ACCT 444 Week 1 Homework
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ACCT 444 Week 1 Homework
Chapter 1
1-18 (Objectives 1-3, 1-4, 1-5) Consumers Union is a nonprofit organization
that provides information and counsel on consumer goods and services. A major
part of its function is the testing of different brands of consumer products
that are purchased on the open market and then the reporting of the results of
the tests in Consumer Reports, a
monthly publication. Examples of the types of products it tests are
middle-sized automobiles, residential dehumidifiers, flat-screen TVs, and boys’
jeans.
Required
1.
In what ways are the services
provided by Consumers Union similar to assurance services provided by CPA
firms?
2.
Compare the concept of
information risk introduced in this chapter with the information risk problem
faced by a buyer of an automobile.
3.
Compare the four causes of
information risk faced by users of financial statements as discussed in this
chapter with those faced by a buyer of an automobile.
4.
Compare the three ways users of
financial statements can reduce information risk with those available to a
buyer of an automobile.
Chapter 2
2-19 (Objective 2-7) For each of the following procedures taken
from the quality control manual of a CPA firm, identify the applicable element
of quality control from Table
2-4 on page
38.
1. Appropriate
accounting and auditing research requires adequate technical reference
materials. Each firm professional has online password access through the firm’s
Internet Web site to electronic reference materials on accounting, auditing,
tax, SEC, and other technical information, including industry data.
2. Each
office of the firm shall be visited at least annually by review persons
selected by the director of accounting and auditing. Procedures to be
undertaken by the reviewers are illustrated by the office review program.
3. All
potential new clients are reviewed before acceptance. The review includes
consultation with predecessor auditors, and background checks. All new clients
are approved by the firm management committee, including assessing whether the
firm has the technical competence to complete the engagement.
4. Each
audit engagement must include a concurring partner review of critical audit
decisions.
5. Audit
engagement team members enter their electronic signatures in the firm’s
engagement management software to indicate the completion of specific audit
program steps. At the end of the audit engagement, the engagement management
software will not allow archiving of the engagement file until all audit
program steps have been electronically signed.
6. At
all stages of any engagement, an effort is made to involve professional staff at
appropriate levels in the accounting and auditing decisions. Various approvals
of the manager or senior accountant are obtained throughout the audit.
7. No
employee will have any direct or indirect financial interest, association, or
relationship (for example, a close relative serving a client in a
decision-making capacity) not otherwise disclosed that might be adverse to the
firm’s best interest.
8. Individual
partners submit the nominations of those persons whom they wish to be
considered for partner. To become a partner, an individual must have exhibited
a high degree of technical competence; must possess integrity, motivation, and
judgment; and must have a desire to help the firm progress through the
efficient dispatch of the job responsibilities to which he or she is assigned.
9. Through
our continuing employee evaluation and counseling program and through the
quality control review procedures as established by the firm, educational needs
are reviewed and formal staff training programs modified to accommodate changing
needs. At the conclusion of practice office reviews, apparent accounting and
auditing deficiencies are summarized and reported to the firm’s director of
personnel.
10. The
firm’s mission statement indicates its commitment to quality, and this
commitment is emphasized in all staff training programs
Chapter 4
4-22 (Objectives 4-6, 4-7) Each of the following situations involves
possible violations of the AICPA’s Code of Professional Conduct.
For each situation, state whether it is a violation of the Code.
In those cases in which it is a violation, explain the nature of the violation
and the rationale for the existing rule.
1.
The audit firm of Miller and
Yancy, CPAs has joined an association of other CPA firms across the country to
enhance the types of professional services the firm can provide. Miller and
Yancy share resources with other firms in the association, including audit
methodologies and audit manuals, and common IT systems for billing and time
reporting. One of the partners in Miller and Yancy has a direct financial
interest in the audit client of another firm in the association.
.
1. Bruce
Sullivan, CPA, is the audit partner on the engagement of Xylium Corporation,
which is a public company. In structuring the agreement with the audit
committee for the audit of Xylium’s financial statements, Sullivan included a
clause that limits the liability of Sullivan’s firm so that shareholders of
Xylium are prohibited from suing Sullivan and the firm for performance issues
related to the audit.
1. Jennifer
Crowe’s audit client has a material investment in Polex, Inc. Jennifer’s
nondependent parents also own shares in Polex and Polex is not an attest client
of Jennifer’s firm. The amount of her parent’s ownership in Polex is not
significant to Jennifer’s net worth.
.
1.
Joe Stokely is a former partner
in Bass and Sims, CPAs. Recently, Joe left the firm to become the chief
operating officer of Lacy Foods, Inc., which is an audit client of Bass and
Sims. In his new role, Joe has no responsibilities for financial reporting.
Bass and Sims made significant changes to the audit plan for the upcoming
audit.
.
1.
Odonnel Incorporated has
struggled financially and has been unable to pay the audit fee to its auditor,
Seale and Seale, CPAs, for the 2009 and 2010 audits. Seale and Seale is
currently planning the 2011 audit.
1. Connor
Bradley is the partner in charge of the audit of Southern Pinnacle Bank.
Bradley is in the process of purchasing a beach condo and has obtained mortgage
financing from Southern Pinnacle.
.
1.
Jessica Alma has been serving
as the senior auditor on the audit of Carolina BioHealth, Inc. Because of her
outstanding work, the head of internal audit at Carolina BioHealth extended her
an offer of employment to join the internal audit department as an audit
manager. When the discussions with Carolina BioHealth began, Jessica informed
her office’s managing partner and was removed from the audit engagement.
.
1.
Lorraine Wilcox is a CPA and
professor of accounting at a major state university. One of her former students
recently sat for the Audit section of the CPA exam. One day, the student
dropped by Lorraine’s office and told her about many of the questions and
simulation content on the exam. Lorraine was grateful for the information,
which will be helpful as she prepares the course syllabus for the next
semester.
1.
Audrey Glover is a financial
analyst in the financial reporting department of Technologies International, a
privately held corporation. Audrey was asked to prepare several journal entries
for Technologies International related to transactions that have not yet
occurred. The entries are reflected in financial statements that the company
recently provided to the bank in connection with a loan outstanding due to the
bank.
1.
Austin and Houston, CPAs, is
performing consulting services to help management of McAlister Global Services
streamline it production operations. Austin and Houston structured the fee for
this engagement to be a fixed percentage of costs savings that result once the
new processes are implemented. Austin and Houston perform no other services for
McAlister Global.
.
Chapter 26
26-25 (Objectives 26-25, 26-1,
26-4) Weston
Corporation has an internal audit department operating out of the corporate
headquarters. Various types of audit assignments are performed by the
department for the eight divisions of the company. The following findings
resulted from recent audits of Weston Corporation’s White Division:
1.
One of the departments in the division appeared to have an
excessive turnover rate. Upon investigation, the personnel department seemed to
be unable to find enough workers with the specified skills for this department.
Some workers are trained on the job. The departmental supervisor is held
accountable for labor efficiency variances but does not have qualified staff or
sufficient time to train the workers properly. The supervisor holds individual
workers responsible for meeting predetermined standards from the day they
report to work. This has resulted in a rapid turnover of workers who are
trainable but not yet able to meet standards.
2.
The internal audit department recently participated in a
computer feasibility study for this division. It advised and concurred on the
purchase and installation of a specific computer system. Although the system is
up and operating, the results are less than desirable. The software and
hardware meet the specifications of the feasibility study, but there are
several functions unique to this division that the system has been unable to
accomplish. Linking of files has been a problem. For example, several vendors
have been paid for materials not meeting company specifications. A revision of
the existing software is probably not possible, and a permanent solution
probably requires replacing the existing computer system with a new one.
3.
One of the products manufactured by this division was recently
redesigned to eliminate a potential safety defect. This defect was discovered
after several users were injured. At present, there are no pending lawsuits
because none of the injured parties has identified a defect in the product as a
cause of the injury. There is insufficient information to determine whether the
defect was a contributing factor.
The
director of internal auditing and assistant controller is in charge of the
internal audit department and reports to the controller in corporate
headquarters. Copies of internal audit reports are sent routinely to Weston’s
board of directors.
Required
1.
Explain the additional steps in
terms of field work, preparation of recommendations, and operating management
review that ordinarily should be taken by Weston Corporation’s internal
auditors as a consequence of the audit findings in the first situation
(excessive turnover).
.
1.
Discuss whether there are any
objectivity problems with Weston Corporation’s internal audit department as
revealed by the audit findings. Include in your discussion any recommendations
to eliminate or reduce an objectivity problem, if one exists.
.
1.
The internal audit department
is part of the corporate controllership function, and copies of the internal
audit reports are sent to the board of directors.
·
Evaluate the appropriateness of
the location of the internal audit department within Weston’s organizational
structure.
.
·
Discuss who within Weston
should receive the reports of the internal audit department.
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