Part 1) Why was SOX and PCAOB created, and their effect on auditors. (100 words)Part 2) Question 1-...

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Part 1) Why was SOX and PCAOB created, and their effect on auditors. (100 words)Part 2) Question 1- Prepare an audit plan for the Audit of Accounts Receivable. It is now December 15, 2016. The client's year end and the audit date is march 31, 2017.Question 2- How would you go about testing the controls regarding the revenue and collection cycle?Part 3) Question 1- Prepare an audit plan for the observation of the physical inventory count. It is now December 31, 2016 and the physical inventory is scheduled for January 3, 2017. The audit date is March 31, 2017.Question 2- How would you go about testing the controls over the purchase of inventory items? Comment how one might go about being satisfied that the company achieve a proper cutoff in the beginning inventory purchases at the end of the year (which is March 31 in this case).

David · Accepted Answer

PART 1 
Sarbanes Oxley Act
1
 and Public Company Accounting oversight Board
2
 were created due to 
accounting scandals at global level like Enron, World com, Tyco, Satyam etc. Such accounting 
scams involved breach of trust of global investors. SOX represented comprehensive reforms in 
business practices and involved code of good corporate governance. PCAOB was created to 
oversee the accounts of public companies so that accounting frauds can be minimized. The 
emergence of SOX and PCAOB had major impact on Auditing profession as the duties of 
auditors were increased. The auditors were to report to audit committee instead of management. 
There are criminal offences applicable even to auditors. Few non audit services (like book 
keeping) have been prohibited. 
PART 2 
QUESTION 1 
AUDIT PLAN FOR AUDIT OF ACCOUNTS RECEIVABLES 
1. Assess risk of material misstatement in accounts receivables- The auditor should plan a 
detailed analysis of inherent risk and control risk involved in receivables. If such risks are 
high, then auditor shall involve in detailed substantive testing so as to reduce detection 
risk. If risk of material misstatement is low, the auditor may use sampling to keep audit 
risk within control limits. 
2. Compliance testing procedures for internal controls of receivables accounting may be 
applied even before the end of accounting year. It may involve the following- 
                                                           
1
 Act, S. O. (2002). Sarbanes-Oxley act of 2002. Public Law, (107-204). 
2
 Palmrose, Z. V. (2013). PCAOB audit regulation a decade after SOX:

Part 1) Why was SOX and PCAOB created, and their effect on auditors. (100 words)Part 2) Question 1- Prepare an audit plan for the Audit of Accounts Receivable. It is now December 15, 2016. The...

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