Charles Worthington, the founding and senior partner of a successful and respected public accounting firm, was a highly competent practitioner who always emphasized high professional standards. One of the policies of the firm was that all reports by members or staff be submitted to Worthington for review.
Recently, Robert Craft, a junior partner in the firm, received a phone call from Herbert Flack, a close personal friend. Flack informed Craft that he, his family, and some friends were planning to create a corporation to engage in various land development ventures; that various members of the family are presently in a
Flack asked Craft to prepare a
The transmittal letter stated: “We have reviewed the books and records of Flack Ventures, a partnership, and have prepared the attached balance sheet at March 31, 20X0. We did not perform an audit in conformity with generally accepted auditing standards, and therefore do not express an opinion on the accompanying balance sheet.” The balance sheet was prominently marked “unaudited.” Craft signed the letter and instructed his secretary to send it to Flack.
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What legal problems are suggested by these facts? Explain.
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Principles of Auditing & Other Assurance Services (Irwin Accounting)
- Your public accounting practice is located in a city of 15,000 people. The majority of your work, conducted by you and two assistants, consistsof compiling clients’ monthly statements and preparing income tax returns for individuals from cash data and partnership returns from books and records. You have a small number of audit clients; given the current size of your practice, you generally consider it a challenge to accept new audit clients.One of your corporate clients is a retail hardware store. Your work for this client has been limited to preparing the corporate income tax return from a trial balance submitted by the bookkeeper.On December 26, you receive from the president of the corporation a letter containing the following request:We have made arrangements with First National Bank to borrow $500,000 to finance the purchase of a complete line of appliances. The bank has asked us to furnish our auditors’ certified statement as of December 31, which is the closing date of our…arrow_forwardTammy Potter, a new partner with the regional CPA firm of Tower & Tower, was recently appointed to the board of directors of a local civic organization. The chairman of the board of the civic organization is Lewis Edmond, who is also the owner of a real estate development firm, Tierra Corporation. Potter was quite excited when Edmond indicated that his corporation needed an audit and he wished to discuss the matter with her. During the discussion, Potter was told that Tierra Corporation needed the audit to obtain a substantial amount of additional financing to acquire another company. Presently, Tierra Corporation is successful, profitable, and committed to growth. The audit fee for the engagement should be substantial. Because Tierra Corporation appeared to be a good client prospect, Potter tentatively indicated that Tower & Tower wanted to do the work. Potter then mentioned that Tower & Tower’s quality control policies require an investigation of new clients and approval…arrow_forwardYou are a CPA and you are the CFO (Chief Financial Officer) of USB Computer Technologies Inc., a company that specializes in customized business software. You have been requested by the board of directors of the company to attend its meeting. During the meeting, one of the directors asked you, "Why audits of our company performed by different auditors (internal, external, government). Before you could answer question, another direfctor mentioned "it would be more cost-efficient if our internal auditors will performed all the audits. " Requirements. Write down your reply to each question of the members of the board of directors. In relation to your answer in number 1, identify the issues that must be explained to the Board.arrow_forward
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