a.
Introduction: Auditor’s independence implies that auditors are required to be independent while conducting audit so that audit opinion is unbiased and is unaffected by the influence of others.
To explain: The reason due to which owning stock in client’s organization is considered as inappropriate.
b.
Introduction: Auditor’s independence implies that auditors are required to be independent while conducting audit so that the audit opinion is unbiased and is unaffected by the influence of others.
To examine: the reasons due to which it is important that auditors be independent of their clients.
c.
Introduction: Auditor’s independence implies that auditors are required to be independent while conducting audit so that audit opinion is unbiased and is unaffected by the influence of others.
To explain: The reason due to which Firm D took Auditor F’s actions so seriously.
d.
Introduction: Opportunity is referred as situations that increases the opportunity for a perpetrator to commit fraud and reduces the risk of getting caught. Weakness in internal controls and complex transactions are the basic factors which increases the opportunity to commit fraud.
To examine: The reasons due to which Auditor F has to make such poor professional and ethical decisions.
e.
Introduction: Auditor’s independence implies that auditors are required to be independent while conducting audit so that audit opinion is unbiased and is unaffected by the influence of others.
To explain: The procedures that a team member would undertake to report the inappropriate behavior while keeping the career protected.
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Chapter 1 Solutions
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- You have recently been appointed as auditor to Johnson Plc; a company whose shares are traded on the Stock Exchange. The Directors of Johnson Plc have recommended that you perform the following services . (i) The statutory audit of the annual financial statements. (ii) Taxation services, and (iii) Consistency services in respect of the implementation of a new information technology system Your firm has not acted for Johnson Plc before but does act as auditor for one of the major competitors. Required. (a) Identify and explain the professional and ethical issues that should have been identified by your firm in relation to the provision of the services outlined above, and describe the safeguards that should be in place in order to address these issues. (Include citations to support work). (b) What are the fundamental principles of ethics? Briefly explain their meaning (Include citations to support work). (c) A client’s affairs should not be disclosed to third parties. However where a…arrow_forwardYou are a senior manager in the audit department of Raven & Co. You are reviewing three situations which have arisen in respect of audit clients, which were recently discussed at the monthly audit managers' meeting:Grouse Co is a significant audit client which develops software packages. Its managing director, Max Partridge, has contacted one of your firm's partners regarding a potential business opportunity. The proposal is that Grouse Co and Raven & Co could jointly develop accounting and tax calculation software, and that revenue from sales of the software would be equally split between the two firms. Max thinks that Raven & Co's audit clients would be a good customer base for the product. Plover Co is a private hospital which provides elective medical services, such as laser eye surgery to improve eyesight. The audit of its financial statements for the year ended 31 March 2012 is currently taking place. The audit senior overheard one of the surgeons who performs laser…arrow_forwardYou are an audit supervisor assigned to a new client which is listed on a Stock Exchange. You visited the corporate headquarters to become acquainted with key personnel and to conduct a preliminary review of the company’s accounting policies, controls, and systems. During this visit, (b) You recognized the treasurer who was convicted of fraud several years ago. Identify the problems and explain them in relation to the internal environment.arrow_forward
- You are auditing the financial statements of Austin SoftwareCompany, which is a fast-growing software development company. As part of the company’sstrategy, management has been aggressively pursuing acquisitions of other companies.Some of the prior acquisitions resulted in the recording of goodwill. During your reviewof income and expense accounts, you noted a material goodwill impairment chargeassociated with the company’s acquisition of Longhorn Software, Inc.As part of your audit, consider each of the following:a. What are the underlying accounting standards requirements that are relevant toyour evaluation of the company’s charge for the impairment of goodwill?b. What types of evidence would be relevant to your evaluation of whether management’s impairment charge is fairly stated?c. How might the use of a business valuation specialist be helpful in this year’s audit?arrow_forwardYou are auditing the financial statements of Austin Software Company, which is a fast-growing software development company. As part of the company’s strategy, management has been aggressively pursuing acquisitions of other companies. Some of the prior acquisitions resulted in the recording of goodwill. During your review of income and expense accounts, you noted a material goodwill impairment charge associated with the company’s acquisition of Longhorn Software, Inc. Required As part of your audit, consider each of the following: What are the underlying accounting standards requirements that are relevant to your evaluation of the company’s charge for the impairment of goodwill? What types of evidence would be relevant to your evaluation of whether management’s impairment charge is fairly stated? How might the use of a business valuation specialist be helpful in this year’s audit?arrow_forwardDave and Charlie are sitting at lunch one day on the premises of one of their large audit clients when the topic of going concern comes up. Dave mentions to Charlie that he vaguely recalls hearing this term in his accounting classes back in college, but doesn't remember what this means or why it is part of the audit. Which of the following responses by Charlie would help Dave to understand this? (Select all that apply.) Going concern deals with the entity's ability to continue operating as an enterprise, and is an important assumption that the auditor should evaluate. The going concern assumption is required to be evaluated by management each year for the forthcoming year. The going concern assumption is tested by evaluating management's breach of loan and debt covenants over the past three years. Going concern really speaks to the client firm's ability to pay its short-term liabilities when they come due, and whether the firm will need to refinance maturing loans to conserve cash.arrow_forward
- Mr. Amjad is an engagement partner along with other key members of the engagement team (Khalid and Jamil) are the appointed auditors of Sammy Telecom LLC.in Muscat. Mr. Salim is the CFO of the Sammy Telecom. Who is involved in planning of an audit? O a. Mr. Khalid, Mr. Jamil, and Mr. Salim O b. The engagement partner and other key members of the engagement team O c. The engagement partner and CFO of the Sammy Telecom O d. Mr. Amjad, Mr. Khalid, Mr. Jamil and may also be meeting with Mr. Salim which provide basis of planning of an auditarrow_forwardGrant Thornton was appointed as the new auditing firm for a publicly listed IT Company. The auditing firm's Engagement Partner, an IT expert, has just replaced the previous partner only this year. The previous partner left the firm to become the Finance Director of a competitor IT Company. Which of the following ethical principles will be least breached by the previous partner in the given situation? a. Confidentiality b. Objectivity c. Integrity d. Professional Competencearrow_forward21. Imagine you are an audit manager for KPAG and partners – an audit firm based in Muscat. You have just been asked by one of your existing clients, SOHAR corporation, for help in compliance with corporate governance guidelines because they are about to obtain a stock exchange listing. They have sent you the following information. At present Mr. Omar al Balushi is both Chairman and CEO (Chief Executive Officer) of SOHAR corporation. You are required to identify from the following, whether it is a corporate governance weakness or strength and choose the correct recommendations. a. Yes, it is a weakness and chairman and CEO should not be Mr. Omar al Balushi b. Yes, it is a weakness, however if external auditors agree Mr. Omar al Balushi can continue c. None of the options d. No, it is not a weakness so no recommendation requiredarrow_forward
- You have recently been appointed as auditor to Johnson Plc; a company whoseshares are traded on the Stock Exchange. The Directors of Johnson Plc haverecommended that you perform the following services .(i) The statutory audit of the annual financial statements.(ii) Taxation services, and(iii) Consistency services in respect of the implementation of a new informationtechnology systemYour firm has not acted for Johnson Plc before but does act as auditor for one of themajor competitors.Required. (b) What are the fundamental principles of ethics? Briefly explain their meaningarrow_forwardYou are a CPA and you are the CFO (Chief Financial Officer) of USB Computer Technologies Inc., a company that specializes in customized business software. You have been requested by the board of directors of the company to attend its meeting. During the meeting, one of the directors asked you, "Why audits of our company performed by different auditors (internal, external, government). Before you could answer question, another direfctor mentioned "it would be more cost-efficient if our internal auditors will performed all the audits. " Requirements. Write down your reply to each question of the members of the board of directors. In relation to your answer in number 1, identify the issues that must be explained to the Board.arrow_forwardSteve Ankenbrandt, president of Beeb Corporation, has been discussing the company’s internal operations with the presidents of several other multidivision companies. Ankenbrandt discovered that most of them have an internal audit staff. The activities of the staffs at other companies include financial audits, operational audits, and sometimes compliance audits. Required: Describe the meaning of the following terms as they relate to the internal auditing function: a. Financial auditing. b. Operational auditing. c. Compliance auditing.arrow_forward
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