Chapter 2, Problem 2.12EYCT

Comment upon each of the following statements you heard in a conversation between two newly hired staff auditors.a. “Of course, I’m qualified to be assigned to this engagement. I have an accounting degree from a top university and was an honors graduate. I know some of the accounting rules have changed since I graduated, but I’ll be able to figure that out as we go through the audit.”b. “It doesn’t really matter what others think. . . . I’m completely independent of Acme Industries and should be a member of the audit team. While I own some stock, it’s a small amount and I’m holding it for the long term, anyway.”c. “You really have to question everything the client tells you. That’s what professional skepticism is all about. It’s a shame you can’t believe a word they say.”d. “The evidence is lower in quality, but we typically use internal evidence when we audit property, plant, and equipment. It just takes too much time and costs too much to get more reliable evidence.”e. “On that last…

Given the information below, Marco’s accountant, Stephen Violet, prepares financial statements and various financial statistics for the officers to review monthly. The Board reviews similar statistics on a quarterly basis at the regular Board meetings and questions the officers closely about what is going on in the business. In addition, Mr. Zen personally follows sales figures and gross profit margins. What is the:  a)  potential control strength and (b) potential mistatement detected or corrected.

Corporate sustainability reports vary greatly across companies and industries.  Select two companies that interest you and conduct an online search to find their corporate sustainability report.  (If one or both of the companies you selected do not issue a corporate sustainability report, then select a different company that does issue such a report.)  You can either scroll through the corporate sustainability reports for the two companies you selected or you can download them onto your computer and scroll through the downloaded reports.  Note:  Completing the requirements under this task by answering from the perspective of an BS Accounting Information System student, is highly encouraged. Required: 1.  Identify and briefly explain three similarities between the two corporate sustainability reports. 2.  Identify and briefly explain three differences between the two corporate sustainability reports. 3.  What do you believe is the greatest strength of each corporate sustainability…

The Cosy Kitchen is a regional chain of coffee shops and bistros that offers customers wholesome, good quality food and drink. It also has function rooms that are available for private events and meetings. Its year end is 30 June 2021. You are the audit manager for Lawler and Co and this is the first year that you have been the auditors. You are currently planning the annual audit for The Cosy Kitchen. There have been a number of significant issues that have been identified during the planning process which are all related to the Covid 19 pandemic. The Cosy Kitchen incurred significant capital expenditure during the year on updating the chain of properties due to the Covid 19 pandemic. All of this cost has been capitalized. The finance director has proposed that this should be depreciated over 5 years using the straight-line method. During a recent lockdown, The Cosy Kitchen were unable to fully open to customers and could only offer a limited takeaway service. They have been left with…

Sarah O’Hann enjoyed taking her first auditing course as part of her undergraduate accounting program. While at home during her semester break, she and her father discussed the class, and it was clear that he didn’t really understand the nature of the audit process as he asked the following questions. What is the main objective of the audit of an entity’s financial statements? Given the CPA firm is auditing financial statements, why would they need to understand anything about the client’s business? What does the auditor do in an audit other than verify the mathematical accuracy of the numbers in the financial statements? The audit represents the CPA firm’s guarantee about the accuracy of the financial statements, right? Isn’t the auditor’s primary responsibility to detect all kinds of fraud at the client?

Tana Thorne works in a public accounting firm and hopes to eventually be a partner. The management of Allnet Company invites Thorne to prepare a bid to audit Allnet’s financial statements. In discussing the audit fee, Allnet’s management suggests a fee range in which the amount depends on the reported profit of Allnet. The higher its profit, the higher will be the audit fee paid to Thorne’s firm. Describe some ethical considerations guiding your recommendation.

Assume that you have finished your MBA program and have applied for a position in the Financial Accounting Department of a large multinational company. The company is struggling with its accounting reporting matters and several accounting reports are under regulatory scrutiny. In the interview board, the recruitment committee members have asked you the following questions. What have you learnt in the BUS 505 course relating to financial accounting? How you can contribute the Financial Accounting Department of this company if you are recruited?

A retail company is planning to list on a stock exchange within the next three months, and management has been advised by the company’s auditors about the need for compliance with corporate governance provisions. In particular, the finance director is looking to recruit non-executive directors as he understands that Angel will need to establish an audit committee. The finance director has two potential non-executive directors whom he is considering approaching to join the board of Angel. Joseph Lindon is currently an executive sales director of a listed multi-national banking company; he sits on an audit committee of another company as a non-executive director and is agreeable to being paid a fixed fee which is not related to profits. Mark Curly is currently a finance director of a small retail company, which does not compete with Angel; he has expressed an interest in a fixed seven-year contract, and he is the brother of Angel’s chief executive.   Required: a)  Define an audit…

you have recently been appointed as auditor to Johnson Plc; a company whose shares are traded on the Stock Exchange. The Directors of Johnson Plc have recommended that you perform the following services . (i) The statutory audit of the annual financial statements. (ii) Taxation services, and (iii) Consistency services in respect of the implementation of a new information technology system Your firm has not acted for Johnson Plc before but does act as auditor for one of the major competitors. (a) Identify and explain the professional and ethical issues that should have been identified by your firm in relation to the provision of the services outlined above, and describe the safeguards that should be in place in order to address these issues. (including Citations/references) (b) What are the fundamental principles of ethics? Briefly explain their meaning (including Citations/references) (c) A client’s affairs should not be disclosed to third parties. However where a client has been…