An organized and independent examination of financial services to express an opinion on financial statements whether such statements as a whole are free from material misstatement and giving a true and fair view of the state of the entity is known as auditing. To explain: The objective of external auditing and failure of Person F to achieve the objective.

Question

Nixon & Co., CPAs, issued an unmodified opinion on the 2015 financial statements of Madison Corp. These financial statements were included in Madison’s annual report and Form 10-K filed with the SEC. Nixon did not detect material misstatements in the financial statements as a result of negligence in the performance of the audit. Based upon the financial statements, Harry Corp. purchased stock in Madison. Shortly thereafter, Madison became insolvent, causing the price of the stock to decline drastically. Harry has commenced legal action against Nixon for damages based upon Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. What would be Nixon’s best defense to such an action? Explain.

Answer 1

Question

Chapter 1, Problem 55FF

a.

To determine

Introduction: An organized and independent examination of financial services to express an opinion on financial statements whether such statements as a whole are free from material misstatement and giving a true and fair view of the state of the entity is known as auditing.

To explain: The objective of external auditing and failure of Person F to achieve the objective.

B.

To determine

Introduction: Auditor’s independence ensures that auditor conducts an audit in a fair manner and as per the established standards and rules without any bias or managerial influence that may affect the work performed.

To explain: The requirement of independent audit in financial statements.

C.

To determine

Introduction: The financial statements indicate the financial performance of a company. It discloses the profits earned and losses occurred by the company during the period and the position of its assets and liabilities at the end of the year.

To state: The users of Company A’s financial statements and its adverse affect on Person F’s action.

D.

To determine

Introduction: Audit quality is maintained when audit is performed as per the generally accepted auditing standards and gives a reasonable declaration that the financial statements and related disclosures are free from material misstatements and are presented as per the generally acceptable accounting principles.

To state: The skill and knowledge required for quality audit of Company F’s financial statements and failure of individual who actually performed the audit work.

E.

To determine

Introduction: Audit quality is maintained when audit is performed in accordance with the generally accepted auditing standards and provides a reasonable assurance that the financial statements and related disclosures are free from material misstatements and are presented in accordance with generally acceptable accounting principles.

To explain: The facts in this case related to each of the driver of audit quality.

F.

To determine

Introduction: An organized and independent examination of financial services to express an on opinion on financial statements whether such statements as a whole are free from material misstatement and gives a true and fair view of the state of the entity is known as auditing.

To state: The Person F & B agreed to conduct the audit in first place.

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Answer 2

Question

Chapter 1, Problem 55FF

a.

To determine

Introduction: An organized and independent examination of financial services to express an opinion on financial statements whether such statements as a whole are free from material misstatement and giving a true and fair view of the state of the entity is known as auditing.

To explain: The objective of external auditing and failure of Person F to achieve the objective.

B.

To determine

Introduction: Auditor’s independence ensures that auditor conducts an audit in a fair manner and as per the established standards and rules without any bias or managerial influence that may affect the work performed.

To explain: The requirement of independent audit in financial statements.

C.

To determine

Introduction: The financial statements indicate the financial performance of a company. It discloses the profits earned and losses occurred by the company during the period and the position of its assets and liabilities at the end of the year.

To state: The users of Company A’s financial statements and its adverse affect on Person F’s action.

D.

To determine

Introduction: Audit quality is maintained when audit is performed as per the generally accepted auditing standards and gives a reasonable declaration that the financial statements and related disclosures are free from material misstatements and are presented as per the generally acceptable accounting principles.

To state: The skill and knowledge required for quality audit of Company F’s financial statements and failure of individual who actually performed the audit work.

E.

To determine

Introduction: Audit quality is maintained when audit is performed in accordance with the generally accepted auditing standards and provides a reasonable assurance that the financial statements and related disclosures are free from material misstatements and are presented in accordance with generally acceptable accounting principles.

To explain: The facts in this case related to each of the driver of audit quality.

F.

To determine

Introduction: An organized and independent examination of financial services to express an on opinion on financial statements whether such statements as a whole are free from material misstatement and gives a true and fair view of the state of the entity is known as auditing.

To state: The Person F & B agreed to conduct the audit in first place.

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Answer 3

Question

Chapter 1, Problem 55FF

a.

To determine

Introduction: An organized and independent examination of financial services to express an opinion on financial statements whether such statements as a whole are free from material misstatement and giving a true and fair view of the state of the entity is known as auditing.

To explain: The objective of external auditing and failure of Person F to achieve the objective.

B.

To determine

Introduction: Auditor’s independence ensures that auditor conducts an audit in a fair manner and as per the established standards and rules without any bias or managerial influence that may affect the work performed.

To explain: The requirement of independent audit in financial statements.

C.

To determine

Introduction: The financial statements indicate the financial performance of a company. It discloses the profits earned and losses occurred by the company during the period and the position of its assets and liabilities at the end of the year.

To state: The users of Company A’s financial statements and its adverse affect on Person F’s action.

D.

To determine

Introduction: Audit quality is maintained when audit is performed as per the generally accepted auditing standards and gives a reasonable declaration that the financial statements and related disclosures are free from material misstatements and are presented as per the generally acceptable accounting principles.

To state: The skill and knowledge required for quality audit of Company F’s financial statements and failure of individual who actually performed the audit work.

E.

To determine

Introduction: Audit quality is maintained when audit is performed in accordance with the generally accepted auditing standards and provides a reasonable assurance that the financial statements and related disclosures are free from material misstatements and are presented in accordance with generally acceptable accounting principles.

To explain: The facts in this case related to each of the driver of audit quality.

F.

To determine

Introduction: An organized and independent examination of financial services to express an on opinion on financial statements whether such statements as a whole are free from material misstatement and gives a true and fair view of the state of the entity is known as auditing.

To state: The Person F & B agreed to conduct the audit in first place.

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Answer 4

Question

Chapter 1, Problem 55FF

a.

To determine

Introduction: An organized and independent examination of financial services to express an opinion on financial statements whether such statements as a whole are free from material misstatement and giving a true and fair view of the state of the entity is known as auditing.

To explain: The objective of external auditing and failure of Person F to achieve the objective.

B.

To determine

Introduction: Auditor’s independence ensures that auditor conducts an audit in a fair manner and as per the established standards and rules without any bias or managerial influence that may affect the work performed.

To explain: The requirement of independent audit in financial statements.

C.

To determine

Introduction: The financial statements indicate the financial performance of a company. It discloses the profits earned and losses occurred by the company during the period and the position of its assets and liabilities at the end of the year.

To state: The users of Company A’s financial statements and its adverse affect on Person F’s action.

D.

To determine

Introduction: Audit quality is maintained when audit is performed as per the generally accepted auditing standards and gives a reasonable declaration that the financial statements and related disclosures are free from material misstatements and are presented as per the generally acceptable accounting principles.

To state: The skill and knowledge required for quality audit of Company F’s financial statements and failure of individual who actually performed the audit work.

E.

To determine

Introduction: Audit quality is maintained when audit is performed in accordance with the generally accepted auditing standards and provides a reasonable assurance that the financial statements and related disclosures are free from material misstatements and are presented in accordance with generally acceptable accounting principles.

To explain: The facts in this case related to each of the driver of audit quality.

F.

To determine

Introduction: An organized and independent examination of financial services to express an on opinion on financial statements whether such statements as a whole are free from material misstatement and gives a true and fair view of the state of the entity is known as auditing.

To state: The Person F & B agreed to conduct the audit in first place.

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Answer 5

Chapter 1, Problem 55FF

a.

To determine

Introduction: An organized and independent examination of financial services to express an opinion on financial statements whether such statements as a whole are free from material misstatement and giving a true and fair view of the state of the entity is known as auditing.

To explain: The objective of external auditing and failure of Person F to achieve the objective.

B.

To determine

Introduction: Auditor’s independence ensures that auditor conducts an audit in a fair manner and as per the established standards and rules without any bias or managerial influence that may affect the work performed.

To explain: The requirement of independent audit in financial statements.

C.

To determine

Introduction: The financial statements indicate the financial performance of a company. It discloses the profits earned and losses occurred by the company during the period and the position of its assets and liabilities at the end of the year.

To state: The users of Company A’s financial statements and its adverse affect on Person F’s action.

D.

To determine

Introduction: Audit quality is maintained when audit is performed as per the generally accepted auditing standards and gives a reasonable declaration that the financial statements and related disclosures are free from material misstatements and are presented as per the generally acceptable accounting principles.

To state: The skill and knowledge required for quality audit of Company F’s financial statements and failure of individual who actually performed the audit work.

E.

To determine

Introduction: Audit quality is maintained when audit is performed in accordance with the generally accepted auditing standards and provides a reasonable assurance that the financial statements and related disclosures are free from material misstatements and are presented in accordance with generally acceptable accounting principles.

To explain: The facts in this case related to each of the driver of audit quality.

F.

To determine

Introduction: An organized and independent examination of financial services to express an on opinion on financial statements whether such statements as a whole are free from material misstatement and gives a true and fair view of the state of the entity is known as auditing.

To state: The Person F & B agreed to conduct the audit in first place.

Answer 6

Chapter 1, Problem 55FF

a.

To determine

Introduction: An organized and independent examination of financial services to express an opinion on financial statements whether such statements as a whole are free from material misstatement and giving a true and fair view of the state of the entity is known as auditing.

To explain: The objective of external auditing and failure of Person F to achieve the objective.

Answer 7

Chapter 1, Problem 55FF

a.

To determine

Introduction: An organized and independent examination of financial services to express an opinion on financial statements whether such statements as a whole are free from material misstatement and giving a true and fair view of the state of the entity is known as auditing.

To explain: The objective of external auditing and failure of Person F to achieve the objective.

Answer 8

B.

To determine

Introduction: Auditor’s independence ensures that auditor conducts an audit in a fair manner and as per the established standards and rules without any bias or managerial influence that may affect the work performed.

To explain: The requirement of independent audit in financial statements.

Answer 9

B.

To determine

Introduction: Auditor’s independence ensures that auditor conducts an audit in a fair manner and as per the established standards and rules without any bias or managerial influence that may affect the work performed.

To explain: The requirement of independent audit in financial statements.

Answer 10

C.

To determine

Introduction: The financial statements indicate the financial performance of a company. It discloses the profits earned and losses occurred by the company during the period and the position of its assets and liabilities at the end of the year.

To state: The users of Company A’s financial statements and its adverse affect on Person F’s action.

Answer 11

C.

To determine

Introduction: The financial statements indicate the financial performance of a company. It discloses the profits earned and losses occurred by the company during the period and the position of its assets and liabilities at the end of the year.

To state: The users of Company A’s financial statements and its adverse affect on Person F’s action.

Answer 12

D.

To determine

Introduction: Audit quality is maintained when audit is performed as per the generally accepted auditing standards and gives a reasonable declaration that the financial statements and related disclosures are free from material misstatements and are presented as per the generally acceptable accounting principles.

To state: The skill and knowledge required for quality audit of Company F’s financial statements and failure of individual who actually performed the audit work.

Answer 13

D.

To determine

Introduction: Audit quality is maintained when audit is performed as per the generally accepted auditing standards and gives a reasonable declaration that the financial statements and related disclosures are free from material misstatements and are presented as per the generally acceptable accounting principles.

To state: The skill and knowledge required for quality audit of Company F’s financial statements and failure of individual who actually performed the audit work.

Answer 14

E.

To determine

Introduction: Audit quality is maintained when audit is performed in accordance with the generally accepted auditing standards and provides a reasonable assurance that the financial statements and related disclosures are free from material misstatements and are presented in accordance with generally acceptable accounting principles.

To explain: The facts in this case related to each of the driver of audit quality.

Answer 15

E.

To determine

Introduction: Audit quality is maintained when audit is performed in accordance with the generally accepted auditing standards and provides a reasonable assurance that the financial statements and related disclosures are free from material misstatements and are presented in accordance with generally acceptable accounting principles.

To explain: The facts in this case related to each of the driver of audit quality.

Answer 16

F.

To determine

Introduction: An organized and independent examination of financial services to express an on opinion on financial statements whether such statements as a whole are free from material misstatement and gives a true and fair view of the state of the entity is known as auditing.

To state: The Person F & B agreed to conduct the audit in first place.

Answer 17

F.

To determine

Introduction: An organized and independent examination of financial services to express an on opinion on financial statements whether such statements as a whole are free from material misstatement and gives a true and fair view of the state of the entity is known as auditing.

To state: The Person F & B agreed to conduct the audit in first place.

Answer 18

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Ch. 1 - Prob. 1TFQ Ch. 1 - Prob. 2TFQ Ch. 1 - Prob. 3TFQ Ch. 1 - Prob. 4TFQ Ch. 1 - Prob. 5TFQ Ch. 1 - Prob. 6TFQ Ch. 1 - Prob. 7TFQ Ch. 1 - Prob. 8TFQ Ch. 1 - Prob. 9TFQ Ch. 1 - Prob. 10TFQ

Introduction: Auditor’s independence ensures that auditor conducts an audit in a fair manner and as per the established standards and rules without any bias or managerial influence that may affect the work performed. To explain: The requirement of independent audit in financial statements.

Chapter 1 Solutions

Introduction: Auditor’s independence ensures that auditor conducts an audit in a fair manner and as per the established standards and rules without any bias or managerial influence that may affect the work performed.

To explain: The requirement of independent audit in financial statements.