Jones & Jones, CPAS, a one-office public accounting firm, has been asked to audit Majestic Mfg. Co. for the 20X3 calendar year. Majestic is not a public interest entity as that term is defined in the Conceptual Framework for AICPA Independence Standards. A survey of Jones & Jones personnel revealed several instances where relationships with Majestic might impair independence. The partners of Jones & Jones want the audit engagement, but they will not terminate any staff person or ask any partner to resign to obtain the work. With the restriction on non-termination of partners or staff, which of the following is a threat to Jones and Jones' independence with Majestic? I. Olson, a professional staff person, below the rank of manager, has been employed full time with Jones & Jones since August 20X2. Olson was also a director of Majestic for the first nine months of 20X2. II. Swanson is a manager with Jones & Jones. He had been treasurer of Majestic from January 20X0 through March 20X2. He resigned his position as treasurer and accepted employment as a manager with Jones & Jones on December 1, 20X2. I only II only I and II Neither I nor II

Andrew Wilson, CPA, has assembled the financial statements of Texas Mirror Co. Texas Mirror is a small nonpublic company. Wilson has not performed an audit of the financial statements in accordance with generally accepted auditing standards. Wilson is confused about the standards applicable to this type of engagement. Please discuss the following: Identify and Explain where Wilson should look for guidance concerning this engagement. Discuss Wilson’s responsibilities with respect to a preparation of these financial statements.

Opal Ltd has had an internal audit function for 15 years. Until they retired three months ago, the Chief Internal Auditor (CIA) had been in post since the function was established. An interim replacement has been appointed. The function was always well resourced with a good number of professional and specialist staff. However, a number of staff left when the previous CIA retired and there are rumours that the remaining staff are dissatisfied with the appointment of a relatively inexperienced replacement, who is close friends with the Director of Finance. Due to the need for the organisation to make significant financial savings, the need for the internal audit function is greater than ever yet recent months have also seen increased resistance to, and criticism of, the recommendations made by the function. Senior management is now considering the best delivery model for the function. Explain two advantages and two disadvantages to Opal of outsourcing their internal audit function.

An audit manager has led the audit of Topaz Ltd for the last three years. Evidence of a fraud involving the falsification of timesheets and supplier invoices to a significant value have been found. Senior management within Topaz are implicated. Discuss the extent to which the external auditor should be criticised for not discovering this fraud.