a.
Introduction: An organized and independent examination of financial services to express an opinion on financial statements whether such statements as a whole are free from material misstatement and giving a true and fair view of the state of the entity is known as auditing.
To explain: The objective of external auditing and failure of Person F to achieve the objective.
B.
Introduction: Auditor’s independence ensures that auditor conducts an audit in a fair manner and as per the established standards and rules without any bias or managerial influence that may affect the work performed.
To explain: The requirement of independent audit in financial statements.
C.
Introduction: The financial statements indicate the financial performance of a company. It discloses the
To state: The users of Company A’s financial statements and its adverse affect on Person F’s action.
D.
Introduction: Audit quality is maintained when audit is performed as per the generally accepted auditing standards and gives a reasonable declaration that the financial statements and related disclosures are free from material misstatements and are presented as per the generally acceptable accounting principles.
To state: The skill and knowledge required for quality audit of Company F’s financial statements and failure of individual who actually performed the audit work.
E.
Introduction: Audit quality is maintained when audit is performed in accordance with the generally accepted auditing standards and provides a reasonable assurance that the financial statements and related disclosures are free from material misstatements and are presented in accordance with generally acceptable accounting principles.
To explain: The facts in this case related to each of the driver of audit quality.
F.
Introduction: An organized and independent examination of financial services to express an on opinion on financial statements whether such statements as a whole are free from material misstatement and gives a true and fair view of the state of the entity is known as auditing.
To state: The Person F & B agreed to conduct the audit in first place.
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Chapter 1 Solutions
Auditing: A Risk Based-Approach (MindTap Course List)
- [The following information applies to the questions displayed below.] Per SEC release, from 2012 through 2014 then EY partner Pamela Hartford violated Independence Rules by having an affair with a client. Reports state she engaged in a personal relationship with Robert Brehl, the chief accounting officer of a public company that she serviced as a member of the audit engagement team. Another EY partner Michael Kamienski (the supervising partner on this engagement) became aware of facts suggesting an improper relationship between Hartford and Brehl. However, he failed to follow up on his suspicions. While Hartford and Brehl tried to keep their relationship a secret, they did attend client and EY social events. This suggests that others at both EY and the client could have been aware of the affair. As part of the first SEC enforcement action of its kind, the SEC made charges of a breach of Independence against EY, Hartford, and Kaminski as well as Brehl. All parties agreed to settle the…arrow_forward[The following information applies to the questions displayed below.] Per SEC release, from 2012 through 2014 then EY partner Pamela Hartford violated Independence Rules by having an affair with a client. Reports state she engaged in a personal relationship with Robert Brehl, the chief accounting officer of a public company that she serviced as a member of the audit engagement team. Another EY partner Michael Kamienski (the supervising partner on this engagement) became aware of facts suggesting an improper relationship between Hartford and Brehl. However, he failed to follow up on his suspicions. While Hartford and Brehl tried to keep their relationship a secret, they did attend client and EY social events. This suggests that others at both EY and the client could have been aware of the affair. As part of the first SEC enforcement action of its kind, the SEC made charges of a breach of Independence against EY, Hartford, and Kaminski as well as Brehl. All parties agreed to settle the…arrow_forwardJones & 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? 1. 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…arrow_forward
- 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_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_forwardMark Williams, CPA, was engaged by Jackson Financial Development Company to audit the financial statements of Apex Construction Company, a small closely held corporation. Williams was told when he was engaged that Jackson Financial needed reliable financial statements that would be used to determine whether to purchase a substantial amount of Apex Construction’s convertible debentures at the price asked by the estate of one of Apex’s former directors. Williams performed his audit in a negligent manner. As a result of his negligence, he failed to discover substantial defalcations by Carl Brown, the Apex controller. Jackson Financial purchased the debentures, but it would not have done so if the defalcations had been discovered. After discovery of the fraud, Jackson Financial promptly sold them for the highest price offered in the market at a $70,000 loss. Will the negligence of Mark Williams, CPA, prevent him from recovering on a liability insurance policy covering the practice of…arrow_forward
- Mark Williams, CPA, was engaged by Jackson Financial Development Company to audit the financial statements of Apex Construction Company, a small closely held corporation. Williams was told when he was engaged that Jackson Financial needed reliable financial statements that would be used to determine whether to purchase a substantial amount of Apex Construction’s convertible debentures at the price asked by the estate of one of Apex’s former directors. Williams performed his audit in a negligent manner. As a result of his negligence, he failed to discover substantial defalcations by Carl Brown, the Apex controller. Jackson Financial purchased the debentures, but it would not have done so if the defalcations had been discovered. After discovery of the fraud, Jackson Financial promptly sold them for the highest price offered in the market at a $70,000 loss. If Apex Construction also sues Williams for negligence, what are the probable legal defenses Williams’s attorney would raise?…arrow_forwardMark Williams, CPA, was engaged by Jackson Financial Development Company to audit the financial statements of Apex Construction Company, a small closely held corporation. Williams was told when he was engaged that Jackson Financial needed reliable financial statements that would be used to determine whether to purchase a substantial amount of Apex Construction’s convertible debentures at the price asked by the estate of one of Apex’s former directors. Williams performed his audit in a negligent manner. As a result of his negligence, he failed to discover substantial defalcations by Carl Brown, the Apex controller. Jackson Financial purchased the debentures, but it would not have done so if the defalcations had been discovered. After discovery of the fraud, Jackson Financial promptly sold them for the highest price offered in the market at a $70,000 loss. What liability does Williams have to Jackson Financial? Explainarrow_forwardIn 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 tradedarrow_forward
- 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.arrow_forwardAn audit client is being sued for $500,000 for discriminatory hiring practices. Indicate the appropriate action the auditor should take for each of the following independent responses to the letter of audit inquiry: c. The lawyer stated that there is a reasonable possibility that the client will lose. The client disclosed this situation, but did not accrue a loss.arrow_forwardAn audit client is being sued for $500,000 for discriminatory hiring practices. Indicate the appropriate action the auditor should take for each of the following independent responses to the letter of audit inquiry: The lawyer stated that there is only a remote chance that the client will lose. The client did not accrue any contingent loss or disclose this situation.arrow_forward
- Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage LearningBusiness/Professional Ethics Directors/Executives...AccountingISBN:9781337485913Author:BROOKSPublisher:Cengage