Question 5 In the Crazy Eddie case, there were many problemsrelating to the auditing firm and their auditing procedures. (1>The auditors of Crazy Eddie were subject to certain broad criticismsregarding the audit engagement, some of which may have impaired their independence. Identify and briefly explain these criticisms. (2>For the Crazy Eddie case, identify specific deficiencies in the auditors' procedures that ledto their failureto discover financial statement fraud. For each weakness in auditing: procedures identified, recommend an alternative approach/procedure that should have led· to the detection of the frauds in question.

Question 5 In the Crazy Eddie case, there were many problemsrelating to the auditing firm and their auditing procedures. (1>The auditors of Crazy Eddie were subject to certain broad criticismsregarding the audit engagement, some of which may have impaired their independence. Identify and briefly explain these criticisms. (2>For the Crazy Eddie case, identify specific deficiencies in the auditors' procedures that ledto their failureto discover financial statement fraud. For each weakness in auditing: procedures identified, recommend an alternative approach/procedure that should have led· to the detection of the frauds in question.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter5: Professional Auditing Standards And The Audit Opinion Formulation Process

Section: Chapter Questions

Problem 12CYBK

See similar textbooks

Similar questions

S1: The subsequent events period extends to the date of management representation letter and the auditor’s report. S2: The failure of management to provide a management representation letter is considered a scope limitation on the audit.a. Only S1 is true.b. Only S2 is true.c. Both S1 and S2 are true.d. Both S1 and S2 are false.
In practice, auditors issue a significant number of modified audit opinions for departures from GAAP that are material, but not pervasive. Question 37 options: True False
Statement 1: If management fails to list an unasserted claim in the letter of inquiry to a lawyer, the lawyer is not required to inform the auditors of the omission. Statement 2: Normally, general risk contingencies need not be disclosed in the financial statements. Statement 3: If not adjusted, a situation in which the total likely misstatement in the financial statements exceeds a material amount is likely to lead to an audit report modification. A. only one statement is true B. only two statements are true C. All are true D. All are false
STATEMENT 1: Significant unexpected fluctuations identified by analytical review procedures will usually necessitate a review of internal control. STATEMENT 2: Working papers should generally contain the nature and extent of audit procedures done, the results of any testing, and the CPA's conclusion about how the findings will affect his report. A. Only Statement 1 is incorrect B. Only Statement 1 is correct C. Both statements are incorrect D. Both statements are correct
Question 4 Respond to each of the following independent situations involving auditor reports. For the scenario (1) identify the reporting issue involved; (2) explain the type of opinion that should be- issued; (3) identify any requiredmodifications of the standard auditor'sreport. t The client has a significant going concern problem, and the auditor believes that going concern accounting is no longer appropriate. However, management disagrees and has insisted on issuing normal GAAP (going concern) financial statements.
With regard to corrective action on audit results, which of the following is not theinternal auditor’s responsibility?(1) Soliciting auditees’ suggestions for corrective actions.(2) Recommending possible alternative corrective actions.(3) Directing the corrective actions.(4) Determining that the corrective actions are responsive to the audit results.(5) Evaluating new policy statements to determine whether they address the unsatisfactory conditions disclosed in the audit results.
S1: When the auditor expresses a qualified or adverse opinion, communicating other key audit matters is relevant to enhancing intended users' understanding of the audit S2: When an auditor is not independent, a disclaimer must be issued stating the reason for the lack of independence S3: Scope limitations result in either a qualified opinion or adverse opinion. a. All statements are true b. All statements are false c. S1 and S2 are true d. S2 and S3 are true
Incorporating elements of unpredictability in the selection of audit procedures to be performed by auditors include all of the following excepta. Varying the timing of the audit procedures.b. Selecting items for testing that have lower amounts or are otherwise outside customary selection parameters.c. Performing audit procedures on an unannounced basis.d. Sending attorney letters to every attorney listed under the legal expense account.e. None of these is correct.
5. Which of the following is not a primary purpose of audit documentation? * A. To assist in the formulation of audit conclusion B. To facilitate the review of the audit procedures done by the audit team C. To coordinate the conduct of the audit D. To prepare evidence in the event of a suit against the client E. None of them
1)Which of the following factors most likely would cause an auditor to decline a new audit engagement? A.Concluding that the entity’s management probably lacks integrity. B.An inability to perform preliminary analytical procedures before assessing control risk. C.An inadequate understanding of the entity’s internal control. D.The close proximity to the end of the entity’s reporting period. 2)Before accepting an engagement to audit a new client, an auditor is required to A.Obtain a copy of the client’s financial statements. B.Prepare amemorandum setting forth the staffing requirements and documenting the preliminary audit plan. C.Make inquiries of the predecessor auditor after obtaining consent of the prospective client. D.Discuss the management representation letter with the client’s audit committee. 3)Which of the following conditions most likely would pose the greater risk in accepting a new audit engagement?A.There will be a client-imposed scope limitation. B.The client’s…
S1: The risk of material misstatement of the financial statements is generally lesser when account balances and classes of transactions include accounting estimates rather than essentially factual data. S2: "Unrestricted access to whatever record, documentation and other information requested in connection with the audit" is usually one of the items documented in an audit engagement letter. S3: Sufficiency of evidential matter refers to the quantity of the evidence gathered. A. Only 1 statement is True B. Only 2 statements are True C. All statements are True D. All statementS are False
Which of the following statements is not true with respect to the performance principle?a. Auditors are required to prepare a written audit plan during the planning stages of initialaudits but are not required to do so in continuing audits.b. Audit teams consider materiality in planning the audit, performing the audit, and evaluating the effect of misstatements on the entity’s financial statements.c. In assessing the risk of material misstatements, the audit team considers the effectivenessof the entity’s internal controls in preventing and detecting misstatements.d. Auditors are required to consider both the relevance and the reliability of evidence inevaluating whether the evidence they have gathered is appropriate.