Auditing: A Risk Based-Approach (MindTap Course List)
11th Edition
ISBN: 9781337619455
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 2, Problem 25RQSC
To determine
Introduction: Corporate governance refers to keeping an oversight over the organizations operations and financial reporting. Corporate governance ensures that operations are in accordance with organizations objectives and meet the stakeholders’ needs.
To explain: Whether or not the factors describing the audit clients, indicate poor corporate governance. Also, explain the associated risks.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
The following factors describe a potential audit client. For each factor, indicate whether it is indicative of poor corporate governance. Explain the reasoning for your assessment. Finally, determine the risks to reliable financial reporting that are associated with each factor.
a.The company is in the financial services sector and has a large number of consumer loans, including mortgages, outstanding.
b.The CEO’s and CFO’s compensation is based on three components: (a) base salary, (b) bonus based on growth in assets and profits, and (c) significant stock options.
c.The company has an internal auditor who reports directly to the CFO and makes an annual report to the audit committee.
Which choice is the best example of an independent auditor?
A. CPA who has a significant investment in the company being audited.
B. A CPA who currently performs payroll services at the company it's auditing
C. A CPA who is the best friend of upper financial management at the company being audited.
D. None of these are independent auditors.
Match each of the following provisions of the Sarbanes-Oxley Act (SOX) with its description.
Major Provisions of the Sarbanes-Oxley Act
Descriptions
1. Oversight board
2. Corporate executive accountability
3. Auditor rotation
4. Nonaudit services
5. Internal control
a. Executives must personally certify the company’s financial statements. b. Audit firm cannot provide a variety of other services to its client, such as investment advising. c. PCAOB establishes standards related to the preparation of audited financial reports. d. Lead audit partners are required to change every five years. e. Management must document the effectiveness of procedures that could affect financial reporting.
Chapter 2 Solutions
Auditing: A Risk Based-Approach (MindTap Course List)
Ch. 2 - The Great Salad Oil Swindle of 1963 is an asset...Ch. 2 - Prob. 2CYBKCh. 2 - Prob. 3CYBKCh. 2 - Prob. 4CYBKCh. 2 - The three elements of the fraud triangle include...Ch. 2 - Prob. 6CYBKCh. 2 - Prob. 7CYBKCh. 2 - Prob. 8CYBKCh. 2 - Prob. 9CYBKCh. 2 - Prob. 10CYBK
Ch. 2 - Prob. 11CYBKCh. 2 - Prob. 12CYBKCh. 2 - Prob. 13CYBKCh. 2 - Prob. 14CYBKCh. 2 - Prob. 15CYBKCh. 2 - Prob. 16CYBKCh. 2 - Prob. 17CYBKCh. 2 - Prob. 18CYBKCh. 2 - Prob. 19CYBKCh. 2 - Prob. 20CYBKCh. 2 - Prob. 21CYBKCh. 2 - Prob. 22CYBKCh. 2 - Prob. 23CYBKCh. 2 - Prob. 24CYBKCh. 2 - Prob. 1RQSCCh. 2 - Prob. 2RQSCCh. 2 - Prob. 3RQSCCh. 2 - Refer to Exhibit 2.1 a. What is a Ponzi scheme? b....Ch. 2 - Prob. 5RQSCCh. 2 - Prob. 6RQSCCh. 2 - Prob. 7RQSCCh. 2 - Prob. 8RQSCCh. 2 - Prob. 9RQSCCh. 2 - Prob. 10RQSCCh. 2 - Prob. 11RQSCCh. 2 - Prob. 12RQSCCh. 2 - Prob. 13RQSCCh. 2 - Prob. 14RQSCCh. 2 - Many consider the Enron fraud to be one of the...Ch. 2 - Prob. 16RQSCCh. 2 - Prob. 17RQSCCh. 2 - Prob. 18RQSCCh. 2 - Prob. 19RQSCCh. 2 - Prob. 20RQSCCh. 2 - Prob. 21RQSCCh. 2 - Prob. 22RQSCCh. 2 - Prob. 23RQSCCh. 2 - Prob. 24RQSCCh. 2 - Prob. 25RQSCCh. 2 - Prob. 26FFCh. 2 - Prob. 27FFCh. 2 - Prob. 28FF
Knowledge Booster
Similar questions
- Problem 1 For each situation, indicate whether it is indicative of poor corporate governance. Explain the reasoning for your assessment. a. The company is in the financial services sector and has a large number of consumer loans, including mortgages, outstanding. b. The CEO's and CFO's compensation is based on three components: (a) assets and profits, and (c) base salary, (b) bonus based on growth significant stock options. c. The audit committee meets semiannually. It is chaired by a retired CFO who knows the company well because she had served as the CFO of a division of the firm. The other two members are local community members - one is the president of the Chamber of Commerce and the other is a retired executive from a successful local manufacturing firm. d. The company has an internal auditor who reports directly to the CFO and makes an annual report to the audit committee. e. The CEO is a dominating personality - not unusual in this environment. He has been on the job for six…arrow_forwardAn auditors’ report by independent accountants…… Select one: a. is ultimately the responsibility of the management of the client company. b. ensures that the financial statements are error-free. c. gives investors assurance that the company’s stock is a safe investment. d. gives investors assurance that the company’s financial statements conform to GAAParrow_forwardAuditors often earn considerable fees from a company for examining (auditing) its financial statements. In addition, it’s not uncommon for auditors to earn additional fees from the company by providing consulting, tax, and other advisory services.Required:1. Which party has primary responsibility—auditors or company executives—for properly applying accounting standards when communicating with investors and creditors through financial statements?2. Are auditors considered employees of the company?arrow_forward
- Imagine that you are the new department manager of a corporation within your chosen field: you discover that your predecessor had been using cash basis of accounting, which has resulted in many errors and misinformation. What measures would you take to remediate the issue? Propose a high-level plan to implement a proper accounting system for your department using specific principles. For example, which financial statements would you investigate first? What sort of internal controls would you implement?arrow_forwardWhich of the following statements is CORRECT? O a. The CFO generally reports to the firm's chief accounting officer, who is normally the controller. O b. By law in most companies, the chairman of the board must also be the CEO. O c. The CFO is responsible for raising capital and for making sure that capital expenditures are desirable, but he or she is not responsible for the validity of the financial statements, as the controller and the auditors have that responsibility. O d. The board of directors is the highest ranking body in a corporation, and the chairman of the board is the highest ranking individual. The CEO generally works under the board and its chairman, and the board generally has the authority to remove the CEO under certain conditions. The CEO, however, cannot remove the board, but he or she can endeavor to have the board voted out and a new board voted in should a conflict arise. It is possible for a person to simultaneously serve as CEO and chairman of the board, though…arrow_forwardIn an attestation engagement, a CPA practitioner is engaged toa. Compile a company’s financial forecast based on management’s assumptions without expressing any form of assurance.b. Prepare a written report containing a conclusion about the reliability of a management assertion.c. Prepare a tax return using information the CPA has not audited or reviewed.d. Give expert testimony in court on particular facts in a corporate income tax controversy.arrow_forward
- Since auditors have to attest to the validity of a company's financial statements, what among the following is the most important characteristic for an auditor to have? A-Huge personal wealth B-Knowing a good lawyer C-Independence D-Personal relationships with the company's managersarrow_forwardGenerally Accepted Accounting Principles, or GAAP, is a set of accounting procedures, standards, and procedures that companies use to compile their financial statements. Select THREE of the following items that demonstrate why GAAP is important for accounting and finance professionals. it allows CPAs to make a good salary the consistent use of methods and procedures allows for fair comparisons between companies it allows persons reading the financial statements to rely on them it ensures that audits are completed in a standard mannerarrow_forward11. What we the qualities of a CRO? 12. What are the qualities of a CFO? 13. What are the qualities of the CDO? 14. What are the roles and responsibilities of the CGO? 15. What is the significance of quality finarcial statements and Other financial reporting information? 16. What factors can lead to a company engaging in corporate misconduct of misrepresenting their financial position? 17. Explain the terms of the phrase "organizational ethical culture-) 18 What are the steps required to make an ethical deasoon7 19 What are situational ethics? 20 What are the principles of business ethics and conduct?arrow_forward
- 25. An audit firm has been asked by a client to attend a meeting between the client and its prospective investors in order to discuss the company’s financial performance in the last year. According to the Code of Professional Ethics for Accountants, what type of threat to objectivity will be created if the auditor attends this meeting? a. Advocacy threat b. Self review threat c. Self-interest threat d. Intimidation threatarrow_forwardAuditors are important because they are able to provide assurance of an organization's financial statements from an objective and independent opinion. It benefits the company in several ways, such as maintaining consistency, finding errors in their processing, or detecting fraud. While performing work , the auditors may face situations when they will not be able to fulfill ethical requirements. Which threat may occur as a result of the financial or other interests of a professional accountant or of an immediate or close family member? Self-interest threats Familiarity threats Advocacy threats Self-review threatsarrow_forwardAuditors are important because they are able to provide assurance of an organization's financial statements from an objective and independent opinion. It benefits the company in several ways, such as maintaining consistency, finding errors in their processing, or detecting fraud. While performing work , the auditors may face situations when they will not be able to fulfill ethical requirements. Answer the following three questions based on the above case Which threat may occur as a result of the financial or other interests of a professional accountant or of an immediate or close family member? Self-interest threats Familiarity threats Self-review threats Advocacy threatsarrow_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 Learning
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning