Expense and Apprentice Mechanics

Topics: Expense, Internal control, Audit Pages: 5 (2813 words) Published: March 21, 2015
Before you begin the assignment for Module 1, please click the Module 1 assignment link in the online course navigation pane for instructions on how to complete and submit your responses for marking. Part A: Multiple-choice questions

For multiple-choice questions, select the best answer. Answer each item by giving the number of your choice. Incorrect answers will be marked as zero. Please include your answers to the Part A multiple-choice questions with your answer to Part B.

Question 1
(20 minutes)

Fine Fertilizers Limited (FFL) produces a line of lawn fertilizers that are manufactured under controlled conditions to ensure the ingredients are stored carefully and mixed in the correct quantities. FFL has many competitors in the industry ranging from small private companies to large public companies. Recent news articles in the fertilizer industry have highlighted the need for a focus in environmental concerns. The CEO has decided that FFL should consider the implementation of an environmental scorecard. Which of the following is the best reason to use an environmental scorecard? 1.


The scorecard promotes good corporate citizenship.
FFL can compare its scorecard rating to its competitors.
It is an effective measure in a bonus plan to increase net profit. It enables FFL to measure its efficiency in producing fertilizer.

b. In order to make the financial statements of Genex Inc. more appealing to investors and to inflate the management bonus, a manager has engaged in earnings manipulation. As you begin to prepare for the interim audit, you have been alerted to this activity. Which management actions will you look for as evidence that the investors’ interests are not being protected?


Overstated revenues and assets
Overstated expenses and liabilities
Understated revenues and liabilities
Understated expenses and assets

Mallona Manufacturing Limited (MML) is a small manufacturing company that has established a strong reputation for production quality. MML has implemented free Internet in the lunchrooms and has noticed a decrease in the quality of production commencing shortly after the implementation. MML would like to start undisclosed monitoring of the employees' time spent on the Internet to ensure they are not exceeding their break time.

What is the most serious risk if the employees find out about the undisclosed monitoring? 1.

Employees could continue to exceed their break time and ignore the undisclosed monitoring. Employees could see this as an adversarial action and further decrease production quality. Employees could take actions that would skew the results of the monitoring. Employees could cease to use the free Internet in order to avoid monitoring. Continued…

PA1 Assignment 1

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d. Ultimate Company’s brand strategy is one of differentiation, offering high-quality products at higher prices than its competitors. Which of the following is the most appropriate financial measure to benchmark Ultimate Company’s performance against its competition?


Debt-to-equity ratio
Total revenues
Net-profit-margin ratio
Gross margin percentage

As a member of the audit team for a large public corporation, you are concerned about violating independence due to familiarity. Under which of the following conditions could your audit team continue the audit without breach of independence due to familiarity?

1. The CFO extends an invitation for the audit team to join the company employees at a celebratory pancake breakfast. You accept because you are acquaintances with the accounting supervisor. 2. Your sister works as finance manager in the head office of the client company and has recently been promoted to assistant controller.

3. A partner of your firm resigned in order to be appointed this month as the director of internal audit of said public corporation. You did not work closely with...
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