Audit standards distinguish auditors’ responsibility for planning procedures for detecting noncompliance with laws and regulations havinga direct effect on financial statements versus planning procedures for detecting noncompliance with laws and regulations that do not have a direct effect on financial statements.Required:a. What are the requirements for auditors to plan procedures to detect direct-effect compliance versus indirect-effect compliance?b. For each of the following instances of noncompliance, explain why they are either directeffect (D) or indirect-effect (I) noncompliance:1. A manufacturer inflates expenses on its corporate tax return.2. A retailer pays men more than women for performing the same job. 3. A coal mining company fails to place proper ventilation in its mines.4. A military contractor inflates the overhead applied to a combat vehicle.5. An insurance company fails to maintain required reserves for losses.6. An exporter pays a bribe to a foreign government official so that the government will buy its products.7. A company backdates its executive stock options to lower the exercise price.8. A company fails to fund its pension plan in accordance with ERISA.
Audit standards distinguish auditors’ responsibility for planning procedures for detecting noncompliance with laws and regulations having
a direct effect on financial statements versus planning procedures for detecting noncompliance with laws and regulations that do not have a direct effect on financial statements.
Required:
a. What are the requirements for auditors to plan procedures to detect direct-effect compliance versus indirect-effect compliance?
b. For each of the following instances of noncompliance, explain why they are either directeffect (D) or indirect-effect (I) noncompliance:
1. A manufacturer inflates expenses on its corporate tax return.
2. A retailer pays men more than women for performing the same job.
3. A coal mining company fails to place proper ventilation in its mines.
4. A military contractor inflates the
5. An insurance company fails to maintain
6. An exporter pays a bribe to a foreign government official so that the government will buy its products.
7. A company backdates its executive stock options to lower the exercise price.
8. A company fails to fund its pension plan in accordance with ERISA.
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