Connect Access Card for Principles of Auditing & Other Assurance Services
21st Edition
ISBN: 9781260299366
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 16, Problem 50RDC
a.
To determine
Describe the extent to which a CPA firm’s
b.
To determine
Describe the implications of the IRS investigation and additional investigative procedures that the auditors should undertake relating to the examination of 2014 financial statements.
c.
To determine
Identify if the auditors can validly refuse to surrender the subpoenaed working paper to IRS.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
As an auditor for the CPA firm of Bunge and Dodd, you encounter the following situations in auditing different clients.
Desi Corporation is a closely held corporation whose stock is not publicly traded. On December 5, the corporation acquired land by issuing 5,000 shares of its $20 par value common stock. The owners’ asking price for the land was $120,000, and the fair market value of the land was $115,000.
Lucille Corporation is a publicly held corporation whose common stock is traded on the securities markets. On June 1, it acquired land by issuing 20,000 shares of its $10 par value stock. At the time of the exchange, the land was advertised for sale at $250,000.The stock was selling at $12 per share.
Instructions:
Prepare the journal entries for each of the situations above.
Monicker Co. engaged the audit firm of Gasner & Gasner to audit its financial statements that Monicker was going to use in connection with a public offering of its securities. Monicker's stock regularly trades on the NASDAQ. The audit was completed and the auditor issued an unqualified opinion on the financial statements, which Monicker submitted to the SEC along with the registration statement. Three hundred thousand shares of Monicker common stock were sold to the public at $13.50 per share. Eight months later, the stock fell to $2 per share when it was disclosed that several large loans to two "paper" companies owned by one of the directors were worthless. The loans were secured by the stock of the borrowing corporation and by Monicker stock owned by the director. These facts were not disclosed in the financial statements. The director and the two corporations are insolvent. Considering these facts, indicate whether each of the following statements is true or false, and briefly…
Monicker Co. engaged the audit firm of Gasner & Gasner to audit its financial statements that Monicker was going to use in connection with a public offering of its securities. Monicker's stock regularly trades on the NASDAQ. The audit was completed and the auditor issued an unqualified opinion on the financial statements, which Monicker submitted to the SEC along with the registration statement. Three hundred thousand shares of Monicker common stock were sold to the public at $13.50 per share. Eight months later, the stock fell to $2 per share when it was disclosed that several large loans to two "paper" companies owned by one of the directors were worthless. The loans were secured by the stock of the borrowing corporation and by Monicker stock owned by the director. These facts were not disclosed in the financial statements. The director and the two corporations are insolvent. Considering these facts, indicate whether each of the following statements is true or false, and briefly…
Chapter 16 Solutions
Connect Access Card for Principles of Auditing & Other Assurance Services
Ch. 16 - Prob. 1RQCh. 16 - Prob. 2RQCh. 16 - Identify three items often misclassified as...Ch. 16 - Prob. 4RQCh. 16 - Prob. 5RQCh. 16 - Prob. 6RQCh. 16 - Prob. 7RQCh. 16 - Prob. 8RQCh. 16 - Prob. 9RQCh. 16 - What safeguards should be employed when the...
Ch. 16 - You are asked by a client to outline the...Ch. 16 - Prob. 12RQCh. 16 - Prob. 13RQCh. 16 - Prob. 14RQCh. 16 - Prob. 15RQCh. 16 - What are loss contingencies? How are such items...Ch. 16 - Prob. 17RQCh. 16 - Prob. 18RQCh. 16 - Prob. 19RQCh. 16 - What is the meaning of the term commitment? Give...Ch. 16 - Prob. 21RQCh. 16 - What are subsequent events?Ch. 16 - Describe the manner in which the auditors evaluate...Ch. 16 - Prob. 24RQCh. 16 - Prob. 25RQCh. 16 - Prob. 26RQCh. 16 - In your audit of the financial statements of Wolfe...Ch. 16 - Prob. 28QRACh. 16 - Prob. 29QRACh. 16 - Prob. 30QRACh. 16 - Prob. 31QRACh. 16 - The auditors opinion on the fairness of financial...Ch. 16 - Prob. 33QRACh. 16 - Prob. 34QRACh. 16 - Prob. 35QRACh. 16 - Prob. 36QRACh. 16 - Prob. 37AOQCh. 16 - Prob. 37BOQCh. 16 - Prob. 37COQCh. 16 - When auditing the statement of cash flows, which...Ch. 16 - The search for unrecorded liabilities for a public...Ch. 16 - The aggregated misstatement in the financial...Ch. 16 - Prob. 37GOQCh. 16 - Prob. 37HOQCh. 16 - Prob. 37IOQCh. 16 - Prob. 37JOQCh. 16 - Prob. 37KOQCh. 16 - Which of the following events occurring on January...Ch. 16 - Prob. 38OQCh. 16 - Prob. 39OQCh. 16 - Prob. 40OQCh. 16 - Match the following terms to the appropriate...Ch. 16 - Prob. 42OQCh. 16 - Prob. 43PCh. 16 - Prob. 44PCh. 16 - Prob. 45PCh. 16 - Prob. 46PCh. 16 - Prob. 47PCh. 16 - Prob. 48PCh. 16 - The audit staff of Adams, Barnes Co. (ABC), CPAs,...Ch. 16 - Prob. 50RDC
Knowledge Booster
Similar questions
- In order to expand its operations, Barton Corp. raised $5million in a public offering of common stock, and also negotiated a $2 million loanfrom First National Bank. In connection with this financing, Barton engaged Hanover &Co., CPAs, to audit Barton’s financial statements. Hanover knew that the sole purpose ofthe audit was so that Barton would have audited financial statements to provide to FirstNational Bank and the purchasers of the common stock. Although Hanover conductedthe audit in conformity with its audit program, Hanover failed to detect material actsof embezzlement committed by Barton Corp.’s president. Hanover did not detect theembezzlement because of its inadvertent failure to exercise due care in designing theaudit program for this engagement.After completing the engagement, Hanover issued an unqualified opinion on Barton’sfinancial statements. The financial statements were relied upon by the purchasers ofthe common stock in deciding to purchase the shares. In…arrow_forwardIngram is a Certified Public Accountant (CPA) employed by Jordan, Keller and Lane, CPAs, to audit Martin Enterprises, Inc., a fast-growing service firm that went public two years ago. The financial statements Ingram audited were included in a proxy statement proposing a merger with several other firms. The proxy statement was filed with the Securities and Exchange Commission and included several inaccuracies. First, approximately $1 million, or more than 20 percent, of the previous year’s “net sales originally reported” had proven nonexistent by the time the proxy statement was filed and had been written off on Martin’s own books. This was not disclosed in the proxy statement, in violation of Accounting Board Opinion Number 9. Second, Martin’s net sales for the current year were stated as $11.3 million when in fact they were less than $10.5 million. Third, Martin’s net profits for the current year were reported as $700,000, when the firm actually had no earnings at all. a. What civil…arrow_forwardIn 1983, to obtain financing prior to a public offering, Osborne Corporation sold warrants entitling investors to buy Osborne shares at a favorable price. The investors were given and relied on an unqualified audit opinion regarding Osborne’s 1982 financial statements, which indicated that Osborne had a net operating profit of $69,000 on sales of $68 million. The audit opinion, issued by Arthur Young & Company, stated that the audit had been completed in compliance with GAAS, that the financial statements had been prepared in compliance with FGAPP, and that the financial statements fairly presented Osborne’s financial position. Arthur Young could foresee that the audited financial statements might be used by buyers of Osborne’s warrants, but Arthur Young did not know that buyers of warrants would in fact use the financial statements. The buyers of the warrants lost their investments when Osborne’s manufacturing problems and IBM’s dominance in the PC market forced Osborne into…arrow_forward
- The Nelsons had the following activity in their brokerage account during the year (all transactions were reported on Form 1099-B. Basis information on each stock sale was reported to the IRS): Sold 100 shares of Disney, Inc. 10/9/20 $3,710 Sold 5 shares of Target, Inc. 5/15/20 $2,415 Relevant tax basis/holding period information related to sales of securities in the current year: Purchased 100 shares of Disney Inc. 8/3/18 $8,134 Purchased 10 shares of Target, Inc. 10/4/19 $2,728 The Nelsons have a $3,500 long-term capital loss carryover from the prior tax year. Use Form 8949 and page 1 of Schedule D to compute net long-term and short-term capital gainsarrow_forwardWilma Reynolds, CPA, a member of the American Institute of Certified Public Accountants (AICPA), is controller of Premium Corporation, a publicly owned enterprise with a now- 60%-owned subsidiary, Service Company. Reynolds has informed Premium’s chief financial officer, Wayne Cartwright, that the $150,000 increase in Premium’s investment in Service, which resulted from Service’s just-completed issuance of additional common stock to the public, should be recognized as an increase in Premium’s additional paid-in capital, in accordance with a proposed standard of the FASB. Cartwright countered that Topic 5-H of the SEC Staff Accounting Bulletins (SAB), which is based on SAB 51 and SAB 84, sanctions recognition of the $150,000 increase as non-operating income of Premium. Cartwright expressed the belief that because the SEC has statutory authority to establish accounting standards, its pronouncements should prevail over those proposed or issued by the FASB. Instructions Do you agree with…arrow_forwardRisk Capital Limited, a publicly held Delaware corporation, was considering the purchase of a substantial amount of the treasury stock held by Florida Sunshine Corporation, a closely held corporation. Initial discussions with the Florida Sunshine Corporation began late in 20X0. Wilson and Wyatt, CPAs, Florida Sunshine’s public accountants, regularly prepared quarterly and annual unaudited financial statements. The most recently prepared unaudited financial statements were for the fiscal year ended September 30, 20X0. On November 15, 20X0, after protracted negotiations, Risk Capital agreed to purchase 100,000 shares of no-par Class A treasury stock of Florida Sunshine at $12.50 per share. However, Risk Capital insisted upon audited statements for the calendar year 20X0. The contract specifically provided: “Risk Capital shall have the right to rescind the purchase of said stock if the audited financial statements of Florida Sunshine for calendar year 20X0 show a material adverse change…arrow_forward
- Risk Capital Limited, a publicly held Delaware corporation, was considering the purchase of a substantial amount of the treasury stock held by Florida Sunshine Corporation, a closely held corporation. Initial discussions with the Florida Sunshine Corporation began late in 20X0. Wilson and Wyatt, CPAs, Florida Sunshine’s public accountants, regularly prepared quarterly and annual unaudited financial statements. The most recently prepared unaudited financial statements were for the fiscal year ended September 30, 20X0. On November 15, 20X0, after protracted negotiations, Risk Capital agreed to purchase 100,000 shares of no-par Class A treasury stock of Florida Sunshine at $12.50 per share. However, Risk Capital insisted upon audited statements for the calendar year 20X0. The contract specifically provided: “Risk Capital shall have the right to rescind the purchase of said stock if the audited financial statements of Florida Sunshine for calendar year 20X0 show a material adverse change…arrow_forwardXYZ is a calendar-year corporation that began business on January 1, 2021. For the year, it reported the following information in its current-year audited income statement. Notes with important tax information are provided below. Use Exhibit 16-6. (See image attached) XYZ owns 30% of the outstanding Hobble Corporation (HC) stock. Hobble Corporation reported $1,000,000 of income for the year. XYZ accounted for its investment in HC under the equity method, and it recorded its pro rata share of HC’s earnings for the year. HC also distributed a $200,000 dividend to XYZ. For tax purposes, HC reports the actual dividend received as income, not the pro rata share of HC’s earnings. Of the $20,000 interest income, $5,000 was from a City of Seattle bond, $7,000 was from a Tacoma City bond, $6,000 was from a fully taxable corporate bond, and the remaining $2,000 was from a money market account. This gain is from equipment that XYZ purchased in February and sold in December (i.e., it does not…arrow_forwardAs an auditer for cpa firm of Hickson and Calvert you encounter the following situations in auditing different clients 1. Skysong,inc is closely held corporation whos stock is not publicly traded on december 5, the corporation acquired land by issuing $3000 share of its $20 per a value common stock .the owner asking price for land was $121500 and the fair value of the land was $116500 2.oriole company is a publicly held corporation whose common stock is traded on the securities markets. On june 1, its acquired land by issuing 19000 shares of its $10 per a valua stock .at the time of the exchange the land was advertised for sale at $260000. The stock was selling at $11 per a share. Prepare the journal entries for each of the situations abovearrow_forward
- 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.arrow_forwardThomas Gilbert and Susan Bradley formed a professional corporation called “Financial Services Inc.—A Professional Corporation,” each taking 50 percent of the authorized common stock. Gilbert is a CPA and a member of the AICPA. Bradley is a CPCU (Chartered Property Casualty Underwriter). The corporation performs auditing and tax services under Gilbert’s direction and insurance services under Bradley’s supervision. One of the corporation’s first audit clients was Grandtime Company. Grandtime had total assets of $600,000 and total liabilities of $270,000. In the course of his examination, Gilbert found that Grandtime’s building, with a carrying value of $240,000, was pledged as collateral for a 10-year term note in the amount of $200,000. The client’s financial statements did not mention that the building was pledged as collateral for the 10-year term note. However, as the failure to disclose the lien did not affect either the value of the assets or the amount of the liabilities, and his…arrow_forwardBlue Ltd. is a public unlisted company having paid up share capital of Rs. 8 crores and public borrowings from the financial institution of Rs. 51 crores. They appointed M/s Gray and co., a chartered accountant firm as the statutory auditor in its general meeting for 11 years.Is the manner of rotation of auditor is applicable in case of Blue Ltd.?Whether the appointment of M/s Gray and Co. is valid?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College PubCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningAuditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...
Accounting
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:South-Western College Pub
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning