A.

Evaluating Suggestions
a. Addressing First Suggestion: It is acceptable for the company to suggest to
customers that they place their orders prior to December 31. Transactions should
be recorded in the period in which they occurred. As long as the customers are
actually placing orders prior to year-end, the company can proceed with this
strategy.
b. Addressing Second Suggestion: The company should be allowed to ship current
and future orders before December 31. As long as the orders were placed before
January, the company is able to record those transactions in the current year.
However, the company cannot overship customer orders where a transaction or
sale did not occur.
c. Addressing Third Suggestion: The company would not be allowed to classify
orders that have not yet been shipped as sold. The company would have to ship
their orders by December 31 in order to count them as being sold in the current
year. Otherwise, this could be a cutoff error. Additionally, the company is not
allowed to record cash receipts when they were written. The proper way to record
cash receipts is to record them when they were received. Otherwise, this would
cause an overstatement.
d. Addressing Fourth Suggestion: Having the officer repay the $20000 loan from the
company would be an acceptable form of “window dressing''; however, this
would have to be fully disclosed in the notes to the financials. On the other hand,
the company cannot date cash disbursements at an earlier date if they had not yet
been mailed. This would improperly reduce Accounts Payable.
e. Addressing Sixth Suggestion: The company would not be able to defer the loss of
the obsolete inventory at a later period. All losses should be recognized and
realized in the period in which the loss occurred. However, the company would be
able to delay the delivery of machinery and recognize that inventory at a later
period. Though, if the machinery were delivered and the company was billed for it
in December, they must recognize that liability in that period.
B. The auditor is not able to express their predetermined opinions regarding their audit until
it is completed and all evidence has been gathered. However, if the company follows the
auditor’s recommendations, there would be a decrease in the possibility that the auditor
will have reason and evidence to issue a qualified opinion.
C. The discussion would not cause me to end the engagement. I would appreciate their
efforts in allowing me to sit in on this meeting and for being honest about their strategic
tactics. I would continue to exercise professional skepticism. However, I would make
sure to gather more evidence and to perform more substantive procedures regarding
shipping documents and orders. Further auditing procedures would allow me to make
sure that the company followed my recommendations and did not engage in unacceptable
behavior.