Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 5, Problem 15.1MCQ
To determine
Identify the correct option to the statement given.
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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…
Major, Major & Sharpe, CPAs, are the auditors of MacLain Technologies. In connectionwith the public offering of $10 million of MacLain securities, Major expressed anunqualified opinion as to the financial statements. Subsequent to the offering, certainmisstatements were revealed. Major has been sued by the purchasers of the stockoffered pursuant to the registration statement that included the financial statementsaudited by Major. In the ensuing lawsuit by the MacLain investors, Major will be ableto avoid liability if(1) the misstatements were caused primarily by MacLain.(2) it can be shown that at least some of the investors did not actually read theaudited financial statements.(3) it can prove due diligence in the audit of the financial statements of MacLain.(4) MacLain had expressly assumed any liability in connection with the public offering.
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.
What liability does Williams have to Jackson Financial? Explain
Chapter 5 Solutions
Auditing And Assurance Services
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 - Prob. 24DQPCh. 5 - Prob. 27DQPCh. 5 - Prob. 28C
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- Fleming and Company CPAs, issued an unqualified opinion the 20x3 financial statements of Walton Corporation Late in 20X4, Walton determined that its controller had embezzled over $2,000,000. Fleming was unaware of the embezzlement. Walton has decided to sue Fleming to recover the $2,000,000. The suit is based upon Fleming's failure to discover the missing money while performing the audit. Which of the following is Fleming's best defense? Multiple Choice The controller was Walton's agent and as such had designed the controls which facilitated the embezzlement Fleming had no knowledge of the embezzlement. That the audit was performed in accordance with GAAS The financial statements were presented in conformity with GAAP.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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