Audit risks for particular accounts and disclosures can be conceptualized in the model: Audit risk (AR) = Inherent risk (IR) × Control risk (CR) × Detection risk (DR). Use this model as a framework for considering the following situations and deciding whether the auditor’s conclusion is appropriate.a. Paul, CPA, has participated in the audit of Tordik Cheese Company for five years, first as an assistant accountant and the last two years as the senior accountant. Paul has never seen an accounting adjustment recommended and believes the inherent risk must be zero.b. Hill, CPA, has just (November 30) completed an exhaustive study and evaluation of the internal controls of Edward Foods Inc. (fiscal year ending December 31). Hill believes the control risk must be zero because no material errors could possibly slip through the many error-checking procedures and review layers that Edward used.c. Fields, CPA, is lazy and does not like audit jobs in Philadelphia. On the audit of Philly…

you have recently been appointed as auditor to Johnson Plc; a company whose shares are traded on the Stock Exchange. The Directors of Johnson Plc have recommended that you perform the following services . (i) The statutory audit of the annual financial statements. (ii) Taxation services, and (iii) Consistency services in respect of the implementation of a new information technology system Your firm has not acted for Johnson Plc before but does act as auditor for one of the major competitors. (a) Identify and explain the professional and ethical issues that should have been identified by your firm in relation to the provision of the services outlined above, and describe the safeguards that should be in place in order to address these issues. (including Citations/references) (b) What are the fundamental principles of ethics? Briefly explain their meaning (including Citations/references) (c) A client’s affairs should not be disclosed to third parties. However where a client has been…

You have just started work for Warren Co. as part of the controller's group involved in current financial reporting problems. Jane Henshaw, controller for Warren, is interested in your accounting background because the company has experienced a series of financial reporting surprises over the last few years. Recently, the controller has learned from the company's auditors that there is authoritative literature that may apply to its investment in securities. She assumes that you are familiar with this pronouncement and asks how the following situations should be reported in the financial statements. Situation 1: Trading debt securities in the current assets section have a fair value that is $4,200 lower than cost. Situation 2: A trading debt security whose fair value is currently less than cost is transferred to the available-for-sale category. Situation 3: An available-for-sale debt security whose fair value is currently less than cost is classified as noncurrent but is to be…

You have recently been appointed as auditor to Johnson Plc; a company whose shares are traded on the Stock Exchange. The Directors of Johnson Plc have recommended that you perform the following services . (i) The statutory audit of the annual financial statements. (ii) Taxation services, and (iii) Consistency services in respect of the implementation of a new information technology system Your firm has not acted for Johnson Plc before but does act as auditor for one of the major competitors. Required. (a) Identify and explain the professional and ethical issues that should have been identified by your firm in relation to the provision of the services outlined above, and describe the safeguards that should be in place in order to address these issues. (Include citations to support work). (b) What are the fundamental principles of ethics? Briefly explain their meaning (Include citations to support work). (c) A client’s affairs should not be disclosed to third parties. However where a…

State the appropriate audit opinion that the auditor would require for:  A new start-up company specialising in air-drone mail/package delivery has grown strongly in the past year. Over the past three years the company has made consistent losses, borrowed heavily, experienced staff turnover and dealt with some significant regulatory and operational issues. Nonetheless, the current CEO believes the company is turning around and will soon improve profitability. She is a high wealth individual who has invested more funds (equity) into the company, which is fully disclosed. No material misstatements were noted in the Auditor’s report.

You are a new staff member of Monet & Associates, a mid-sized accounting firm and have been assigned to an engagement team that is conducting the financial report audit for Harrisons Ltd (Harrisons). The engagement team, under the guidance of the engagement partner, Vince Mater, is currently performing a preliminary risk assessment of the audit client. The following documents have been provided to you: Memo from audit partner, Vince Mater, dated 6th January 2020 which includes a summary of the initial audit procedures undertaken by the engagement partner for the 31 December 2019 audit. A relevant industry outlook report provided by the Australian Construction Industry Forum published on 7 November 2019.   REQUIRED: You have been asked to assess the inherent risk of the client and perform preliminary analytical procedures as part of the audit planning process in obtaining an understanding about the client’s business and indicate where there is an increased likelihood of…

CASE STUDY: HARRISONS LTD You are a new staff member of Monet & Associates, a mid-sized accounting firm and have been assigned to an engagement team that is conducting the financial report audit for Harrisons Ltd (Harrisons). The engagement team, under the guidance of the engagement partner, Vince Mater, is currently performing a preliminary risk assessment of the audit client. The following documents have been provided to you: Memo from audit partner, Vince Mater, dated 6thJanuary 2020 which includes a summary of the initial audit procedures undertaken by the engagement partner for the 31 December 2019 audit. A relevant industry outlook report provided by the Australian Construction Industry Forum published on 7 November 2019.   REQUIRED: You have been asked to assess the inherent risk of the client and perform preliminary analytical procedures as part of the audit planning process in obtaining an understanding about the client’s business and indicate where there is an increased…

You are an auditor working with JUMAN audit firm. JUMAN audit firm accepted two engagements to audit the financial statements of MUNER company and MUHEET company. Explain how risk of material misstatement should he assessed and what effect that assessment will have on detection risk for the following two audit clients:   MUNER firm, is a fast-growing trucking company operating in the southeastern part of the West Bank. The company is publicly held, but Hafeth Khalil and his sons control 58 percent of the stock. Hafeth Khalil is chairman of the board and CEO. He personally makes all major decisions with little consultation with the board of directors. Most of the directors, however, are either members of the Khalil family or long-standing friends. The board basically rubber-stamps Hafeth Khalil's decisions.

Your firm has many clients and many audits reporting obligations. The audits of most clients result in an unmodified opinion. The following draft represents the report that you contemplate for your nonissues.   Independent Auditor's Report   To: The Board of Directors   We have [1] the accompanying financial statements of X Company, which comprise the balance sheets as of December 31, 20X1, and 20X0, and the related statements of income, changes in stockholders' equity, and [2] for the years then ended, and the related notes to the financial statements.   Management's Responsibility for the Financial Statements   [3] is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,…