Deck 5: Ethical Responsibilities of Independent Auditors

Question 1

How would you respond if you faced a set of circumstances similar to those faced by Guy Enright

Answer 1

GE was patriotic so he believed ND as British intelligence officer by his British accent. He accepts to provide documents of K regarding I investigation. If author had faced a set of circumstances similar to those faced by GE, he would not have believed the individual who introduced himself as British intelligence officer. He would not have believed the individual talking in British accent without verifying his background and never accepted to meet him regarding discussion about official matters. Author instead would have informed the discussion with the individual to the seniors to take action on it and to make the assignment more confidential.

Question 2

Identify the accountants in this case who faced ethical dilemmas. Also identify the parties who would be potentially affected by the outcome of each of these dilemmas. What responsibility did each accountant owe to these parties Did the accountants fulfill these responsibilities

Answer 2

The Accountants who faced ethical dilemmas are:
• RS, the controller of C, He was forced to sign an illegal affidavit for the transaction of $203,000 made by U Airlines to C.
• HS, audit partner supervising the audit of C by TR, she refused to accept the $203,000 as not refundable and commission revenue.
• RS, KMG main Hurdman audit partner, he refused to accept the accounting treatment of $203,000 made by U Airlines to C.
The parties affected by these dilemmas are shareholders and creditors of C system Inc.
The responsibilities of these accountants were as follows:
• The main responsibility of the accountant is to guide the executives of the Company in right path.
• Auditors are responsible to maintain the financial data of the company.
• Auditors are responsible to act ethically while conducting audit and submitting reports.
Yes, all the three accountants fulfilled their responsibilities as RS did not sign the affidavit and lost the job. HS and RS refused to accept the accounting treatment and they mentioned the issue in the form 8-K statement.

Question 3

KPMG filed a civil lawsuit against Diligence, Inc., in 2005 after learning of the "sting operation" that firm had perpetuated on Guy Enright. What rationale or legal principles would have been the basis for that lawsuit Do you believe that KPMG would have been successful if it had pursued that lawsuit rather than settling it out of court Assuming that KPMG believed it would ultimately win a civil judgment against Diligence, why would the accounting firm choose to settle the lawsuit out of court Explain.

Answer 3

K filed a lawsuit against D Inc. for the sting operation perpetuated on GE. The basis for the legal or rational principles in this case includes stealing the confidential documents and misusing their employee to get the confident audit documents.
Yes, K would have been successful if it had pursued the lawsuit instead of settling it out of court. It is because they have a strong evidence of bundle of documents which was left anonymously at the new jersey of K by GE. GE left the job from K which shows his guilty of mishandling the documents from K to the D Inc.
K choose to settle the lawsuit out of court because K and D Inc. were dealing the case of I and A group who had ended their long running and cost legal battle by a mutual agreement. So, they settled the case out of court. D Inc. had paid $1.7 million to resolve the matter and did nothing wrong from the obtained information.

Question 4

Describe the procedures an auditor should perform during a review of a client's quarterly financial statements. In your opinion, did the Touche Ross auditors who discovered the $203,000 adjusting entry during their 1985 second-quarter review take all appropriate steps to corroborate that entry Should the auditors have immediately informed the audit partner, Helen Shepherd, of the entry

Question 5

Do you believe that Bill Grant was justified in refusing to provide the requested workpapers to the grand jury Explain.

Question 6

In reviewing the United Airlines-Cardillo agreement, Shepherd collected evidence that supported the $203,000 adjusting entry as booked and evidence that suggested the entry was recorded improperly. Identify each of these items of evidence. What characteristics of audit evidence do the profession's technical standards suggest auditors should consider Analyze the audit evidence that Shepherd collected regarding the disputed entry in terms of those characteristics.

Question 7

What responsibility, if any, does a public accounting firm have to its partners and employees when they are subpoenaed to testify regarding a client

Question 8

What are the principal objectives of the SEC rule that requires Form 8-K statements to be filed when public companies change auditors Did Shepherd violate the client confidentiality rule when she discussed the United Airlines-Cardillo transaction in the exhibit letter she filed with Cardillo's 8-K auditor change statement In your opinion, did Shepherd have a responsibility to disclose to Cardillo executives the information she intended to include in the exhibit letter

Question 9

What is the purpose of "attorneys' letters" obtained during the course of an audit If attorneys are aware that these letters can be routinely subpoenaed, how does this fact likely affect the quality of the audit evidence yielded by these letters

Question 10

Do the profession's technical standards explicitly require auditors to evaluate the integrity of a prospective client's key executives Identify the specific measures auditors can use to assess the integrity of a prospective client's executives.

Question 11

Do you believe the documentation included in tax accrual audit workpapers is likely affected by auditors' knowledge that those workpapers can be obtained by the IRS Explain.

Question 12

Is it ethical for a CPA or CPA firm to help companies "manage" their reported earnings and financial condition In responding to this question, first assume that the CPA or CPA firm is serving as a consultant, and then assume that the CPA or CPA firm is serving as the given entity's independent auditor. Defend your answers.

Question 13

The legal opinion in this case did not indicate how Lola Rojas actually used the funds she embezzled from Ryden Trucking. Suppose that she did use those funds to pay medical expenses of her mother. Given this assumption, would you describe her behavior as "unethical" Defend your answer.

Question 14

When a dispute arises between an audit client and its auditor regarding the proper accounting treatment for a transaction or other item, the audit client will sometimes retain another accounting firm to issue a SAS No. 50 report on the proper accounting treatment for the given item. Identify the potential ethical dilemmas that may result from allowing accounting firms to issue SAS No. 50 reports to non-audit clients.

Question 15

What factors may have motivated Jermell Marshall to go to such great lengths to help Rojas Do you believe that Marshall acted "prudently" in dealing with Rojas

Question 16

Should auditors insist that their clients accept all proposed audit adjustments, even those that have an "immaterial" effect on the given financial statements Defend your answer.

Question 17

Although not mentioned in this case, the plaintiff that sued Marshall maintained that he had been negligent in supervising Rojas while she was assigned to the Ryden engagement. That negligence, according to the plaintiff, had contributed to Rojas's decision to embezzle funds from Ryden. Briefly describe the supervisory responsibilities that the U.S. auditing standards impose on senior personnel assigned to an audit or accounting services engagement. To what extent does a supervisor on such engagements have a responsibility to prevent his or her subordinates from engaging in criminal activity

Question 18

Should auditors take explicit measures to prevent their clients from discovering or becoming aware of the materiality thresholds used on individual audit engagements Would it be feasible for auditors to conceal this information from their audit clients

Question 19

The appellate judge who reviewed the lower court opinion in this case observed that Marshall may have been "morally obligated" to warn Rojas's new employer of her prior criminal conduct. Explain the difference between a "moral obligation" and a "legal obligation." If someone fails to honor a moral obligation, has he or she behaved "unethically"

Question 20

Identify the general principles or guidelines that dictate when companies are entitled to record revenue. How were these principles or guidelines violated by the $7.8 million barter transaction and the two consignment sales discussed in this case

Question 21

How, if at all, should MMC report the expected loss on the large receivable in its Form 10-K financial statements Explain.

Question 22

Identify and briefly explain each of the principal objectives that auditors hope to accomplish by preparing audit workpapers. How were these objectives undermined by Deloitte's decision to alter North Face's 1997 workpapers

Question 23

Place yourself in Richard Grimes' position. What decision alternatives does he have after overhearing the conversation between Alva Russell and Daniel Slater Which of these alternatives should he choose Why

Question 24

North Face's management teams were criticized for strategic blunders that they made over the course of the company's history. Do auditors have a responsibility to assess the quality of the key decisions made by client executives Defend your answer.

Question 25

Did Richard have a responsibility to make the two client executives aware of his presence when he was outside of Russell's office Why or why not

Question 26

Bermuda's Minister of Finance retained KPMG to "audit" the business affairs of IPOC to determine whether the company was a criminal enterprise or a legitimate business operation. What type of professional service was KPMG providing during this engagement Did the engagement qualify as an assurance, attestation, audit, or consulting engagement Defend your answer.

Question 27

Do you believe that Daniel Slater would have reacted differently if the auditor in question had been a female rather than a male Explain.

Question 28

What moral, ethical, and professional responsibilities did Guy Enright face when he was asked to turn over confidential documents to the individuals who were representing themselves as intelligence agents for the British and the U.S. governments Which of those responsibilities did he violate and which did he uphold

Question 29

Compare and contrast the conduct of Guy Enright and Nick Day. Which of these individuals was most ethical (or least unethical) Defend your answer.