Assume that your firm was auditing General Electric in 2000 and was recommending an adjustment to its financial statements that reduced net income. Based on the fees paid to your firm in 2000, what incentive(s) might your firm consider in insisting upon this adjustment? How would your firm’s incentive(s) differ after 2004?

Assume that your firm was auditing General Electric in 2000 and was recommending an adjustment to its financial statements that reduced net income. Based on the fees paid to your firm in 2000, what incentive(s) might your firm consider in insisting upon this adjustment? How would your firm’s incentive(s) differ after 2004?

Contemporary Auditing

11th Edition

ISBN:9781337650380

Author:KNAPP

Publisher:KNAPP

Chapter7: Professional Issues

Section7.1: Ligand Pharmaceuticals

Problem 4Q

See similar textbooks

Similar questions

During the review if Ligand's first quarter financial statements for 2004, the Deloitte auditors learned that the company haddd significantly underestimated its future sales returns at the end of 2003. What responsibility, if any, did this discovery impose on the Deloitte auditors?
Jack Company hired Jill as the external auditor in 2002 and his auditor's opinion for 2002 to 2004 Financial Statements has been "Unqualified". When the typhoon hit in 2004, Jill was asked by the company for advice on how can they can maximize their earnings to ensure that they have enough funds to aid the additional expenses caused by the typhoon. In accordance with the Code of Corporate Governance, is there any violation made?
Safety-Kleen issued a major financial restatement in 2001. The next year, the company restated (reduced) previously reported net income by $534 million for the period 1997–1999. PwC withdrew its financial statement audit reports for those years. Do you believe that financial restatements and withdrawing an audit report are prima facie indicators that a failed audit has occurred? Explain.
MF Global filed a complaint charging PwC with professional malpractice, breach of contract, and unjust enrichment in connection with its advice concerning, and approval of, the company’s off-balance-sheet accounting for its investments. The court’s decision points out that absent PwC’s advice, MF Global Holdings would not have invested heavily in European sovereign debt to generate immediate revenues and would not have suffered the massive damages that befell the company in 2011. Do you believe that auditors should be held legally liable when they advise clients on matters related to the company’s finances that turn out to be wrong? Explain with reference to legal and professional standards.
In 2001 and 2002 there were several high-profile US corporate collapses associated with misleading financial statements and accounting practices. Following these collapses, new laws were introduced to improve the quality of financial reporting. a) In your opinion, will further regulation prevent deliberately misleading reporting? Explain. b) Are additional laws likely to prevent corporate collapses? Why or why not? c) How important is the enforcement of financial reporting requirements in promoting high quality reporting?
Reviewing GM's financial information in GM Exhibit 1 and its stock price in GM Exhibit 2, when do you first see signs of GM's impending financial distress? In referencing professional standards, what factors should auditors consider in evaluating potential going-concern uncertainties? Using you responses above, do you beleive that the going-concern uncertainty was warranted? Do you beleive that Deloitte & Touche should have issued a going-concern opinion prior to 2008?
Lana Company, a CPA firm, conducted an audit for the 2020 financial statements of Yara Corporation. The auditors inquired the management about the business operations and changes occurred in 2020. The auditors noticed that the turnover rate of senior accountants and other managers in the Finance Department was high during the year. This event would most probably: Affect the materiality amount Have no effect on the overall audit risk Decrease overall audit risk Increase overall audit risk None of the above
The auditor worked for this client for years. But before accepting or continuing with the client, What are the reasons the auditor or audit firm should or should not retain this existing client this time around using the information below about the client? What risks could the client, its business, and its environment pose to the auditor or audit firm? The client: Although client cash flows have been stable, the disruption caused by the 2020 global pandemic made it difficult for retail lessors to pay their rent on time. Due to the company's tenant-friendly approach, retail clients were allowed to renegotiate their lease and temporarily pause rent payments between June 2020 and July 2021, shifting those payments to the last 12 months. Most of these leases will expire in the next two years, including all retail companies unable to pay their rent. However, they estimate that they will receive all the lost cash flow from these tenants within a couple of years. Currently, the company is a…
Obior plc operates in a high technology industry where the external environment is dynamic and uncertain. Obior plc made a loss in the reporting period just ended and is now in the process of charging its strategy completely. The finance director has indicated to the board that, in consequence, Obior plc’s financial statements for the last reporting period will lack both predictive and confirmatory value for usersIn terms of the IFRS Framework, Obior plc will be reporting financial information which lacks the qualitative characteristic ofA. Faithful representationB. UnderstandabilityC. TimelinessD. Relevance
Executives of several companies believe that non-GAAP financials portray a more accurate picture of company performance. Although not legal, the use of non-GAAP financials has been controversial for years. In fact, the SEC published guidance regarding the misleading impact of the use of non-GAAP figuresLinks to an external site. in October of 2017. In your opinion, are the use of non-GAAP financial measures ethical? Please explain.
A company has suffered operating losses for some time but is now operating profitably and expects to continue to do so. Current and projected income, however, will not be sufficient to eliminate the deficit in the near term. It also appears that plant assets are overstated considering current prices and economic conditions. After receiving permission from government authorities and approval from the shareholders, the board of directors of Boeing Corporation decided to restate the company’s assets and paid-in capital balances in order to remove the deficit. A balance sheet for the company just prior to this action is presented as follows: A Company Statement of Financial Position As of the year ended December 31, 2021 Current assets P 250,000 Property, plant and equipment 1,500,000 Accumulated Depreciation (600,000) Total assets P 1,150,000 Liabilities P 300,000 Ordinary Shares, 10 par, 100,000 shares…
A company has suffered operating losses for some time but is now operating profitably and expects to continue to do so. Current and projected income, however, will not be sufficient to eliminate the deficit in the near term. It also appears that plant assets are overstated considering current prices and economic conditions. After receiving permission from government authorities and approval from the shareholders, the board of directors of Boeing Corporation decided to restate the company’s assets and paid-in capital balances in order to remove the deficit. A balance sheet for the company just prior to this action is presented as follows: A Company Statement of Financial Position For the year ended December 31, 2021 Current assets P 250,000 Property, plant and equipment 1,500,000 Accumulated Depreciation (600,000) Total assets P 1,150,000 Liabilities P 300,000 Ordinary Shares, 10 par, 100,000 shares…