Auditing And Assurance Services
17th Edition
ISBN: 9780134897431
Author: ARENS, Alvin A.
Publisher: PEARSON
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Chapter 24, Problem 6RQ
To determine
Determine the ways that can be used by Person R to find out materiality of lawsuits and proper disclosure in
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As part of the ongoing audit of Winter Enterprises, the external auditor, Ghassan CPAS are reviewing the client's balance sheet. An
audit manager has noticed a contingent liability on the balance sheet, with an associated note explaining the client believes they may
be the subject of litigation in the near future. What would be the auditor's best course of action at this juncture?
O Directly contact the client's legal counsel and attempt to obtain further details of the potential litigation. This should be
done independently of the client and without the client's knowledge so management cannot alter any documentation or
attempt to influence the external legal counsel.
Request written assurances from top management, indemnifying the external auditors from any lawsuits filed against the
client.
Request permission from the client's management to contact the client's legal counsel and discuss the details of this
potential litigation.
Immediately advise the client in writing of the…
Dave 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
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Gordon & Moore, CPAs, were the auditors of Fox & Company, a brokerage firm. Gordon & Moore examined and reported on the financial statements of Fox, which were filed with the Securities and Exchange Commission. Several of Fox’s customers were swindled by a fraudulent scheme perpetrated by two key officers of the company. The facts establish that Gordon & Moore were negligent, but not reckless or grossly negligent, in the conduct of the audit, and neither participated in the fraudulent scheme nor knew of its existence. The customers are suing Gordon & Moore under the antifraud provisions of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 for aiding and abetting the fraudulent scheme of the officers. The customers’ suit for fraud is predicated exclusively on the negligence of the auditors in failing to conduct a proper audit, thereby failing to discover the fraudulent scheme.
What is the probable outcome of the lawsuit? Explain.
What other…
Chapter 24 Solutions
Auditing And Assurance Services
Ch. 24 - Prob. 1RQCh. 24 - Explain why an auditor is interested in a clients...Ch. 24 - Prob. 3RQCh. 24 - Prob. 4RQCh. 24 - Prob. 5RQCh. 24 - Prob. 6RQCh. 24 - Prob. 7RQCh. 24 - Prob. 8RQCh. 24 - What major considerations should the auditor take...Ch. 24 - Identify five audit procedures normally done as a...
Ch. 24 - Prob. 11RQCh. 24 - Prob. 12RQCh. 24 - Prob. 13RQCh. 24 - Prob. 14RQCh. 24 - Prob. 15RQCh. 24 - Prob. 16RQCh. 24 - Prob. 17RQCh. 24 - Prob. 18RQCh. 24 - Prob. 19RQCh. 24 - Prob. 20.1MCQCh. 24 - Prob. 20.2MCQCh. 24 - Prob. 20.3MCQCh. 24 - Prob. 21.1MCQCh. 24 - Prob. 21.2MCQCh. 24 - Prob. 21.3MCQCh. 24 - Prob. 22.1MCQCh. 24 - Prob. 22.2MCQCh. 24 - Prob. 22.3MCQCh. 24 - Prob. 23.1MCQCh. 24 - Prob. 23.2MCQCh. 24 - Prob. 23.3MCQCh. 24 - Prob. 24DQPCh. 24 - Prob. 25DQPCh. 24 - Prob. 26DQPCh. 24 - Prob. 28DQPCh. 24 - Prob. 29DQPCh. 24 - Prob. 32DQPCh. 24 - Prob. 33DQP
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