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?…
Chapter 5 Solutions
Auditing and Assurance Services (16th Edition)
Ch. 5 - Prob. 1RQCh. 5 - Prob. 2RQCh. 5 - Prob. 3RQCh. 5 - Prob. 4RQCh. 5 - Prob. 5RQCh. 5 - Prob. 6RQCh. 5 - Prob. 7RQCh. 5 - Prob. 8RQCh. 5 - Prob. 9RQCh. 5 - Prob. 10RQ
Ch. 5 - What potential sanctions does the SEC have against...Ch. 5 - Prob. 12RQCh. 5 - Prob. 13RQCh. 5 - Prob. 14.1MCQCh. 5 - Prob. 14.2MCQCh. 5 - Prob. 14.3MCQCh. 5 - Prob. 15.1MCQCh. 5 - Prob. 15.2MCQCh. 5 - Prob. 15.3MCQCh. 5 - Prob. 16.1MCQCh. 5 - Prob. 16.2MCQCh. 5 - Prob. 16.3MCQCh. 5 - Prob. 17DQPCh. 5 - Prob. 18DQPCh. 5 - Prob. 19DQPCh. 5 - Prob. 20DQPCh. 5 - Prob. 21DQPCh. 5 - Prob. 22DQPCh. 5 - Prob. 23DQPCh. 5 - Under Section 11 of the Securities Act of 1933 and...Ch. 5 - Prob. 25DQPCh. 5 - Prob. 26DQPCh. 5 - Prob. 27C
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- Rohini works as an accountant with PQR Ltd. She embezzled $20,000 from the company bank account. She was caught in the annual audit of the company. She justified her action saying that her employer has not given any pay rise, so she had to take $20,000 from the account. Explain in your own words the internal control that may have failed in the above situation. Also explain which element of the fraud triangle Rohini is referring to justify her action.arrow_forwardGordon & Moore, CPAs, were the auditors of Fox & Company, a brokerage firm. Gordon & Moore examined and reported on the financial statements of Fox, which were filed with the Securities and Exchange Commission. Several of Fox’s customers were swindled by a fraudulent scheme perpetrated by two key officers of the company. The facts establish that Gordon & Moore were negligent, but not reckless or grossly negligent, in the conduct of the audit, and neither participated in the fraudulent scheme nor knew of its existence. The customers are suing Gordon & Moore under the antifraud provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 for aiding and abetting the fraudulent scheme of the officers. The customers’ suit for fraud is predicated exclusively on the negligence of the auditors in failing to conduct a proper audit, thereby failing to discover the fraudulent scheme. What is the probable outcome of the lawsuit? Explain. What other…arrow_forwardGordon & Moore, CPAS, were the auditors of Fox & Company, a brokerage firm. Gordon & Moore examined and reported on the financial statements of Fox, which were filed with the Securities and Exchange Commission. Several of Fox's customers were swindled by a fraudulent scheme perpetrated by two key officers of the company. The facts establish that Gordon & Moore were negligent, but not reckless or grossly negligent, in the conduct of the audit, and neither participated in the fraudulent scheme nor knew of Its existence. The customers are suing Gordon & Moore under the antifraud provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 for alding and abetting the fraudulent scheme of the officers. The customers' sult for fraud is predicated exclusively on the negligence of the auditors in falling to conduct a proper audit, thereby failing to discover the fraudulent scheme. Required: Answer the following, setting forth reasons for any conclusions stated. a. What is…arrow_forward
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