Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN: 9781305080577
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: South-Western College Pub
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Question
Chapter 2, Problem 49RSCQ
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.
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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…
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.
Chapter 2 Solutions
Auditing: A Risk Based-Approach to Conducting a Quality Audit
Ch. 2 - The Great Salad Oil Swindle of 1963 is an asset...Ch. 2 - Prob. 2TFQCh. 2 - The three elements of the fraud triangle include...Ch. 2 - Prob. 4TFQCh. 2 - Prob. 5TFQCh. 2 - Prob. 6TFQCh. 2 - Prob. 7TFQCh. 2 - Prob. 8TFQCh. 2 - Prob. 9TFQCh. 2 - Prob. 10TFQ
Ch. 2 - Prob. 11TFQCh. 2 - Prob. 12TFQCh. 2 - Prob. 13MCQCh. 2 - Prob. 14MCQCh. 2 - Prob. 15MCQCh. 2 - Prob. 16MCQCh. 2 - Prob. 17MCQCh. 2 - Prob. 18MCQCh. 2 - Prob. 19MCQCh. 2 - Prob. 20MCQCh. 2 - Prob. 21MCQCh. 2 - Prob. 22MCQCh. 2 - Prob. 23MCQCh. 2 - Prob. 24MCQCh. 2 - Prob. 25RSCQCh. 2 - Prob. 26RSCQCh. 2 - Prob. 27RSCQCh. 2 - Refer to Exhibit 2.1 a. What is a Ponzi scheme? b....Ch. 2 - Prob. 29RSCQCh. 2 - Prob. 30RSCQCh. 2 - Prob. 31RSCQCh. 2 - Prob. 32RSCQCh. 2 - Prob. 33RSCQCh. 2 - Prob. 34RSCQCh. 2 - Prob. 35RSCQCh. 2 - Prob. 36RSCQCh. 2 - Prob. 37RSCQCh. 2 - Prob. 38RSCQCh. 2 - Many consider the Enron fraud to be one of the...Ch. 2 - Prob. 40RSCQCh. 2 - Prob. 41RSCQCh. 2 - Refer to Exhibit 2.5 and answer the following...Ch. 2 - Prob. 43RSCQCh. 2 - Prob. 44RSCQCh. 2 - Prob. 45RSCQCh. 2 - Prob. 46RSCQCh. 2 - Prob. 47RSCQCh. 2 - Prob. 48RSCQCh. 2 - Prob. 49RSCQCh. 2 - Prob. 50FFCh. 2 - Prob. 51FFCh. 2 - Prob. 52FF
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- An 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_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_forwardSince 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_forward
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