Financial Self-Interest Threa
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Self-Review Threat
Advocacy Threat
Adverse Interest Threat
Familiarity Threat
Undue Influence Threat
Financial Self-Interest Threat
Management Participation Threat
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- John is CFO at a venture-backed tech start-up with revenues of $20 million and approximately 80 employees. He has worked at the company for several years, and now reports to Ralph, the company's newly hired CEO.The company had been doing really well, but recently big customers have been placing fewer orders and Ralph is feeling pressure to show growth. This pressure is amplified because the company is venture-backed, and the investors expect results. While the company did well in the first round of funding, if they don't perform now, they may have trouble with gaining sufficient funding in the second round, which could mean the end of the company.All of this was on John's mind when Ralph came to him about recording a major order that was still under negotiation. The deal had not gone through, although both parties expected to complete the deal in the next week. With the current quarter ending in the next few days, including this order would give a significant boost to the company's…Consider the following conversation between Leonard Bryner, president and manager of a firm engaged in job manufacturing, and Chuck Davis, certified management accountant, the firms controller. Leonard: Chuck, as you know, our firm has been losing market share over the past 3 years. We have been losing more and more bids, and I dont understand why. At first, I thought that other firms were undercutting simply to gain business, but after examining some of the public financial reports, I believe that they are making a reasonable rate of return. I am beginning to believe that our costs and costing methods are at fault. Chuck: I cant agree with that. We have good control over our costs. Like most firms in our industry, we use a normal job-costing system. I really dont see any significant waste in the plant. Leonard: After talking with some other managers at a recent industrial convention, Im not so sure that waste by itself is the issue. They talked about activity-based management, activity-based costing, and continuous improvement. They mentioned the use of something called activity drivers to assign overhead. They claimed that these new procedures can help to produce more efficiency in manufacturing, better control of overhead, and more accurate product costing. A big deal was made of eliminating activities that added no value. Maybe our bids are too high because these other firms have found ways to decrease their overhead costs and to increase the accuracy of their product costing. Chuck: I doubt it. For one thing, I dont see how we can increase product-costing accuracy. So many of our costs are indirect costs. Furthermore, everyone uses some measure of production activity to assign overhead costs. I imagine that what they are calling activity drivers is just some new buzzword for measures of production volume. Fads in costing come and go. I wouldnt worry about it. Ill bet that our problems with decreasing sales are temporary. You might recall that we experienced a similar problem about 12 years agoit was 2 years before it straightened out. Required: 1. Do you agree or disagree with Chuck Davis and the advice that he gave Leonard Bryner? Explain. 2. Was there anything wrong or unethical in the behavior that Chuck Davis displayed? Explain your reasoning. 3. Do you think that Chuck was well informedthat he was aware of the accounting implications of ABC and that he knew what was meant by cost drivers? Should he have been well informed? Review (in Chapter 1) the first category of the Statement of Ethical Professional Practice for management accountants. Do any of these standards apply in Chucks case?To verify their calculations, Carrington and Genevieve have hired Josh Schlessman as a consultant. Josh was previously an equity analyst, and he has covered the HVAC industry. Josh has examined the company’s financial statements as well as those of its competitors. Although Ragan currently has a technological advantage, Josh’s research indicates that Ragan’s competitors are investigating other methods to improve efficiency. Given this, Josh believes that Ragan’s technological advantage will last for only the next five years. After that period, the company’s growth will likely slow to the industry average. Additionally, Josh believes that the required return the company uses is too high. He believes the industry average required return is more appropriate. Under Josh’s assumptions, what is the estimated stock price?
- You are a Senior Manager in Federer & Co, a firm of Chartered Certified Accountants offering audit and assurance services mainly to large, privately owned companies. The firm has suffered from increased competition, due to two new firms of accountants setting up in the same town. Several audit clients have moved to the new firms, leading to loss of revenue, and an over staffed audit department. Ann Agassi, one of the partners of Federer & Co, has asked you to consider how the firm could react to this situation. Several possibilities have been raised for your consideration: 1. Nadal Co, a manufacturer of electronic equipment, is one of Federer & Co.’s audit clients. You are aware that the company has recently designed a new product, which market research indicates is likely to be very successful. The development of the product has been a huge drain on cash resources. The Managing Director of Nadal Co has written to the audit engagement partner to see if Federer & Co…You are a Senior Manager in Federer & Co, a firm of Chartered Certified Accountants offeringaudit and assurance services mainly to large, privately owned companies. The firm has suffered from increased competition, due to two new firms of accountants setting up in the same town. Several audit clients have moved to the new firms, leading to loss of revenue, and an over staffed audit department. Ann Agassi, one of the partners of Federer & Co, has asked you to consider how the firm could react to this situation. Several possibilities have been raised for your consideration: 1. Several audit clients are experiencing staff shortages, and it has been suggested that temporary staff assignments could be offered. It is envisaged that a number of audit managers could be seconded to clients for periods not exceeding six months, after which time they would returnto Federer & Co. Required: Identify and explain the fundamental ethical principle and ethical threat involved for Federer…Maple & Co, chartered accountants, is suffering from declining revenue, and as a result of this, another audit manager has been asked to consider how to improve the firm’s profitability. In a conversation with you this morning he mentioned the following:“We really need to make our audits more efficient. I think we should fix materiality at theplanning for all audits, as this would reduce the work we need to do. I also think we can cut the firm’s overheads by reducing our spending on training. We spend a lot on expensive training courses for junior members of the audit team, and on Continuing Professional Development for our qualified members of staff.We could also guarantee our clients that all audits will be completed quicker than last year.Reducing the time spent on each assignment will improve the firm’s efficiency and enable us to take on more audit clients.”Required:Comment on the practice of Maple & Co. and quality control issues raised by the audit manager’s suggestions…
- “At Kolendi ACCA LLP, you will get the best quality audit process on this planet. Unlike some other firms, we care about you, our client. We go the extra mile – you will always get the audit opinion you want. As well as audit we offer a range of other services, so come to Kolendi ACCA LLP – you will not regret it. Simply the best”. Have you had enough of your accountant charging you too much for poor quality services? Does your business need a kick-start? Look no further, Kolendi ACCA LLP provides the most comprehensive range of finance and accountancy services in the country as well as having tax team in the country who are just waiting to save you money. Still not sure? We guarantee to be cheaper than your existing service provider and for the month of January we are offering free business advice to all new audit clients. Drop in and see us at your local office for free consultation. Kolendi ACCA LLP, simply the best Required: The above is an advert which Kolendi ACCA LLP intends to…You are a Senior Manager in Federer & Co, a firm of Chartered Certified Accountants offering audit and assurance services mainly to large, privately-owned companies. The firm has suffered from increased competition, due to two new firms of accountants setting up in the same town. Several audit clients have moved to the new firms, leading to loss of revenue, and an over staffed audit department. Ann Agassi, one of the partners of Federer & Co, has asked you to consider how the firm could react to this situation. Several possibilities have been raised for your consideration:1. Nadal Co, a manufacturer of electronic equipment, is one of Federer & Co.’s audit clients. You are aware that the company has recently designed a new product, which market research indicates is likely to be very successful. The development of the product has been a huge drainon cash resources. The Managing Director of Nadal Co has written to the audit engagement partner to see if Federer & Co would…James Kirk is a financial executive with McDowell Enterprises. Although James Kirk has not had any formal training in finance or accounting, he has a “good sense” for numbers and has helped the company grow from a very small company ($500,000 sales) to a large operation ($45 million in sales). With the business growing steadily, however, the company needs to make a number of difficult financial decisions in which James Kirk feels a little “over his head.” He therefore has decided to hire a new employee with “numbers” expertise to help him. As a basis for determining whom to employ, he has decided to ask each prospective employee to prepare answers to questions relating to the following situations he has encountered recently. Here are the questions. a. In 2019, McDowell Enterprises negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were constructed on land owned by the company. On January 1, 2020,…
- Phillip Dale is a recent employee of RMGT Audit Firm. A new client Juicy Juice Limited has approached RMGT for the audit of its annual reports and Phillip was asked to start the preparation of the audit plan. Phillip knows only too well the importance of audit planning. It involves many considerations that help to develop more efficient engagements and provides auditors with important risk management techniques. Juicy Juice Limited operates in many overseas countries. The company employs over 2000 employees and is known for providing many great benefits for its employees. One of Juicy Juice’s biggest assets is its inventory as the company offers a large variety of products throughout the many overseas countries in which it operates. The company also regularly purchase shareholdings in other companies. The previous auditors of Juicy Juice have stated that the previous year’s audit had revealed extensive material misstatements. Questions A. Discuss FOUR (4) of the…The CFO of PKD Corporation is very uncomfortable with its current risk exposure related to the possibility of business disruptions. Specifically, PKD is heavily involved in E-business, and its internal information systems are tightly interlinked with its key customers’ systems. The CFO has estimated that every hour of system downtime will cost the company about $10,000 in sales. The CFO and CIO have further estimated that if the system were to fail, the average downtime would be one hour per incident. They have anticipated that PKD will likely experience 50 downtime incidents in a given year due to internal computer system problems and another 50 incidents per year due to external problems—specifically, system failures with the Internet service provider (ISP). Currently, PKD pays an annualized cost of $150,000 for redundant computer and communication systems, and $100,000 for ISP support just to keep the total expected number of incidents to 100 per year. Required: Given the…Your public accounting practice is located in a city of 15,000 people. The majority of your work, conducted by you and two assistants, consistsof compiling clients’ monthly statements and preparing income tax returns for individuals from cash data and partnership returns from books and records. You have a small number of audit clients; given the current size of your practice, you generally consider it a challenge to accept new audit clients.One of your corporate clients is a retail hardware store. Your work for this client has been limited to preparing the corporate income tax return from a trial balance submitted by the bookkeeper.On December 26, you receive from the president of the corporation a letter containing the following request:We have made arrangements with First National Bank to borrow $500,000 to finance the purchase of a complete line of appliances. The bank has asked us to furnish our auditors’ certified statement as of December 31, which is the closing date of our…