Principles of Auditing & Other Assurance Services (Irwin Accounting)
20th Edition
ISBN: 9780077729141
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
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Chapter 4, Problem 19RQ
To determine
Explain whether the given situation constitutes fraud on the part of a public accounting firm.
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The following relates to the Menendez–Halliburton situation described in the text.(a) How would you characterize Halliburton’s accounting for revenue from ethical and professional perspectives?(b) Once KPMG learned that Menendez had provided a complaint to Halliburton’s audit committee highlighting questionable accounting and auditing practices, the KPMG audit partner instructed the audit team members to avoid communications with Menendez. How would you characterize those actions ethically and professionally?
“The deliberate fraud committed by management that injures investors and creditors through materially misleading financial statements. The use of incentive systems and opportunities for fraudulent behavior are associated with higher fraud risk assessments by audit partners; however, the most important factors are senior management ethical attitudes and dishonest communication from management with the external auditor.”
Required:
Compare and contrast financial statement fraud with asset misappropriation. Why is it important to analyze the relationship between a company and its auditors?
Which of the following statements is/are correct?
O a. The ban on simultaneously offering consulting and auditing services to economically relevant companies within the framework of the FISG results from the bad experiences that BaFin
had with corresponding offers in the context of the Wirecard scandal.
O b. Violations of the so-called "blacklist" lead to significant fines being paid by the auditing company.
Oc. According to the Financial Market Integrity Strengthening Act, companies are obliged to set up an audit committee to monitor the quality of the audit.
O d. The external rotation of auditing firms requires more frequent tendering processes for auditing services.
Chapter 4 Solutions
Principles of Auditing & Other Assurance Services (Irwin Accounting)
Ch. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Prob. 7RQCh. 4 - Prob. 8RQCh. 4 - Prob. 9RQCh. 4 - Prob. 10RQ
Ch. 4 - Prob. 11RQCh. 4 - Prob. 12RQCh. 4 - Prob. 13RQCh. 4 - Prob. 14RQCh. 4 - Prob. 15RQCh. 4 - Prob. 16RQCh. 4 - Prob. 17RQCh. 4 - Prob. 18RQCh. 4 - Prob. 19RQCh. 4 - Prob. 20QRACh. 4 - Prob. 21QRACh. 4 - Prob. 22QRACh. 4 - Prob. 23QRACh. 4 - Prob. 24QRACh. 4 - Prob. 25QRACh. 4 - Prob. 26QRACh. 4 - Gordon Moore, CPAs, were the auditors of Fox ...Ch. 4 - Prob. 28AOQCh. 4 - Prob. 28BOQCh. 4 - Prob. 28COQCh. 4 - Prob. 28DOQCh. 4 - Prob. 28EOQCh. 4 - Prob. 28FOQCh. 4 - Prob. 28GOQCh. 4 - Prob. 28HOQCh. 4 - Prob. 28IOQCh. 4 - Prob. 28JOQCh. 4 - Prob. 28KOQCh. 4 - Prob. 28LOQCh. 4 - Prob. 29OQCh. 4 - Prob. 30OQCh. 4 - Match the important cases listed below with the...Ch. 4 - Prob. 32OQCh. 4 - Prob. 33OQCh. 4 - Prob. 34PCh. 4 - Prob. 35PCh. 4 - Prob. 36PCh. 4 - Charles Worthington, the founding and senior...Ch. 4 - Prob. 38PCh. 4 - Prob. 39PCh. 4 - Prob. 40PCh. 4 - Prob. 41ITCCh. 4 - Prob. 42RDC
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Similar questions
- 2. The auditors who find that the client has committed an illegal act would be most likely to withdraw from the engagement when the: Select one:a. Illegal act has material financial statement implications.b. Auditors cannot reasonably estimate the effect of the illegal act on the financial statements.c. Illegal act has received widespread publicity.d. Management fails to take appropriate corrective action.arrow_forwardWhy is it important for auditors to consider the possibility of fraud by employees or management on every audit engagement? Why must they consider the possibility that the client has not complied with laws.arrow_forwardFrom the Auditor's point of view, what is your recommendations and solution about Enron's Accounting Scandal?arrow_forward
- Some auditors claim that increased exposure under creates a litigation environment that is unfairly risky for auditors. Do you think that the inability of auditors to detect a financial statement misstatement due to gross deficiencies in internal controls over financial reporting should expose auditors to litigation? Why or why not? Include reference to appropriate ethical standards in your response.arrow_forwardYour answer is incorrect. During the audit of Millennium Corporation, the audit firm, Tyson CPAs has advised firm management that they plan to confirm a sample of accounts receivable balances with a randomly selected pool of the client's customers. The client has refused permission for the auditors to undertake this procedure, citing customer privacy over balances owed to the firm. At this juncture, what might the auditors decide to do? Ⓒ The auditors are most likely to consider withdrawing from the engagement. If management is uncooperative, it is probably because they are hiding fraud or other material errors. O The auditors are likely to proceed with contacting a sample of accounts receivable customers anyway. As these customers represent third parties, the auditor does not need the client's expressed permission to contact them. O The auditors may attempt perform alternative audit procedures. If they are able to do this, they may be able to offer the same level of assurance in this…arrow_forwardWith respect to fraudulent financial reporting, which one of the following statements is not correct? a.The risk that the auditor will not detect misstatement due to management fraud is greater than those due to employee fraud. b.It is difficult for the auditor to determine if misstatements in accounting estimates are caused by fraud or error. c.When the audit is properly planned and performed in accordance with ISAs, material misstatements are guaranteed to be detected by the auditor. d.Excessive pressure on management to meet expectations of third parties creates incentives forarrow_forward
- Investigations into the corporate scandals of the recent past revealed that the accountant did not question the ethical validity of the accounting transactions and practices that led to the accounting frauds and resulted in enormous loss to the public and damaged the image of accounting profession. Do you agree?. Give a detail account of how accountants facilitated some of the famous corporate scandals like the Enron.arrow_forwardWhich of the following is NOT among the conditions that give rise to a demand by external users for independent audits of financial statements? a. The users of the financial statement do not have a background knowledge about accounting and tax matters b. There is an issue of agency problem between the management and the stockholders of the company c. Reliance on unaudited financial information may have adverse economic consequences d. The users of financial statements cannot directly access the company’s books and recordsarrow_forwardFor each situation below identify and explain the threat and one fundamental principle that is comprised.- An accountant has compiled the financial statements for a client and was requested to also audit the statements.- The financial director of Baboo Ltd is very aggressive and dismissive of the audit function and audit team- A chartered accountant values a client’s shares and then leads the negotiations on the sale of the client’s company- The chartered accountant fails to report a fraud of a client because the perpetrator is a close friend and he issympathetic to the interest of his friend.arrow_forward
- Assume that you are interviewed by a student newspaper regarding the nature of accounting fraud. The reporter says, "As I understand it, asset misappropriations are more likely to be found in small organizations, but not in larger organizations. On the other hand, fraudulent financial reporting is more likely to be found in larger organizations." How would you respond to the reporter's observation?arrow_forward14. Paul Schmidt, a representative for Westby Investments, is explaining how security analysts use the results of the accounting process. He states, "Analysts do not have access to all the entries that went into creating a company's financial statements. If the analyst carefully reviews the auditor's report for any instances where the financial statements deviate from the appropriate accounting principles, he can then be confident that management is not manipulating earnings." Schmidt is: correct. incorrect, because the entries that went into creating a company's financial statements are publicly available. incorrect, because management can manipulate earnings even within the confines of generally accepted accounting principles.arrow_forwardFor each of the situations described below, identify the category of threat to the fundamental principles of the SAICA Code of Professional Conduct. Additionally, specify at least one fundamental principle that is compromised in each situation. a) An auditor has shares in a company which is an audit client of theirs. b) An accountant has compiled the financial statements for a client and was requested to also audit the statements. c) The financial director of Baboo Ltd is very aggressive and dismissive of the audit function and audit team. d) A chartered accountant values a client's shares and then leads the negotiations on the sale of the client's company. e) The chartered accountant fails to report a fraud at a client because the perpetrator is a close friend and he is sympathetic to the interest of his friendarrow_forward
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