Chapter 4 1. a. Hiring / Professional requirements b.

To ensure that personnel who will be performing audits have adequate technical training and proficiency. c. New accountants hired must have an accounting degree from an accredited school. 2. a. Advancement / Professional requirements b. To ensure personnel are qualified to do the tasks they are assigned. c. An in-charge accountant must have served as a staff auditor on an audit in the clients industry. 3. a. Skills and Competence b. To ensure that personnel continue to be updated on changes in accounting or auditing standards. c. Personnel will participate in forty hours of continuing education per year. 4. a. Consultation b. To ensure that personnel have access to persons with more experience in dealing with problems they have encountered. c. For each industry for which the office has a client, a specialist will be identified. 5. a. Independence b. To ensure that personnel meet PICPA guidelines for independence. c. Firm personnel must list their investments. Personnel must report any stock acquisitions. a. Supervision b. To ensure that work performed meets the firms standard of quality. c. Staff personnel are to follow firm guidelines for working paper development. a. Inspection / Review b. To verify that quality control procedures are being followed. c. Inspect the audit programs for all engagements. a. Acceptance and retention of clients b. To minimize the risk associated with clients. c. New clients must be investigated by a private investigative agency.

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a. Assigning personnel to engagements b. To ensure that personnel posses the degree of technical training and proficiency required for an engagement. c. To be eligible to be senior on an engagement, a person must have had experience in the industry. Chapter 7 Case 3. Yes, Since Bella had an employment relationship with the client during part of the period covered by the financial statements, her independence is impaired. Case 4. Yes, This is a violation. It is a contingent fee agreement. Case 6. No. CPAs may refuse client access to their working papers for any valid business purpose. Therefore, a CPA may require that fees be paid before working papers including such adjusting entries and supporting analysis are provided to the client.

Chapter 8 Case 7. Yes, but only to the extent of P70,000. Beta is a third-party beneficiary of the contract between Mega and its auditors, and may therefore recover from the auditors losses caused by the CPAs ordinary negligence. However, the original P50,000 loan was made prior to Betas reliance upon the negligently audited financial statements. Thus, the auditors negligence was not the proximate cause of this portion of Betas loss. The auditors negligence may, however, be considered the proximate cause of the P70,000 loss incurred as a result of reliance upon the misleading statements. The prospects for Manilas recovery of its P30,000 loss are substantially less than those of Beta. Manila was not a third-party beneficiary to the contract. Thus, in many jurisdictions following Ultramares, Manila cannot recover losses attributable to the CPAs ordinary negligence. Similarly, it is doubtful that Manila would qualify as a foreseen third party as necessary under the Restatement approach. Even in a jurisdiction accepting the Rosenblum precedent, which allows third parties to recover losses caused by the auditors ordinary negligence, Manila would have to prove that it was a foreseeable third party relying upon the financial statements for routine business purposes. It is questionable whether the loan by Manila was either reasonably foreseeable or routine, as Manila was a customer of Mega, not a lender.