74.
What is the purpose of having required auditor communications between the external
auditor and the audit committee?
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75.
Why is materiality one of the most difficult judgments to make in auditing financial
statements?
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76.
Differentiate between the auditors’ responsibilities to detect errors, fraud, and illegal acts.
How would you assess the ethics of a company that has experienced each event with
respect to motivation and the integrity of those who go along with such events?
77.
Internal controls, an internal audit function, and an audit committee are all elements of a
strong corporate governance system. How should an external auditor evaluate these
elements in making a risk assessment? What are the ethical signs that each system is
operating as intended?
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78.
Campus Fast is a new audit client. Client Fast uses public WiFi to place and deliver
restaurant take out for students at the Up and Coming State University. Campus Fast was
founded by three highly ambitious MBA students at the university. The business plan is to
find a buyer or place an IPO of the company by graduation in two years. The founders
expect to pay off all student loans, take a tour around the world and then start another
company. In order for the business plan to work on the timeline for graduation, the
business must meet highly ambitious earnings numbers. Additionally, the company is
dealing with two situations that the founders would like to keep from the auditors:
1) The company has been using free, unsecured public WiFi to take orders via the Internet.
The customer may pay via the Internet. Several students, who all happen to be members
of the same student organization on campus, are claiming that using Campus Fast has
allowed their identity to be stolen. One student is claiming that she had $12,000 of
charges on her credit card to the unsecured Internet site of Campus Fast. Management
plans to pay off the complaining students and keep the true liability off the balance sheet.
The reason is Campus Fast is concerned that an interested buyer may become concerned
about the unsecured site and might get scared by the student complaints.
2) The company guarantees fast delivery. It has offered to pay any speeding or other
moving violation tickets to its delivery drivers. Unfortunately, one of the drivers was
involved in an accident due to running a red light. The passenger in the other car is in
critical condition and the intensive care unit in the hospital. The driver has promised the
family of the passenger that the company will make good on any expenses and admitted
the company policy on repaying all traffic tickets. Attorneys for the injured party are
threatening to sue and publicize the situation. The founders do not have enough cash to
take care of this problem but are still trying to keep the situation from the auditors and
potential buyer.
Using the internal control framework assess the internal controls at Campus Fast and risk
environment.
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79.
Identify the deficiencies in the following audit report of the AICPA. Explain why each item
is a deficiency.
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80.
On July 1, 2015, the Public Company Accounting Oversight Board issued a concept release
to seek public comment on the content and possible uses of a group of potential “audit
quality indicators.” The indicators are a potential portfolio of quantitative measures that
may provide new insights about how to evaluate the quality of audits and how high quality
audits are achieved. Taken together with qualitative context, the indicators may inform
discussions among those concerned with the financial reporting and auditing process, for
example among audit committees and audit firms. Enhanced discussions, in turn, may
strengthen audit planning, execution, and communication. The Board sought advice on
these subjects through the comment process and were to convene a public roundtable
about the concept release, on a date to be determined during the fourth quarter of 2015.
The proposed indicators are in the exhibit below.
Required:
Comment on the need for audit quality indicators and any limitations of providing such
information in the public domain.
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