Auditing and Assurance Services (16th Edition)
Auditing and Assurance Services (16th Edition)
16th Edition
ISBN: 9780134065823
Author: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan
Publisher: PEARSON
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Chapter 5, Problem 14.3MCQ
To determine

Identify the correct statement that is appropriate for the accountants.

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Frank James, a highly competent employee of BrinkwaterSales Corporation, had been responsible for accounting-related matters for two decades.His devotion to the firm and his duties had always been exceptional, and over the years,he had been given increased responsibility. Both the president of Brinkwater and thepartner of an independent CPA firm in charge of the audit were shocked and dismayedto discover that James had embezzled more than $500,000 over a 10-year period bynot recording billings in the sales journal and subsequently diverting the cash receipts.What major factors permitted the embezzlement to take place?
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.   Will the negligence of Mark Williams, CPA, prevent him from recovering on a liability insurance policy covering the practice of…
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?…
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