Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 5, Problem 19DQP
To determine
Examine each situation and give assessment of the potential resolution of each scenario, including
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During an internal investigation, Black, a Certified Fraud Examiner, interviewed Green, a fraud suspect. Although Green wanted to leave in the middle of the interview, Black blocked the exit and prevented him from leaving. Green subsequently confessed to committing fraud. If, under these facts, Green files a lawsuit for false imprisonment against Black, Black will likely: A. Win the case because the qualified business privilege protects investigators conducting internal investigations. B. Win the case because Green confessed to the fraud. C. Lose the case if a trier of fact concludes that he restrained Green without consent or legal justification. D. Lose the cans because Green did not leave the interview.
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
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…
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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- An audit client is being sued for $500,000 for discriminatory hiring practices. Indicate the appropriate action the auditor should take for each of the following independent responses to the letter of audit inquiry: c. The lawyer stated that there is a reasonable possibility that the client will lose. The client disclosed this situation, but did not accrue a loss.arrow_forwardSonia and Fred are partners in a CPA firm that was formed as a Limited Liability Partnership (LLP). If Sonia commits malpractic in the preparation of client financial statements, are the partner's personal assets at risk to pay damages caused by Sonia? a. Yes, Sonia's assets are at risk b. No, the LLP shields Sonia's personal assets from malpractice c. No, the LLP shields the personal assets of both partners from malpractice d. Yes, Sonia and Fred's personal assets are at riskarrow_forwardAssume that after completion of all fieldwork on the audit of Andler Company, but prior to issuance of the audit report, the senior on the engagement informed the engagement partner that he just discovered that his wife has an immaterial investment in Andler Company stock. Which of the following is most accurate as to AICPA Code of Professional Conduct requirements? Multiple Choice The CPA firm must resign the engagement. No action is necessary since he was unaware of his wife’s investment while performing the audit. The CPA firm should evaluate the significance of the breach on the engagement team’s integrity, objectivity and professional skepticism and ability to issue an audit report and then take proper action. The senior’s performance on the audit should be reviewed by the engagement partner to determine that the work performance was acceptable.arrow_forward
- Kar, CPA, is a staff auditor participating in the audit engagement of Fort, Inc. Which of the following circumstances impairs Kar's independence? A. During the period of the professional egagement, Fort gives Kar tickets to a football game worth $75. B. Kar owns stock in a corporation that Fort's 401(K) plan also invest in. C. Kar's friend, an employee of another local accounting firm, prepares Fort's tax returns. D. Kar's sibling is an internal aditor employed part-time by Fort.arrow_forwardAn audit client is being sued for $500,000 for discriminatory hiring practices. Indicate the appropriate action the auditor should take for each of the following independent responses to the letter of audit inquiry: The lawyer stated that there is only a remote chance that the client will lose. The client did not accrue any contingent loss or disclose this situation.arrow_forwardAnalyze each of the following situations below and provide your assessment of the potential resolution of each scenario, including potential liability for the auditor or audit firm involved. Yasmeen CPA is a defendant in a lawsuit alleging that she should be held liable for gross negligence for a fraud involving the valuation of securities included in the financial statements of one of his clients. Yasmeen was uncertain how to establish a correct valuation for the securities and decided to rely on the price estimation supplied by management. A lawsuit has been filed against Elena CPA, charging here with constructive fraud in the audit of Broughton Company’s financial statements. Elena has examined all the audit documentation in his files and reviewed all relevant auditing standards. She is convinced that his audit fully complies with standards of the profession but is uncertain what he should use as his primary defense tactic. Canon Film filed for a bankruptcy in January 2012. A…arrow_forward
- An accountant is hired by a company to do an audit on their financial statements. The accountant does everything she is asked. 16 days after the audit, the CFO is arrested for embezzlement. The stockholders sue the accountant, suggesting that she should have discovered the embezzlement during the audit. Should the court find that the accountant is negligent? Group of answer choices A. Yes, because an accountant is hired to determine if there is embezzlement B. Yes, but only if it is shown than an ordinary accountant would have also uncovered the embezzlement C. No, because the accountant was hired by the CFO, so therefore it would have been a conflict of interest D. Yes, because the accountant was hired by the CFO, therefore it is likely the accountant is also guiltyarrow_forwardJulia is in the process of auditing the legal liability section of the financial statements. The controller indicated that he did not want her to contact their external lawyers and he is refusing to grant her access to the detail of the legal expense for the year and any legal invoices. What should Julia do in this situation? Indicate the steps, in the proper order, that should be taken.arrow_forwardMark Buffalo works for a mid-size accounting firm in Boston. One day he overhears a colleague talking to a friend on his cellphone. Mark gasps when he realizes the colleague is sharing one of their client's confidential information, likely as an insider trading tip. As a member of the AICPA, Mark is required to report this discreditable act to the Boston chapter of the AICPA. Select one: True Falsearrow_forward
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