An anonymous source advised Canada Revenue Agency (CRA) that Jim Mayers, owner of Mayers Grocery Store, has been filing fraudulent tax returns for the past several years. You, a tax auditor with the CRA, are in the process of auditing Mayers Grocery Store for the year ended December 31, 2020. The tax returns for the past five years show a decreasing value for ending inventory. You have performed a quick survey of the large store and the attached warehouse and observed that both seemed very well stocked.Entim the anonymous tip? What would youdo to constrm or deny yoursuspcion

An anonymous source advised Canada Revenue Agency (CRA) that Jim Mayers, owner of Mayers Grocery Store, has been filing fraudulent tax returns for the past several years. You, a tax auditor with the CRA, are in the process of auditing Mayers Grocery Store for the year ended December 31, 2020. The tax returns for the past five years show a decreasing value for ending inventory. You have performed a quick survey of the large store and the attached warehouse and observed that both seemed very well stocked.Entim the anonymous tip? What would youdo to constrm or deny yoursuspcion

Auditing: A Risk Based-Approach to Conducting a Quality Audit

10th Edition

ISBN:9781305080577

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter4: Professional Liability, Auditor Judgment Frameworks, And Professional Responsibilities

Section: Chapter Questions

Problem 54RSCQ

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So, owner of a trading company engaged your services as auditor. There is a discrepancy between the company’s income and the sales volume. The owner suspects that the staff is committing theft. You are to determine whether or not this is true. Your investigation revealed the following: The physical taken on December 31, 2018 under your observation showed that cost was P26,500. The inventory on January 1, 2018 showed cost of P39,000. The accounts receivable as of January 1, 2018 were P13,500. During 2018, accounts receivable written off amounted to P1,000. Accounts receivable as of December 31, 2018 were P37,500. Outstanding purchase invoices amounted to P30,000 at the end of 2018. At the beginning of 2018, they were P37,500. Receipts from customers during 2018 amounted to P300,000. Disbursement to merchandise creditors amounted to P200,000. The average gross profit rate was 40% of net sales. Required: Total Sales Total Purchases Inventory Shortage
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As the controller of Take No Prisoners Perfume Company, you discover a misstatement that overstated net income in the prior year’s financial statements. The misleading financial statements appear in the company’s annual report, which was issued to banks and other creditors less than a month ago. After much thought about the consequences of telling the president, Jeb Wilde, about this misstatement, you gather your courage to inform him. Jeb says, “Hey! What they don’t know won’t hurt them. But, just so we set the record straight, we’ll adjust this year’s financial statements for last year’s misstatement. We can absorb that misstatement better in this year than in last year anyway! Just don’t make such a mistake again.” Instructions Who are the stakeholders in this situation? What are the ethical issues in this situation? What would you do as a controller in this situation?
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