EBK AUDITING: A RISK BASED-APPROACH
11th Edition
ISBN: 9781337670203
Author: RITTENBERG
Publisher: YUZU
expand_more
expand_more
format_list_bulleted
Question
Chapter 1, Problem 45FF
a.
To determine
Introduction:Securities and Exchange Commission (SEC) has the responsibility for PCAOB and all the public companies that are traded on the US stock market. The main role of SEC is to take lawful actions against the publicly traded companies, in case any violation of SEC laws and regulations, and detection of illegal and fraudulent activities.
To identify:The violation of rules of SEC by Mr. WC.
b.
To determine
Introduction:A framework for professional decision making is used to accomplish the objectives of obtaining unbiased audit reports from the companies. This helps in making quality audit decisions during the
To identify:The use of ethical decision framework in determining the Mr. WC actions.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
The following paragraphs describe fraudulent accounting committed by the company Rite-Aid in 1999. After reading the paragraphs, list the journal entries you think Rite-Aid would have used to do what is described here. You will have to make an educated guess as to what journal entries the company would use to cover up the fraud. In the fourth quarter of FY 1999, Rite Aid prematurely recognized $17 million relating to a litigation settlement with a vendor. Rite Aid should not have recognized this sum in that period because the settlement offer was expressly contingent upon the execution of a formal settlement agreement which did not take place until May 20, 1999. Moreover, the litigation settlement was also contingent upon the execution of a purchasing agreement that was not finalized until May 18, 1999. Both of these contingencies were expressly stated in the February 26, 1999 letter of intent signed by Grass.
Fleming and Company CPAs, issued an unqualified opinion the 20x3 financial statements of Walton Corporation Late in 20X4, Walton determined that its
controller had embezzled over $2,000,000. Fleming was unaware of the embezzlement. Walton has decided to sue Fleming to recover the $2,000,000. The
suit is based upon Fleming's failure to discover the missing money while performing the audit. Which of the following is Fleming's best defense?
Multiple Choice
The controller was Walton's agent and as such had designed the controls which facilitated the embezzlement
Fleming had no knowledge of the embezzlement.
That the audit was performed in accordance with GAAS
The financial statements were presented in conformity with GAAP.
In June 2002, Arthur Andersen was convicted of the obstruction charges, sentenced to pay a companies. Multiple Choice $200,000 $400,000 $350,000 $500,000 fine, and banned from performing audits for publicly traded
Chapter 1 Solutions
EBK AUDITING: A RISK BASED-APPROACH
Ch. 1 - Prob. 1CYBKCh. 1 - Prob. 2CYBKCh. 1 - Prob. 3CYBKCh. 1 - Prob. 4CYBKCh. 1 - Prob. 5CYBKCh. 1 - Prob. 6CYBKCh. 1 - Prob. 7CYBKCh. 1 - Prob. 8CYBKCh. 1 - Prob. 9CYBKCh. 1 - Prob. 10CYBK
Ch. 1 - Prob. 11CYBKCh. 1 - Prob. 12CYBKCh. 1 - Utilitarian theory holds that what is ethical is...Ch. 1 - Prob. 14CYBKCh. 1 - Which of the following statements related to...Ch. 1 - Utilitarianism does not require which of the...Ch. 1 - Prob. 17CYBKCh. 1 - Prob. 18CYBKCh. 1 - Prob. 19CYBKCh. 1 - Which of the following factors is not an example...Ch. 1 - Prob. 1RQSCCh. 1 - Prob. 2RQSCCh. 1 - Prob. 3RQSCCh. 1 - Prob. 4RQSCCh. 1 - Prob. 5RQSCCh. 1 - Prob. 6RQSCCh. 1 - Prob. 7RQSCCh. 1 - Prob. 8RQSCCh. 1 - Prob. 9RQSCCh. 1 - Prob. 10RQSCCh. 1 - Prob. 11RQSCCh. 1 - Prob. 12RQSCCh. 1 - Prob. 13RQSCCh. 1 - Prob. 14RQSCCh. 1 - Prob. 15RQSCCh. 1 - Prob. 16RQSCCh. 1 - Prob. 17RQSCCh. 1 - Prob. 18RQSCCh. 1 - Prob. 19RQSCCh. 1 - Prob. 20RQSCCh. 1 - Prob. 21RQSCCh. 1 - Prob. 22RQSCCh. 1 - Prob. 23RQSCCh. 1 - Prob. 24RQSCCh. 1 - Prob. 25RQSCCh. 1 - Prob. 26RQSCCh. 1 - Prob. 27RQSCCh. 1 - Prob. 28RQSCCh. 1 - Prob. 29RQSCCh. 1 - Prob. 30RQSCCh. 1 - Prob. 31RQSCCh. 1 - Refer to the Why It Matters feature “What Is...Ch. 1 - Prob. 33RQSCCh. 1 - Prob. 34RQSCCh. 1 - Prob. 35RQSCCh. 1 - Prob. 36RQSCCh. 1 - Prob. 37RQSCCh. 1 - As the auditor for XYZ Company, you discover that...Ch. 1 - Prob. 39RQSCCh. 1 - Prob. 40RQSCCh. 1 - Prob. 41RQSCCh. 1 - Prob. 42RQSCCh. 1 - Prob. 43FFCh. 1 - Prob. 44FFCh. 1 - Prob. 45FFCh. 1 - Prob. 46FF
Knowledge Booster
Similar questions
- Sawyer and Sawyer, CPAs, audited the financial statements of Rattler Corporation that were included in Rattler’s Form 10-K, which was filed with the SEC. Subsequently, Rattler Corporation went bankrupt and the stockholders of the corporation brought a class-action lawsuit against management, Sawyer and Sawyer, and the corporation’s board of directors and attorneys for misstatements of the financial statements. Assume that the jury in the case decides that responsibility for $5 million in losses should be allocated as follows: Management 70% Board of directors 20 Auditors 5 Attorneys 5 100% Under what securities act would the stockholders initiate this lawsuit? Assuming that all the defendants in the case are financially able to pay their share of the losses, calculate the amount of losses that would be allocated to Sawyer and Sawyer. Assuming that management had no financial resources, describe how Sawyer and Sawyer’s share of the losses might be increased.arrow_forwardNixon & Co., CPAs, issued an unmodified opinion on the 2015 financial statements of Madison Corp. These financial statements were included in Madison’s annual report and Form 10-K filed with the SEC. Nixon did not detect material misstatements in the financial statements as a result of negligence in the performance of the audit. Based upon the financial statements, Harry Corp. purchased stock in Madison. Shortly thereafter, Madison became insolvent, causing the price of the stock to decline drastically. Harry has commenced legal action against Nixon for damages based upon Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. What would be Nixon’s best defense to such an action? Explain.arrow_forwardWashington D.C., August 15, 2017 — The Securities and Exchange Commission announced today that KPMG has agreed to pay more than $6.2 million to settle allegations that it failed to properly audit the financial statements of oil and gas companies, resulting in investors being misinformed about the value of energy companies. The KPMG engagement partner in charge of the audit also agreed to settle the claim against him. According to an SEC order, KPMG was hired as an outside auditor for Miller Energy Resources in 2011 and issued an unqualified audit report despite the grossly overstated value of major oil and gas assets. KPMG and engagement partner John Riordan failed to properly assess the risks associated with accepting Miller Energy as a client and did not perform the audit properly, which overlooked an over-assessment of certain oil and gas interests the company had purchased in Alaska the previous year. Among other audit failures, KPMG and Riordan did not adequately consider and…arrow_forward
- In an audit of the Marco Corporation as of December 31, 2013,the following situations exist. No entries have been made in the accounting records inrelation to these items.1. During the year 2013, the Marco Corporation was named as a defendant in a suit fordamages by the Dalton Company for breach of contract. An adverse decision to theMarco Corporation was rendered and the Dalton Company was awarded $4,000,000damages. At the time of the audit, the case was under appeal to a higher court.2. On December 23, 2013, the Marco Corporation declared a common stock dividendof 1,000 shares with a par value of $1,000,000 of its common stock, payableFebruary 2, 2014, to the common stockholders of record December 30, 2013.3. The Marco Corporation has guaranteed the payment of interest on the 10-year, firstmortgage bonds of the Newart Company, an affiliate. Outstanding bonds of theNewart Company amount to $5,500,000 with interest payable at 5% per annum, dueJune 1 and December 1 of each year. The…arrow_forwardAt March 13, 2017, the Securities Exchange Commission is in the process of investigating a possible securities law violation by Now Chemical. The SEC has not yet proposed a penalty assessment. Now’s fiscal year ends on December 31, 2016, and its financial statements are published in March 2017. Management feels an assessment is reasonably possible, and if an assessment is made an unfavorable settlement of $13 million is probable. What, if any, action should Now take for its financial statements?arrow_forwardHoltz Rubenstein Reminick, CPAs, audited year-end financial statements of Quality Food Brands, Inc., and related companies. Signature Bank, relying upon the audited financial reports prepared by Holtz Rubenstein Reminick, extended a term note to Quality in the principal sum of $10 million. Quality subsequently filed a petition under Chapter 7 of the United States Bankruptcy Code, and Signature Bank only then learned of various false and misleading statements contained in the audited financial reports. Explain whether Signature Bank can recover damages for negligent misrepresentation.arrow_forward
- J, 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_forward5-92. General Motors FRAUD In March 2006, General Motors (GM) announced that it needed to restate its previous year’s financial statements. Excerpts from the Wall Street Journal describing the restatements include the following: GM, which already faces an SEC probe into its accounting practices, also disclosed that its 10-K report, when filed, will outline a series of accounting mistakes that will force the car maker to restate its earnings from 2000 to the first quarter of 2005. GM also said it was widening by $2 billion the loss it reported for 2005. Many of the other GM problems relate to rebates, or credits, from suppliers. Typically, suppliers offer an upfront payment in exchange for a promise by the customer to buy certain quantities of products over time. Under accounting rules, such rebates cannot be recorded until after the promised purchases are made. GM said it concluded it had mistakenly recorded some of these payments prematurely. The biggest impact was in 2001, when the…arrow_forwardChelsea Bank provided overdraft facilities to Liverpool Ltd and Manchester & Co. were Liverpool’s auditors. The relevant overdraft facility letters between Chelsea Bank and Liverpool Ltd contained a clause requiring Manchester & Co. to send Chelsea Bank, each year, a copy of the annual audited financial statements.In 2018 Liverpool Ltd was put into receivership with approximately $23.5M owing to Chelsea Bank. Chelsea Bank claimed that, due to massive fraud, Liverpool’s financial statements for the previous years had misstated the financial position of Liverpool and Manchester & Co. had been negligent in not detecting the fraud. Chelsea Bank contended that it had continued to provide the overdraft facilities in reliance on Manchester’s unqualified opinions.Manchester & Co. applied to the court for an order striking out the claim on the grounds that, even if all the facts alleged by Chelsea Bank were true, the claim could not succeed in law because Manchester & Co.…arrow_forward
- Chelsea Bank provided overdraft facilities to Liverpool Ltd and Manchester & Co. were Liverpool’s auditors. The relevant overdraft facility letters between Chelsea Bank and Liverpool Ltd contained a clause requiring Manchester & Co. to send Chelsea Bank, each year, a copy of the annual audited financial statements.In 2018 Liverpool Ltd was put into receivership with approximately $23.5M owing to Chelsea Bank. Chelsea Bank claimed that, due to massive fraud, Liverpool’s financial statements for the previous years had misstated the financial position of Liverpool and Manchester & Co. had been negligent in not detecting the fraud. Chelsea Bank contended that it had continued to provide the overdraft facilities in reliance on Manchester’s unqualified opinions.Manchester & Co. applied to the court for an order striking out the claim on the grounds that, even if all the facts alleged by Chelsea Bank were true, the claim could not succeed in law because Manchester & Co.…arrow_forwardWilhelm Company prepares its financial statements according to International Accounting Standards (IFRS). It recently estimated that it has a 55 percent chance of losing a lawsuit. Assuming Wilhelm can reliably estimate the amount it would pay if it loses the lawsuit, it should. a. Accrue a liability for the lawsuit. b. Disclose the matter in the notes to the financial statements but not accrue a liability for the lawsuit. c. Make no mention of the lawsuit in the financial statements or notes. d. None of the above.arrow_forwardThe Sarbanes-Oxley (SOX) Act of 2002 is federal legislation designed to protect publicly held companies from frivolous litigation. The Act makes it m pursue litigation based solely on commentary by company executives and decreased penalties for violation of existing securities laws. True or False True Falsearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningBusiness Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:Cengage
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Business Its Legal Ethical & Global Environment
Accounting
ISBN:9781305224414
Author:JENNINGS
Publisher:Cengage