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Discuss the risks faced by the firm

5 accounting questions needed done by tomorrow morning. Questions are not related and should be answered separately with the correlating question number on top. References are required.

Q1

Discuss the risks faced by the firm. Evaluate the risk management measures available to the firm.

Go to a website on cafeteria plans. What components can be included in a cafeteria plan? What types of employee compensation plans do you recommend for the company that you are evaluating?

Q2

9-35 (Objectives 9-6, 9-7, 9-8) Whitehead, CPA, is planning the audit of a newly obtained client, Henderson Energy Corporation, for the year ended December 31, 2011. Henderson Energy is regulated by the state utility commission and because it is a publicly traded company the audited financial statements must be filed with the Securities and Exchange Commission (SEC).

Henderson Energy is considerably more profitable than many of its competitors, largely due to its extensive investment in information technologies used in its energy distribution and other key business processes. Recent growth into rural markets, however, has placed some strain on 2011 operations. Additionally, Henderson Energy expanded its investments into speculative markets and is also making greater use of derivative and hedging transactions to mitigate some of its investment risks. Because of the complexities of the underlying accounting associated with these activities, Henderson Energy added several highly experienced accountants within its financial reporting team. Internal audit, which has direct reporting responsibility to the audit committee, is also actively involved in reviewing key accounting assumptions and estimates on a quarterly basis.

Whitehead’s discussions with the predecessor auditor revealed that the client has experienced some difficulty in correctly tracking existing property, plant, and equipment items. This largely involves equipment located at its multiple energy production facilities. During the recent year, Henderson acquired a regional electric company, which expanded the number of energy production facilities.

Whitehead plans to staff the audit engagement with several members of the firm who have experience in auditing energy and public companies. The extent of partner review of key accounts will be extensive.

Required

Based on the above information, identify factors that affect the risk of material misstatement in the December 31, 2011 financial statements of Henderson Energy. Indicate whether the factor increases or decreases the risk of material misstatement. Also, identify which audit risk model component is affected by the factor. Use the format below:

 

Factor                           Effect on the Risk of Material Misstatement         Audit Risk Model Component

Henderson is a new client                Increases                                                   Inherent risk

 

Q3

We have the very well-known audit risk model this week. Let us start by discussing the meaning of: planned detection risk, inherent risk, control risk, acceptable audit risk. Can you give some examples?

 

Q4

Section 404 of SOX requires that the management of a public company issue a report on internal control over financial reporting (ICFR) as of the end of the company’s fiscal year. Many companies have reported that their ICFR was operating effectively, whereas others have reported that such controls were not effective in design or operation. Companies issue their reports on ICFR through filings with the SEC.

Visit the SEC website [http://www.sec.gov] and answer the following questions.

  1. Use EDGAR to search for Tri-Valley Corporation (TVC) and Monarch Staffing Inc. Find TVC’s 10-K and Monarch’s 10-KSB for the year ended 12-31-06.
  2. Did either company report material weaknesses in ICFR? If so, what were the weaknesses?

Q5

The internal control framework developed by COSO represents a huge milestone in auditing internal controls for public companies and the Federal Government. COSO Framework includes five so-called components of internal control. What are these components? What do they mean to us auditors?

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