Principles of Auditing & Other Assurance Services (Irwin Accounting)
20th Edition
ISBN: 9780077729141
Author: Ray Whittington, Kurt Pany
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 3, Problem 8RQ
Bill Scott works as a manager in the Phoenix office of an international public accounting firm. His father has just taken a position as a purchasing agent for one of the public accounting firm’s Phoenix clients. Has Bill’s independence been impaired with respect to this audit client? Has the public accounting firm’s independence been impaired if Bill does not work on the audit?
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John works as a manager in the Aster office of an international public accounting firm. His father has just taken a position as a purchasing agent for one of the public accounting firm’s Aster clients. Has Mr. John’s independence been impaired with respect to this audit client? Has the public accounting firm’s independence been impaired if John does not work on the audit?
Independence is compromised in which of the following situations?
The auditor withdraws himself from the engagement team who will audit the business of his brother.
The auditor is currently auditing a company where his brother is the Managing Director.
The auditor obtained a loan from his friend’s bank. The bank is not a client of the auditor’s firm
The auditor received payment for past due billings from the company who is no longer his client.
Sarah O’Hann enjoyed taking her first auditing course as part of her undergraduate accounting program. While at home during her semester break, she and her father discussed the class, and it was clear that he didn’t really understand the nature of the audit process as he asked the following questions.
What is the main objective of the audit of an entity’s financial statements?
Given the CPA firm is auditing financial statements, why would they need to understand anything about the client’s business?
What does the auditor do in an audit other than verify the mathematical accuracy of the numbers in the financial statements?
The audit represents the CPA firm’s guarantee about the accuracy of the financial statements, right?
Isn’t the auditor’s primary responsibility to detect all kinds of fraud at the client?
Chapter 3 Solutions
Principles of Auditing & Other Assurance Services (Irwin Accounting)
Ch. 3 - What is meant by the term ethical dilemma?...Ch. 3 - What are the two major types of constraints on...Ch. 3 - Prob. 3RQCh. 3 - Prob. 4RQCh. 3 - Prob. 5RQCh. 3 - Prob. 6RQCh. 3 - Prob. 7RQCh. 3 - Bill Scott works as a manager in the Phoenix...Ch. 3 - Prob. 9RQCh. 3 - Prob. 10RQ
Ch. 3 - Prob. 11RQCh. 3 - Prob. 12RQCh. 3 - Prob. 13RQCh. 3 - Prob. 14RQCh. 3 - Prob. 15RQCh. 3 - Prob. 16RQCh. 3 - Prob. 17RQCh. 3 - Prob. 18RQCh. 3 - Prob. 19RQCh. 3 - Prob. 20RQCh. 3 - Prob. 21RQCh. 3 - Prob. 22RQCh. 3 - Prob. 23RQCh. 3 - Prob. 24RQCh. 3 - Prob. 25RQCh. 3 - Prob. 26RQCh. 3 - Prob. 27QRACh. 3 - Prob. 28QRACh. 3 - Prob. 29QRACh. 3 - Prob. 30QRACh. 3 - Prob. 31QRACh. 3 - Prob. 32QRACh. 3 - Ron Barber, CPA, is auditing the financial...Ch. 3 - Prob. 34AOQCh. 3 - Prob. 34BOQCh. 3 - Prob. 34COQCh. 3 - Prob. 34DOQCh. 3 - Prob. 34EOQCh. 3 - Prob. 34FOQCh. 3 - Prob. 34GOQCh. 3 - Prob. 34HOQCh. 3 - Prob. 34IOQCh. 3 - Prob. 34JOQCh. 3 - Prob. 34KOQCh. 3 - Prob. 34LOQCh. 3 - Prob. 35OQCh. 3 - Prob. 36OQCh. 3 - Prob. 37OQCh. 3 - Prob. 38OQCh. 3 - Prob. 39OQCh. 3 - Prob. 40OQCh. 3 - Prob. 41OQCh. 3 - Prob. 42OQCh. 3 - Gary Watson, a graduating business student at a...Ch. 3 - Prob. 44PCh. 3 - Prob. 45PCh. 3 - Prob. 46PCh. 3 - Prob. 47ITCCh. 3 - Prob. 48ITCCh. 3 - Prob. 49RDC
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- Which of the following is true?a. Members of an audit engagement team cannot speak with audit client officers about matters outside the scope of the audit while the audit engagement is in progress.b. Audit team members who leave the public accounting firm for employment with auditclients can provide audit efficiencies (next year) because they are very familiar with thefirm’s audit plans.c. Audit team partners who leave the public accounting firm for employment with auditclients can retain variable annuity retirement accounts established in the person’s formerfirm retirement plan.d. The public accounting firm must discuss with the audit client’s board or its audit committee the independence implications of the client’s having hired the audit engagement teammanager as its financial vice president.arrow_forwardHannah Montana is interviewing with public accounting firms to become an auditor. Hannah does not believe that fraud is a "big deal" in client organizations and argues that most individuals in management of companies are "honest people". She believes that auditors are becoming too cynical. Describe your response to Hannah's attitude and discuss the major types of fraud that occur in companies.arrow_forwardThe following relates to the Menendez–Halliburton situation described in the text.(a) How would you characterize Halliburton’s accounting for revenue from ethical and professional perspectives?(b) Once KPMG learned that Menendez had provided a complaint to Halliburton’s audit committee highlighting questionable accounting and auditing practices, the KPMG audit partner instructed the audit team members to avoid communications with Menendez. How would you characterize those actions ethically and professionally?arrow_forward
- Which of the following would probably not be considered an “act discreditable to the profession”?a. Numerous moving traffic violations.b. Failing to file the CPA’s own tax return.c. Filing a fraudulent tax return for a client in a severe financial difficulty.d. Refusing to hire Asian Americans in an accounting practicearrow_forwardSuppose that you are the auditor of Sky Travel Ltd, a reputed travel agent that also manages all your audit firm’s travel arrangements on normal commercial rates. The chief executive officer of Sky Travel Ltd has requested if you could help them overcome financial difficulties by recommending their services to your other audit clients. What type of threat to your independence does this request? Select one: a. Self-interest. b.Self-review threat c.Advocacy threat. d.Intimidation threaarrow_forwardDave 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 firm will need to refinance maturing loans to conserve cash.arrow_forward
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