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Auditing I ACC403
Homework Submission
Chapter 3 Problems
3-25:
a) The correct answer is option 3. The annual audit report of M showed that sales were mistakenly being
recorded as revenue when the order for goods was placed, instead of when they were shipped. If the
amount is material then the auditor should ask the client to correct the error. If the client refuses to
correct the error then the auditor should issue a qualified except for opinion.
b) The correct answer is option 2. If management does not provide a reasonable justification for a
change in accounting principles then the auditor should not give a disclaimer opinion.
c) The correct answer is option 3. If the auditor states in his/her opinion paragraph the effect of not
capitalizing certain lease obligations, and that the financial statement presents a true and fair view of all
materials, then the auditor should give a qualified opinion.
3-28:
(a)
(b)
(c)
(d)
CONDITION
MATERIALITY
TYPE OF REPORT
COMMENTS
LEVEL
1. Scope of audit has
been restricted
Significantly material
Disclaimer opinion
2. Lack of
independence
N/A
Disclaimer opinion
Lack of independence
by auditor on the
engagement dictates a
disclaimer opinion for
lack of independence.
3. None
N/A
Unqualified
opinion
4. Substantial doubt
without going concern
Material
Unqualifiedexplanatory paragraph
5. None
Material
Unqualified
Auditor involved in
business valuation
specialist to collect
sufficient information
in order to determine
the investments fair
value. The auditor
should give an
unqualified opinion as
he was able to
determine that the
work of the specialist
provided sufficient
evidence.
6. Unable to follow
GAAP
Material or highly
material.
Adverse of qualified
The materiality of
20% of earnings
before taxes would be
adequate for many
auditors to give an
adverse opinion.
3-31:
Item
No.
1.
2.
3.
4.
5.
6.
7.
8.
Type of Change
Should auditors
report be
modified?
No
Yes
Yes
No
No
Yes
Yes
Yes
Chapter 4 Problems
4-20:
a) Yes
b) No
c) No
d) No
e) No
f) Yes
4-23:
a) Independence is required for an auditor as the users of financial statements require an independent
perspective about the reliability of the information contained within the financial statements. Janes is
required by the Code of Professional Conduct to remain independent in appearance as well as
independent in mind. Taking advantage of a sales discount, eating in the employee lunch room and
receiving presents at the companys Christmas party could jeopardize this Code.
b) In order for an auditor to remain independent during an audit it is important that the auditor follow a
set of principles rather than a set of rules. An established framework for these proper set of principles is
key. A good framework would consist of fundamental ethical principles, reasoned analysis of the
possible threats to these principles, and proper guidance on the safeguards that will help mitigate
possible threats. Safeguards apply at three levels: safeguards in the work environment, safeguards that
increase the risk of detection, and specific safeguards to deal with particular cases. If unable to
implement fully adequate safeguards, the auditor must not carry out the work.
c) Yes, Janes will have violated the rules of professional Conduct without having safeguards in place.
d) Janes should definitely examine the effect taking the discount offer would have on her independence
in the work she is performing, before accepting the offer. Her best bet would be to not take advantage
of the discount. She can accept the lunch as long as she does not establish any relationships with other
employees while eating the lunch. She can accept the gift at the party as long as she is able to maintain
her independence while performing her work. Again, her best et would be to not accept the Christmas
party gift, however, this situation is different from the situation of accepting a discount on a new car.
She poses the threat of offending the client if she turns down an already purchased gift.
4-26:
a) The four parts of the AICPA Code of Professional Conduct are:
1. Principles, not enforceable
2. Ethical principles, not enforceable
3. Rules, enforceable
4. Interpretations of Rules of Conduct, not enforceable
b) Principles set the ideal standards related to ethical conduct described in philosophical terms. On the
other hand, rules imply the minimum number of standards of ethical conduct mentioned as specific
rules. These rules can be enforced against members of AICPA.
c) The enforcement actions that could be enforced when an auditor does not follow the rules of conduct
are the loss of the CPA certificate or the loss of their license to practice.
d)
2013
2012
827
819
437
768
734
827
88
Admonished
76
161
167
244
No Violation/Dismissed
69
36
No Further Action
85
182
30
32
Other
13
17