審計學

第三題 (16 分)：

Wood-Mode Company is involved in the design, manufacture, and installation of various types of wood products for large construction projects. On March 1, 2024, Wood-Mode completed a large contract for Stadium Ltd., which consisted of building 35 different types of concession counters for a new soccer arena under construction. Epic pays 10% cash at contract signing. Under the terms of the contract, Stadium will pay Wood-Mode £2,000,000 upon completion of the counters. (Assume the cost of sale is £1,200,000.)

Unfortunately, due to the depressed economy, the completion of the new soccer arena is now delayed. The time that Wood-Mode Company must hold the counters is totally dependent on when the arena is completed. Stadium has therefore asked Wood-Mode to hold the counters for 2 months at its manufacturing plant until the arena is completed. On November 15, 2024, Wood-Mode completes manufacture of the counters in the Stadium order and places them in the warehouse. Wood-Mode and Stadium have documented the warehouse arrangement and identified the units designated for Stadium. The units are ready to ship, and Wood-Mode may not sell these units to other customers.

Wood-Mode's sales manager believes that granting more generous return provisions and allowing customers to order items on a bill-and-hold basis can give the company a competitive edge and increase sales revenue. The controller cautions that, depending on the terms granted, generous return or bill-and-hold provisions might lead to challenges to revenue recognition in accordance with an applicable financial reporting framework.

Required:

(A) What factors should be considered in determining when to recognize revenue in this transaction? (4 points)

(B) Prepare all necessary journal entries that Wood-Mode should make, assuming it signed a valid sales contract and received at the time the £300,000 deposit. (6 points)

(C) During the audit of Wood-Mode, Angel Chang exercises professional skepticism and identifies the risks of material misstatement due to fraud. In accordance with TWSA/ISA 315, she assesses the risks of material misstatement at the financial statement and assertion levels thereby providing a basis for designing and implementing responses to the assessed risks of material misstatement. What audit procedures will be effective for Chang in this case? (6 points)