Question 1

In the Imperial Valley Thrift & Loan case, each of the following were reasons for the going concern issue except for:

Accepted Answer

The answer of In the Imperial Valley Thrift & Loan...

Question 2

Fannie Mae's financial statements were investigated because of allegations that the company:

Accepted Answer

Fannie Mae's financial statements were investigated for allegedly deferring derivative losses on the balance sheet to inflate profits. There were no allegations of using derivatives to hide subprime loans or selling derivatives to increase cash flows prior to bank financing.

Question 3

Explain each of the three sides of the fraud triangle (SAS 99) with respect to how it contributes toward the possibility that fraud in the financial statements may be present.

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Question 4

In the Tyco fraud the corporate governance system completely broke down.Explain the failings in the corporate governance system at Tyco and how the Sarbanes-Oxley Act addresses those failings.

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Question 5

Campus Fast is a new audit client.Client Fast uses public Wi-Fi to place and deliver restaurant take out for students at the Up and Coming State University.Campus Fast was founded by three highly ambitious MBA students at the university.The business plan is to find a buyer or place an IPO of the company by graduation in two years.The founders expect to pay off all student loans, take a tour around the world and then start another company.In order for the business plan to work on the timeline for graduation, the business must meet highly ambitious earnings numbers.Additionally, the company is dealing with two situations that the founders would like to keep from the auditors:
1) The company has been using free, unsecured public Wi-Fi to take orders via the Internet.The customer may pay via the Internet.Several students, who all happen to be members of the same student organization on campus, are claiming that using Campus Fast has allowed their identity to be stolen.One student is claiming that she had $12,000 of charges on her credit card to the unsecured Internet site of Campus Fast.Management plans to pay off the complaining students and keep the true liability off the balance sheet."An interest buyer has about the unsecured site and might get scared by the student complaints".
2) The company guarantees fast delivery.It has offered to pay any speeding or other moving violation tickets to its delivery drivers.Unfortunately one of the drivers was involved in an accident due to running a red light.The passenger in the other car is in critical condition and the intensive care unit in the hospital.The driver has promised the family of the passenger that the company will make good on any expenses and admitted the company policy on repaying all traffic tickets.Attorneys for the injured party are threatening to sue and publicize the situation.The founders do not have enough cash to take care of this problem but are still trying to keep the situation from the auditors and potential buyer.
Using the internal control framework from SAS 55, 98, COSO and Enterprise Risk Management, assess the internal control and risks of Campus Fast.

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The answer of Campus Fast is a new audit client.Client...

Question 6

Differentiate between the auditors' responsibilities to detect errors, fraud, and illegal acts.How would you assess the ethics of a company that has experienced each event with respect to motivation and the integrity of those who go along with such events?

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Question 7

The primary accounting issue in the Royal Ahold case is:

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Question 8

Kohlberg's model addresses the stages of moral development a person might move through in developing a strong sense of ethics.Analyze each of those stages with respect to the three elements of the fraud triangle.How can an individual resist the temptation to become involved in fraud by possessing the characteristics of behavior included in each stage?

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Question 9

Describe the steps that auditors should take under Auditing Standard No.4 of the PCAOB to report on whether a previously reported material weakness still exists.

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Question 10

The Audit Client Consideration case deals with issues related to:

Accepted Answer

The Audit Client Consideration case deals with all of the above issues, including the acceptance of new clients, issues between the predecessor audit firm and the client, as well as going concern issues raised by previous auditors. Therefore, the best choice is D.

Question 11

An unusual aspect of the Edvid case is that the company:

Accepted Answer

The question states that an unusual aspect of the Edvid case is that the company Delayed the recognition of revenue into a later period than seemed justified. Therefore, the best choice is B. Options A and C are not mentioned in the question. Option D is not the best choice because it includes options that are not mentioned in the question.

Question 12

The audit report on Sky Hook, Inc.that was discussed in The Audit Report case contained each of the following deficiencies except for:

Accepted Answer

The audit report did render an opinion based on the audit, stating that the financial statements presented fairly in all material respects. The other deficiencies mentioned were present in the audit report.

Question 13

The primary issue discussed in the Krispy Kreme case was:

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Question 14

The Marcus Yamabuto case deals with issues related to:

Accepted Answer

The Marcus Yamabuto case primarily deals with the issue of premature revenue recognition by a company, which led to the overstatement of revenue and the misrepresentation of financial statements. The case does not involve franchise revenue accounting or special purpose entities.

Question 15

The Committee of Sponsoring Organizations of the Treadway Committee (COSO) analyzed the financial reporting of public companies during the 1987-1997 periods when business failures due to accounting fraud were high.Describe the major findings of COSO with respect to financial statement fraud.

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Question 16

Mr.Arty works for Smile Accounting Firm as a senior accountant.Currently he is doing review of rental property compliance testing completed by the staff accountants.He realizes that the staff accountants only tested two tenants per property instead of the required three by the audit program.To request more information from the client would cause massive delays and the manager is pressing hard for the information before the Christmas vacation.What should Mr.Arty do and why? Use the ethical theory and ethical decision making model to discuss the situation.

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Question 17

Explain the auditors' responsibilities to assess fraud including the role of professional judgment.

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Question 18

Explain the circumstances under which an auditor should give each of the following opinions:
(a) Unqualified opinion
(b) Unqualified opinion with an explanatory paragraph
(c) Qualified opinion
(d) Adverse opinion

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Question 19

What are the audit committee's responsibilities with respect to fraud and risk assessment?

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Question 20

Materiality is one of the most difficult judgments to make in auditing financial statements.Explain what is meant by materiality and explain the basis for the auditor's assessment of whether there is a material misstatement in the financial statements.

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Quiz 5: Audit Responsibilities and Accounting Fraud