a.
Introduction: Auditor’s independence implies that auditors are required to be independent while conducting audit so that audit opinion is unbiased and is unaffected by the influence of others.
To explain: The reason due to which owning stock in client’s organization is considered as inappropriate.
b.
Introduction: Auditor’s independence implies that auditors are required to be independent while conducting audit so that the audit opinion is unbiased and is unaffected by the influence of others.
To examine: the reasons due to which it is important that auditors be independent of their clients.
c.
Introduction: Auditor’s independence implies that auditors are required to be independent while conducting audit so that audit opinion is unbiased and is unaffected by the influence of others.
To explain: The reason due to which Firm D took Auditor F’s actions so seriously.
d.
Introduction: Opportunity is referred as situations that increases the opportunity for a perpetrator to commit fraud and reduces the risk of getting caught. Weakness in internal controls and complex transactions are the basic factors which increases the opportunity to commit fraud.
To examine: The reasons due to which Auditor F has to make such poor professional and ethical decisions.
e.
Introduction: Auditor’s independence implies that auditors are required to be independent while conducting audit so that audit opinion is unbiased and is unaffected by the influence of others.
To explain: The procedures that a team member would undertake to report the inappropriate behavior while keeping the career protected.
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Chapter 1 Solutions
Auditing: A Risk Based-Approach (MindTap Course List)
- You are an Audit Manager for a CPA firm that is assigned to audit the ABC company. Near the middle of the audit, you are offered a job with the company you are auditing. As the Chief Financial Officer. What are the implications of this offer assuming ABC is a nonpublic corporation? What are the implications of this offer if ABC is a public company?arrow_forwardThe senior partner of Wojtysiak & Co., CPAs, has been approached by a small, publicly traded corporation wishing to change auditors. The Wojtysiak firm does not audit any other public companies. Because of the Sarbanes-Oxley Act of 2002, Mike Wojtysiak, the senior partner, needs to know the regulatory issues facing his firm if it accepts the new engagement.RequiredDraft a report that outlines the Sarbanes–Oxley considerations for a firm such as the Wojtysiak firm. Locate the actual act (Public Law 107-204) or perform a thorough summary and review it prior to preparing the report.arrow_forwardYou are the manager in charge of the audit of Nananom Company, a public limited liability company which manufactures specialist equipment and costumes for use in Kumahwood and Nafftti films in Ghana. Audited revenue is Ghc 100 million with profit before tax of Ghc 6.25 million. Audit work up to but not including, the obtaining of written representations has been completed. A review of the audit file has disclosed the following outstanding point: Kumahwood Nananom Company is facing a potential legal claim from the Kumahwood company in respect of a defective equipment that was supplied for one of their films. Kumahwood sustains that the equipment built was not robust enough, while the directors of Nananom argue that the specification was not sufficiently detailed. Nananom were of the view that using such sophisticated equipment under conditions that require heavy falls, may render them not in the best of working conditions after a couple of films produced. However, this is what Kumahwood…arrow_forward
- You are the manager in charge of the audit of Nananom Company, a public limited liability company which manufactures specialist equipment and costumes for use in Kumahwood and Nafftti films in Ghana. Audited revenue is Ghc 100 million with profit before tax of Ghc 6.25 million. Audit work up to but not including, the obtaining of written representations has been completed. A review of the audit file has disclosed the following outstanding point:Kumahwood Nananom Company is facing a potential legal claim from the Kumahwood company in respect of a defective equipment that was supplied for one of their films. Kumahwood sustains that the equipment built was not robust enough, while the directors of Nananom argue that the specification was not sufficiently detailed. Nananom were of the view that using such sophisticated equipment under conditions that require heavy falls, may render them not in the best of working conditions after a couple of films produced. However, this is what Kumahwood…arrow_forwardYou are the manager in charge of the audit of Nananom Company, a public limited liability company which manufactures specialist equipment and costumes for use in Kumahwood and Nafftti films in Ghana. Audited revenue is $ 100 million with profit before tax of $ 6.25 million. Audit work up to but not including, the obtaining of written representations has been completed. A review of the audit file has disclosed the following outstanding point: 1. Kumahwood Nananom Company is facing a potential legal claim from the Kumahwood Company in respect of a defective equipment that was supplied for one of their films. Kumahwood sustains that the equipment built was not robust enough, while the directors of Nananom argue that the specification was not sufficiently detailed. Nananom were of the view that using such sophisticated equipment under conditions that require heavy falls, may render them not in the best of working conditions after a couple of films produced. However, this is what Kumahwood…arrow_forwardJ, B & J, Certified Public Accountants, has audited the Highcredit Corporation for the past five years. Recently, the Securities and Exchange Commission (SEC) has commenced an investigation of Highcredit for possible violations of Federal securities law. The SEC has subpoenaed all of J, B & J’s working papers pertinent to the audit of Highcredit. Highcredit insists that J, B & J not turn over the documents to the SEC. What action should J, B & J take? Why?arrow_forward
- You are the manager in charge of the audit of Nananom Company, a public limitedliability company which manufactures specialist equipment and costumes for usein Kumahwood and Nafftti films in Ghana. Audited revenue is Ghc 100 million with profit before tax of Ghc 6.25 million.Audit work up to but not including, the obtaining of written representations hasbeen completed. A review of the audit file has disclosed the following outstandingpoint:KumahwoodNananom Company is facing a potential legal claim from the Kumahwood company in respect of a defective equipment that was supplied for one of their films. Kumahwood sustains that the equipment built was not robust enough, whilethe directors of Nananom argue that the specification was not sufficiently detailed.Nananom were of the view that using such sophisticated equipment under conditions that require heavy falls, may render them not in the best of working conditions after a couple of films produced. However, this is what…arrow_forwardWhitehead, CPA, is planning the audit of a newly obtainedclient, Henderson Energy Corporation, for the year ended December 31, 2013. HendersonEnergy is regulated by the state utility commission and because it is a publicly tradedcompany the audited financial statements must be filed with the Securities and ExchangeCommission (SEC).Henderson Energy is considerably more profitable than many of its competitors,largely due to its extensive investment in information technologies used in its energydistribution and other key business processes. Recent growth into rural markets, however,has placed some strain on 2013 operations. Additionally, Henderson Energy expanded itsinvestments into speculative markets and is also making greater use of derivative andhedging transactions to mitigate some of its investment risks. Because of the complexitiesof the underlying accounting associated with these activities, Henderson Energy addedseveral highly experienced accountants within its financial…arrow_forwardThe Directors of Aspen PLC have recently appointed your audit firm to act as their external auditor. Aspen PLC is a FTSE-250 fast growth company specialising in cloud computing solutions. As part of the audit services, you have been requested by the Directors of Aspen PLC to undertake the following services:▪ the external audit of the company’s annual financial statement▪ taxation services; and ▪ consultancy services relating to the trialling and implementation of a new, stateof-the-art information technology systemYour audit firm has not worked for Aspen PLC before but does act as auditor for its biggest rival, another FTSE-250 company Priory Mason PLC. Required: (a) Identify and explain the professional and ethical issues that your firm should consider with regards to the services requested by Aspen PLC, stated above. What safeguards should be implemented to address these issues? (b) Critically discuss the five key principles of ethics. (c) An auditor must never disclose a…arrow_forward
- You are the lead partner overseeing the audit for Camo Ltd, a privately owned company. The completion of the audit report is pending for the income year 2020 and you have noted several situations with possible actions. The situations are as follows: 1. Camo Corporation carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements. 2. Management of Camo Corporation refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material. 3. You were unable to confirm accounts receivable with Camo’s customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures. 4. One week before the end of fieldwork, you discover that the audit manager on the Camo engagement owns a material amount of Camo’s common stock. 5.…arrow_forwardYou are the lead partner overseeing the audit for Camo Ltd, a privately owned company. The completion of the audit report is pending for the income year 2020 and you have noted several situations with possible actions. The situations are as follows: 1. Camo Corporation carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements. 2. Management of Camo Corporation refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material. 3. You were unable to confirm accounts receivable with Camo’s customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures. 4. One week before the end of fieldwork, you discover that the audit manager on the Camo engagement owns a material amount of Camo’s common stock. 5.…arrow_forwardLabs Ltd provides scientific services to a wide range of clients. Common services range from testing food for illegal additives to providing Labs Ltd analysis on items used to commit crimes to assist law enforcement officers. The 2021 annual audit is nearing completion and as an audit senior on the audit engagement you have reported to the engagement partner that Labs Ltd is having some financial difficulties. Income has fallen due to the adverse effect of more than one high-profile court case, where Labs Ltd‘s services to assist the prosecution were found to be erraneous. Not only did this provide adverse publicity for Labs Ltd, but a number of clients withdrew their contracts. A senior employee then left Labs Ltd, stating lack of investment in new Labs analys machines was increasing the risk of incorrect information being provided by the company. A cash flow forecast prepared internally shows Labs Ltd requires significant additional cash within the next 12 months to maintain even…arrow_forward
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