idea of the present working environments, successful correspondence turns out to be more troublesome, and because of the numerous impediments that will permit beneficiaries to acknowledge the plan of the sender It is restricted. Misguided judgments.In spite of the fact that correspondence inside the association is rarely completely open, numerous straightforward arrangements can be executed to advance the effect of these hindrances.

Concerning specific contextual analysis, two significant correspondence standards, correspondence channel determination and commotion are self-evident. This course presents the standards of correspondence, the act of general correspondence, and different speculations to all the more likely comprehend the correspondence exchanges experienced in regular daily existence. The standards and practices that you learn in this course give the premise to additionally learning and correspondence.

This course starts with an outline of the correspondence cycle, the method of reasoning and hypothesis. In resulting modules of the course, we will look at explicit use of relational connections in close to home and expert life. These incorporate relational correspondence, bunch correspondence and dynamic, authoritative correspondence in the work environment or relational correspondence. Rule of Business Communication In request to make correspondence viable, it is important to follow a few rules and standards. Seven of them are fundamental and applicable, and these are clear, finished, brief, obliging, right, thought to be, concrete. These standards are frequently called 7C for business correspondence. The subtleties of these correspondence standards are examined underneath: Politeness Principle: When conveying, we should build up a cordial relationship with every individual who sends data to us.

To be inviting and polite is indistinguishable, and politeness requires an insightful and amicable activity against others. Axioms are notable that gracious “pay of graciousness is the main thing to win everything”. Correspondence staff ought to consistently remember this. The accompanying standards may assist with improving courtesy:Preliminary considering correspondence with family All glad families have the mystery of progress. This achievement originates from a strong establishment of closeness and closeness. Indeed, through private correspondence these cozy family connections become all the more intently. Correspondence is the foundation of different affiliations, building solid partners of obedient devotion, improving family way of life, and assisting with accomplishing satisfaction (Gosche, p. 1). In any case, so as to keep up an amicable relationship, a few families experienced tumultuous encounters. Correspondence in the family is an intricate and alluring marvel. Correspondence between families isn’t restricted to single messages between families or verbal correspondence.

It is a unique cycle that oversees force, closeness and limits, cohesiveness and flexibility of route frameworks, and makes pictures, topics, stories, ceremonies, rules, jobs, making implications, making a feeling of family life An intelligent cycle that makes a model. This model has passed ages. Notwithstanding the view as a family and family automatic framework, one of the greatest exploration establishments in between family correspondence centers around a family correspondence model. Family correspondence model (FCP) hypothesis clarifies why families impart in their own specific manner dependent on one another ‘s psychological direction. Early FCP research established in media research is keen on how families handle broad communications data. Family correspondence was perceived as an exceptional scholastic exploration field by the National Communications Association in 1989. Family correspondence researchers were at first impacted by family research, social brain science, and relational hypothesis, before long built up the hypothesis and began research in a family framework zeroed in on a significant job. Until 2001, the primary issue of the Family Communication Research Journal, Family Communication Magazine, was given. Family correspondence is more than the field of correspondence analysts in the family. Examination on family correspondence is normally done by individuals in brain science, humanism, and family research, to give some examples models. However, as the popular family correspondence researcher Leslie Baxter stated, it is the focal point of this intelligent semantic creation measure making the grant of family correspondence special. In the field of in-home correspondence, correspondence is normally not founded on autonomous messages from one sender to one beneficiary, yet dependent on the dynamic interdependency of data shared among families It is conceptualized. The focal point of this methodology is on the shared trait of semantic development inside family frameworks. As such, producing doesn’t happen in vacuum, however it happens in a wide scope of ages and social exchange.

Standards are rules end up being followed when performing work to agree to a given objective. Hierarchical achievement relies significantly upon compelling correspondence. So as to successfully impart, it is important to follow a few standards and rules. Coming up next are rules to guarantee powerful correspondence: clearness: lucidity of data is a significant guideline of correspondence. For beneficiaries to know the message plainly, the messages ought to be sorted out in a basic language. To guarantee that beneficiaries can without much of a stretch comprehend the importance of the message, the sender needs to impart unmistakably and unhesitatingly so the beneficiary can plainly and unquestionably comprehend the data.>

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