ACCT 444 Week 1
Homework
Chapter 1
1-18 (Objectives 1-3,
1-4, 1-5) Consumers Union
is a nonprofit organization that provides information and counsel on consumer
goods and services. A major part of its function is the testing of different
brands of consumer products that are purchased on the open market and then the
reporting of the results of the tests in Consumer Reports, a monthly publication. Examples of the types
of products it tests are middle-sized automobiles, residential dehumidifiers,
flat-screen TVs, and boys’ jeans.
Required
1.
In what ways are the services provided by Consumers Union
similar to assurance services provided by CPA firms?
2.
Compare the concept of information risk introduced in this
chapter with the information risk problem faced by a buyer of an automobile.
3.
Compare the four causes of information risk faced by users of
financial statements as discussed in this chapter with those faced by a buyer
of an automobile.
4.
Compare the three ways users of financial statements can reduce
information risk with those available to a buyer of an automobile.
Chapter 2
2-19 (Objective 2-7) For each of the following procedures
taken from the quality control manual of a CPA firm, identify the applicable
element of quality control from Table 2-4 on page 38.
1.
Appropriate accounting and auditing research requires adequate
technical reference materials. Each firm professional has online password
access through the firm’s Internet Web site to electronic reference materials
on accounting, auditing, tax, SEC, and other technical information, including
industry data.
2.
Each office of the firm shall be visited at least annually by
review persons selected by the director of accounting and auditing. Procedures
to be undertaken by the reviewers are illustrated by the office review program.
3.
All potential new clients are reviewed before acceptance. The
review includes consultation with predecessor auditors, and background checks.
All new clients are approved by the firm management committee, including
assessing whether the firm has the technical competence to complete the
engagement.
4.
Each audit engagement must include a concurring partner review
of critical audit decisions.
5.
Audit engagement team members enter their electronic signatures
in the firm’s engagement management software to indicate the completion of
specific audit program steps. At the end of the audit engagement, the
engagement management software will not allow archiving of the engagement file
until all audit program steps have been electronically signed.
6.
At all stages of any engagement, an effort is made to involve
professional staff at appropriate levels in the accounting and auditing
decisions. Various approvals of the manager or senior accountant are obtained
throughout the audit.
7.
No employee will have any direct or indirect financial interest,
association, or relationship (for example, a close relative serving a client in
a decision-making capacity) not otherwise disclosed that might be adverse to
the firm’s best interest.
8.
Individual partners submit the nominations of those persons whom
they wish to be considered for partner. To become a partner, an individual must
have exhibited a high degree of technical competence; must possess integrity,
motivation, and judgment; and must have a desire to help the firm progress
through the efficient dispatch of the job responsibilities to which he or she
is assigned.
9.
Through our continuing employee evaluation and counseling
program and through the quality control review procedures as established by the
firm, educational needs are reviewed and formal staff training programs
modified to accommodate changing needs. At the conclusion of practice office
reviews, apparent accounting and auditing deficiencies are summarized and
reported to the firm’s director of personnel.
10.
The firm’s mission statement indicates its commitment to
quality, and this commitment is emphasized in all staff training programs
Chapter 4
4-22 (Objectives 4-6,
4-7) Each of the
following situations involves possible violations of the AICPA’s Code of Professional
Conduct. For each situation,
state whether it is a violation of the Code. In those cases in which it is a violation,
explain the nature of the violation and the rationale for the existing rule.
1.
The audit firm of Miller and Yancy, CPAs has joined an
association of other CPA firms across the country to enhance the types of
professional services the firm can provide. Miller and Yancy share resources
with other firms in the association, including audit methodologies and audit
manuals, and common IT systems for billing and time reporting. One of the
partners in Miller and Yancy has a direct financial interest in the audit
client of another firm in the association.
.
1.
Bruce Sullivan, CPA, is the audit partner on the engagement of
Xylium Corporation, which is a public company. In structuring the agreement
with the audit committee for the audit of Xylium’s financial statements,
Sullivan included a clause that limits the liability of Sullivan’s firm so that
shareholders of Xylium are prohibited from suing Sullivan and the firm for
performance issues related to the audit.
1.
Jennifer Crowe’s audit client has a material investment in
Polex, Inc. Jennifer’s nondependent parents also own shares in Polex and Polex
is not an attest client of Jennifer’s firm. The amount of her parent’s
ownership in Polex is not significant to Jennifer’s net worth.
.
1.
Joe Stokely is a former partner in Bass and Sims, CPAs.
Recently, Joe left the firm to become the chief operating officer of Lacy
Foods, Inc., which is an audit client of Bass and Sims. In his new role, Joe
has no responsibilities for financial reporting. Bass and Sims made significant
changes to the audit plan for the upcoming audit.
.
1.
Odonnel Incorporated has struggled financially and has been
unable to pay the audit fee to its auditor, Seale and Seale, CPAs, for the 2009
and 2010 audits. Seale and Seale is currently planning the 2011 audit.
1.
Connor Bradley is the partner in charge of the audit of Southern
Pinnacle Bank. Bradley is in the process of purchasing a beach condo and has
obtained mortgage financing from Southern Pinnacle.
.
1.
Jessica Alma has been serving as the senior auditor on the audit
of Carolina BioHealth, Inc. Because of her outstanding work, the head of
internal audit at Carolina BioHealth extended her an offer of employment to
join the internal audit department as an audit manager. When the discussions
with Carolina BioHealth began, Jessica informed her office’s managing partner
and was removed from the audit engagement.
.
1.
Lorraine Wilcox is a CPA and professor of accounting at a major
state university. One of her former students recently sat for the Audit section
of the CPA exam. One day, the student dropped by Lorraine’s office and told her
about many of the questions and simulation content on the exam. Lorraine was
grateful for the information, which will be helpful as she prepares the course
syllabus for the next semester.
1.
Audrey Glover is a financial analyst in the financial reporting
department of Technologies International, a privately held corporation. Audrey
was asked to prepare several journal entries for Technologies International
related to transactions that have not yet occurred. The entries are reflected
in financial statements that the company recently provided to the bank in
connection with a loan outstanding due to the bank.
1.
Austin and Houston, CPAs, is performing consulting services to
help management of McAlister Global Services streamline it production operations.
Austin and Houston structured the fee for this engagement to be a fixed
percentage of costs savings that result once the new processes are implemented.
Austin and Houston perform no other services for McAlister Global.
.
Chapter 26
26-25 (Objectives
26-25, 26-1, 26-4) Weston
Corporation has an internal audit department operating out of the corporate
headquarters. Various types of audit assignments are performed by the
department for the eight divisions of the company. The following findings resulted
from recent audits of Weston Corporation’s White Division:
1.
One of the departments
in the division appeared to have an excessive turnover rate. Upon
investigation, the personnel department seemed to be unable to find enough
workers with the specified skills for this department. Some workers are trained
on the job. The departmental supervisor is held accountable for labor
efficiency variances but does not have qualified staff or sufficient time to
train the workers properly. The supervisor holds individual workers responsible
for meeting predetermined standards from the day they report to work. This has
resulted in a rapid turnover of workers who are trainable but not yet able to
meet standards.
2.
The internal audit
department recently participated in a computer feasibility study for this
division. It advised and concurred on the purchase and installation of a
specific computer system. Although the system is up and operating, the results
are less than desirable. The software and hardware meet the specifications of
the feasibility study, but there are several functions unique to this division
that the system has been unable to accomplish. Linking of files has been a
problem. For example, several vendors have been paid for materials not meeting
company specifications. A revision of the existing software is probably not
possible, and a permanent solution probably requires replacing the existing
computer system with a new one.
3.
One of the products
manufactured by this division was recently redesigned to eliminate a potential
safety defect. This defect was discovered after several users were injured. At
present, there are no pending lawsuits because none of the injured parties has
identified a defect in the product as a cause of the injury. There is insufficient
information to determine whether the defect was a contributing factor.
The director of
internal auditing and assistant controller is in charge of the internal audit
department and reports to the controller in corporate headquarters. Copies of
internal audit reports are sent routinely to Weston’s board of directors.
Required
1.
Explain the additional steps in terms of field work, preparation
of recommendations, and operating management review that ordinarily should be
taken by Weston Corporation’s internal auditors as a consequence of the audit
findings in the first situation (excessive turnover).
2.
Discuss whether there are any objectivity problems with Weston
Corporation’s internal audit department as revealed by the audit findings.
Include in your discussion any recommendations to eliminate or reduce an
objectivity problem, if one exists.
1.
The internal audit department is part of the corporate
controllership function, and copies of the internal audit reports are sent to
the board of directors.
§ Evaluate the
appropriateness of the location of the internal audit department within
Weston’s organizational structure.
§ Discuss who within
Weston should receive the reports of the internal audit department.
No comments:
Post a Comment