Auditing: A Risk Based-Approach to Conducting a Quality Audit
Auditing: A Risk Based-Approach to Conducting a Quality Audit
10th Edition
ISBN: 9781305080577
Author: Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher: South-Western College Pub
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Chapter 4, Problem 43RSCQ
To determine

Introduction: Auditor is appointed by the company in order to get their financial statements checked whether they are authentic or reliable for further usage by the shareholders and other users.

Whether the statement is true or false along with brief explanation.

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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…
In 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…

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Auditing: A Risk Based-Approach to Conducting a Quality Audit

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