Is The Investor Invests If And Only If S = G

Arel, Beaudoin, Cianci, (2011) argue that "executive ethical leadership and an "high-quality" internal audit function, can positively guide accounting managers ' making decisions involving uncertainties."

Describe what you believe is implied by the term “engagement risk.” What are the key factors likely considered by Deloitte and other audit firms when assessing engagement risk? How, if at all, are auditors’ professional responsibilities affected when a client proposes a higher than normal degree of engagement risk?

To start with, upon learning of the error in estimation made by Ligand, Deloitte inherited the responsibility to recommend the correction of the previous year’s financial statements. This responsibility stems from two main facts. First, auditors are Certified Public Accountants and as such, have a responsibility to serve the best interests of the public. (Louwers 583) By not recommending a restatement of the financial statements, Deloitte would be knowingly allowing the public to rely on information that is not accurate. Second, Deloitte should recommend the restatement to ensure that they are exercising due professional care, the lack of which could lead to lawsuit or penalty (which they eventually got).

17) The risk that the auditor will NOT detect a material misstatement that exists in an assertion is

1. The implication of this factor is there may be an increased risk of misstatement of bad debt expense and the allowance for bad debts. The auditors may decide to assign a more experienced auditor to this audit area. In addition, the auditors will decide to increase the evidence related to the adequacy of the

| Implication: Increased risk of inflated sales linked to higher compensation. Response: Auditors should increase evidence for

This case established that an auditor could be sued by a primary beneficiary for damages from negligence. A primary beneficiary is a party that has a direct benefit from the audit. Non-privity parties could also sue for gross negligence. This increased the auditor’s legal exposure to third parties. The SEC of 1934 reflected these changes and many others; one significant change was that auditor’s had a much higher litigation risk due to their new responsibility to third parties.

The Model of Trust Enhancement was established to enhance and maintain the public’s trust in the accounting profession. Over the last two decades, the ethics of the accounting profession has been questioned and public trust destabilized, in particular for auditors, due to the Enron debacle. The fact that an auditing firm would assist their clients with publishing an inadequate set of financial statements shows their willingness to violate laws and regulations (Sims & Brinkmann, 2003). According to the textbook, “Because trust is essential, even the appearance of an accountant’s honesty and integrity is important. The auditor, therefore, must not only be trustworthy, but he or she must also appear trustworthy” (Duska, Duska & Ragatz, 2011, p. 116). The majority of statements filed inadequately have a substantial impact on the credibility of the accounting profession as a whole. Sullivan (n.d.10) states that a CPA must possess a high level of trust, by applying professional judgment and enhancing the three trustworthy characteristics (ability, benevolence, and integrity) when resolving accounting ethics dilemmas (slide 3).

3. In testimony before Congress, George Greenspan reported that one means he used to audit the insurance restoration contracts was to verify that his client actually received payment on those jobs. How can such apparently reliable evidence lead an auditor to an improper conclusion?

3. What potential implications arise for the accounting firm if they issue an unqualified report without the going-concern explanatory paragraph?

The reason for the predecessor-successor auditor correspondence is to advise the successor auditor of the way of the business and particular ascribes of the customer to figure out whether the successor auditor needs to go up against them as a customer. It is the obligation of the successor auditor, with the consent of the client, to start correspondence with the predecessor auditor. The successor auditor needs to gather data on if there are any regions to give careful consideration to that are more inclined to misreports, the proficiency/adequacy of internal controls and if there is anything particular to run over with the administration or management of the company, how is the relationship with administration/ management of the company, if in case that they are consistent, and possibly most imperative, the main reason behind the switch.

ABSTRACT: Recent accounting scandals have resulted in regulatory initiatives designed to strengthen audit committee oversight of corporate financial reporting and have led to a concern that U.S. GAAP has become too rules-based. We examine issues related to these initiatives using two experiments. CFOs in our experiments exhibit

The presence of an external auditor allows creditors, investors or bankers to use financial statements that have been prepared with confidence. Although it does not guarantee the accuracy of a financial statement, it provides users with some reassurance that a company’s financial statements give a true and fair view of its financial position and its business operations. It also provides credibility, where in business, is a major asset. With credibility, the willingness of investors, bankers and others to relate and undertake business projects with a company increases. Credibility is also important to build positive reputations.

An important function of the accounting field is to provide external users of financial statements with assurance that the financial information being presented is both reliable and accurate. This basic function of accounting is so important that there is an entire field of experts, called auditors, dedicated to assuring its proper performance. Throughout history there have been many instances in which the basic equilibrium between an institution and current/potential investor has been threatened due to a lack of accountability and trust between the two parties. This issue has been the catalyst for many discussions regarding the proper procedures a firm should follow in order to provide

Since reliable financial information is essential for investors and other stakeholders to take adequate decisions, this reliability must be backed by independent review performed by independent and certified auditing firms, which are supposed to verify and certify financial statements issued by a company’s management. If the auditor is not competent and independent from management, the audit of the financial statements loses its credibility (Schelker, 2013, p.295). According to Impastato (2003), because of audit failures, accountants are to blame for investors losing billions of dollars in earnings in addition to market capitalization (as cited in Grubbs & Ethridge 2007).