Auditing and Assurance Services 1st Edition by Iris Stuart

Exercise 36

Long-term debt and owners' equity work papers. As the partner in charge of the yearly audit for Custom Manufacturing, you are reviewing the audit work papers for the Long-Term Debt and Owners' Equity accounts. Before you sign off on the audit, you need to determine that sufficient appropriate audit evidence was gathered to determine whether these two accounts are materially misstated at yearend. The balance in each account is material, and if either are materially misstated, the financial statements will be materially misstated.
a. Describe the audit evidence you would expect to find in the work papers to determine whether Long-Term Debt and Owners' Equity accounts are materially misstated at year-end.
b. How will you know that the risk of fraud was considered in the audit of this process
c. What alternatives are available to you if the audit evidence indicates that the account balance is materially misstated