Archives: Solution Manual

Notes on Major Case 5 Navistar International This case discusses a complex and high risk audit engagement. The case looks at the consulting and auditing of complex audit issues. Ethical Issues: Deloitte had a duty and obligation of independence and […]

Notes on Major Case 3 MicroStrategy Ethical Issues: This case centers revenue recognition at MicroStrategy in 1997 to 1999. It provides an opportunity to discuss revenue recognition in the high tech industry and how to recognize revenue when the sales […]

Notes on Major Case 4 Cendant Corporation Ethical Issues: This case centers on a variety of accounting issues that illustrate the lengths to which a company can go to manipulate earnings. Cendant manipulated membership revenue; improperly recorded merger and purchase […]

Notes on Major Case 1 Adelphia Communications Corp This case discusses a complex and high risk audit engagement. The auditors had to consider related party transactions and their effect on the application of GAAP and footnote disclosures. The case deals […]

9. What is the difference between legal and ethical compliance with corporate governance provisions? Discuss what might be the ethical compliance mechanisms from a virtue ethics perspective. Legal compliance with corporate governance creates a minimum set of standards and is […]

Chapter 8 Discussion Questions 1. In this chapter we discuss problems encountered by the PCAOB in gaining access to inspect work papers of audits by U.S. international accounting firms of Chinese companies. Explain why these problems exist including cultural, legal, […]

Class Action Lawsuits in the U.S. On January 11, 2010, India asked the authorities in the U.S. to not take any action against Satyam, as it would amount to punishing shareholders twice. Satyam can face punitive action in the U.S. […]

Case 8-3 Satyam: India’s Enron Satyam Computer Services, now Mahindra Satyam, is an India-based global business and information technology services company that specializes in consulting, systems integration, and outsourcing solutions. The company was the fourth largest software exporter in India […]

Specific SEC Charges The SEC Complaint alleged the following: 1. As a result of Shell’s knowing or reckless overstatement of their oil and gas reserves in their financial statements, the group’s commission filings, specified previously, as well as other public […]

Case 8-4 Royal Dutch Shell plc From 1907 until 2005, Royal Dutch Petroleum Company, a Netherlands-based company, and the Shell Transport and Trading Company, plc, a UK-based company, were the two public parent companies of a group of companies known […]

Failure of the Board The statutory board is intended to act as a fundamental monitor within the company and check that the board of directors is complying with laws in their actions and decisions. The Parmalat board of statutory auditors […]

Case 8-2 Parmalat: Europe’s Enron After the news broke about the frauds at Enron and WorldCom in the U.S., there were those in Europe who used the occasion to beat the drum: “Our Principles-based approach to accounting standard-setting is better […]

Case 8-6 Olympus Summary of the Case On September 25, 2012, Japanese camera and medical equipment maker Olympus Corporation and three of its former executives pleaded guilty to charges related to a $1.7 billion accounting cover-up in one of Japan’s […]

Case 8-5 Autonomy Background On November 20, 2012, Hewlett-Packard (HP) disclosed that it had discovered an accounting fraud and has written down $8.8 billion of the value of Autonomy, the British software company it bought in 2011 for $11.1 billion, […]

11. Safety-Kleen is a North American company that offers environmental products and services. The company issued a major financial restatement in 2001. In 2000, the company’s board of directors initiated an investigation of possible accounting fraud within the company. The […]

Chapter 7 Discussion Questions 1. In Arthur Levitt’s speech that was referred to in the opening quote he also said: “…I fear that we are witnessing an erosion in the quality of earnings, and therefore, the quality of financial reporting. […]

Case 7-10 Vivendi Universal “Some of my management decisions turned wrong, but fraud? Never, never, never.” This statement was made by the former CEO of Vivendi Universal, Jean-Marie Messier, as he took the stand in November 20, 2009, for a […]

Case 7-6 Sweat Construction Company During the past few years due to increasing competition, Sweat Construction Company has been more aggressive in seeking out new business opportunities. One such opportunity is the Computer Assistance Vocational Training School. It has contracted […]

Case 7-7 Sunbeam Corporation One of the earliest frauds during the late 1990s and early 2000s was at Sunbeam. The SEC alleged in its charges against Sunbeam that top management engaged in a scheme to fraudulently misrepresent Sunbeam’s operating results […]

Case 7-4 Solway, Inc. Ben Davis is an internal accountant at Solway Inc.., a publicly-owned company headquartered in Austin, California. Ben reports to Chris Hodgins, the controller of the company. Hodgins reports to the CFO, Harry Benson. Benson reports to […]

Case 7-2 Solutions Network, Inc. “We can’t recognize revenue immediately, Paul, since we agreed to buy similar software from Data Systems Solutions (DSS),” Sarah Young stated. “That’s ridiculous,” Paul Henley replied. “Get your head out of the sand, Sarah, before […]

Case 7-9 The North Face, Inc. The North Face, Inc. (North Face) is an American outdoor product company specializing in outerwear, fleece, coats, shirts, footwear, and equipment such as backpacks, tents, and sleeping bags. North Face sells clothing and equipment […]

Case 7-1 Nortel Networks Canada-based Nortel Networks was one of the largest telecommunications equipment companies in the world prior to its filing for bankruptcy protection on January 14, 2009, in the United States, Canada, and Europe. The company had been […]

Case 7-8 Diamond Foods On November 14, 2012, Diamond Foods Inc. disclosed restated financial statements tied to an accounting scandal that reduced its earnings during the first three quarters of 2012 as it took significant charges related to improper accounting […]

Case 7-5 Dell Computer Background For years, Dell’s seemingly magical power to squeeze efficiencies out of its supply chain and drive down costs made it a darling of the financial markets. Now we learn that the magic was at least […]

Case 7-3 Cubbies Cable Ernie Binks is a big baseball fan, so it is quite natural for him, at a time like this, to recall a phrase attributed to Yogi Berra: “It was déjà vu all over again.” Binks is […]

14. Some auditors claim that increased exposure under Section 404 of the SOX creates a litigation environment that is unfairly risky for auditors. Do you think that the inability of auditors to detect a financial statement misstatement due to internal […]

Chapter 6 Discussion Questions 1. Distinguish between common-law liability and statutory liability for auditors. What is the basis for the difference in liability? Common law liability arises from legal opinions issued by judges in deciding cases. These opinions become legal […]

Case 6-10 SEC v. Zurich Financial Services Background On December 11, 2008, the SEC reached agreement with Zurich Financial Services (Zurich) to settle the commission’s charges against Zurich Financial Services Group for aiding and abetting a fraud by Converium Holding […]

Case 6-5 Vertical Pharmaceuticals Inc. et al v. Deloitte & Touche LLP On December 13, 2012, Vertical Pharmaceuticals Inc. and an affiliated company sued Deloitte & Touche LLP in New Jersey state court for alleged accountant malpractice, claiming the firm’s […]

Case 6-9 Reznor v. J. Artist Management (JAM), Inc. Michael Trent Reznor met John Malm Jr., a part-time promoter of local rock bands who also is a licensed CPA, in Cleveland, Ohio, in 1985. Malm became Reznor’s manager and formed […]

Case 6-6 SEC v DHB Industries, Inc., n/k/a Point Blank Solutions, Inc Background In the past few years, the U.S. Securities and Exchange Commission has stepped up its enforcement actions against independent directors of publicly traded companies. While the commission […]

Failure to Competently Evaluate Evidence Obtained by the Confirmation Process In general, it is presumed that audit evidence is more reliable when it is obtained from knowledgeable independent sources outside the entity. During the 2005 year-end audit, L&H failed to […]

Case 6-7 Livingston & Haynes, P. C. This case concerns alleged violations of Section 10A of the Securities Exchange Act by Livingston & Haynes, P. C. (“L&H”), Howley and Wood in connection with L&H’s 2005 and 2006 year-end audits and […]

Case 6- 8 Kay & Lee LLP Kay and Lee LLP has just been retained as the auditor for Holligan Industries to audit the financial statements required by a bank, Second National Bank & Trust, as a prerequisite to extending […]

Case 6-1 SEC v. Halliburton Company and KBR, Inc. On February 11, 2009, the SEC announced settlements with KBR, Inc., and Halliburton Company to resolve SEC charges that KBR subsidiary Kellogg Brown & Root LLC bribed Nigerian government officials over […]

Case 6-2 Con-way Inc. Summary of Findings Con-way is a Delaware corporation headquartered in San Mateo, California. It is an international freight transportation and logistics services company that conducts operations in a number of foreign jurisdictions. During the relevant period, […]

13. In 2005, the IMA reported the results of a survey of business, academic, and regulatory leaders conducted by the Center for Corporate Change that found the corporation’s culture to be the most important factor influencing the attitudes and behavior […]

Chapter 5 Discussion Questions 1. What is the purpose of audit “risk assessment”? What are its objectives, and why is it important in assessing the likelihood that fraud may occur? Risk assessment is the process of estimating the likelihood of […]

Case 5-2 ZZZZ Best The story of ZZZZ Best is one of greed and audaciousness. It is the story of a 15-year-old boy from Reseda, California, who was driven to be successful regardless of the costs. His name is Barry […]

Case 5- 9 Royal Ahold N.V. (Ahold) Summary of the Charges against Ahold On October 13, 2004, the SEC charged Royal Ahold N.V. (Ahold) with multiple violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, […]

Case 5-5 Krispy Kreme Doughnuts, Inc. On March 4, 2009, the SEC reached an agreement with Krispy Kreme Doughnuts, Inc., and issued a cease- and-desist order to settle charges that the company fraudulently inflated or otherwise misrepresented its earnings for […]

Case 5-10 Groupon Introduction The Groupon case was first discussed in Chapter 3. Here, we expand on the discussion of internal controls and the risk of material misstatement in the financial statements. Groupon is a deal-of-the-day recommendation service for consumers. […]

Case 5-7 First Community Bank This case involves the valuation of loan loss estimates of First Community Bank (FCB) and the examination of relevant accounts by the CPA firm of Howard & Stacey LLP. FCB provided mostly residential loans to […]

Case 5- 8 Fannie Mae: The Government’s Enron Background The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are government-sponsored entities (GSEs) that operate under congressional charters to “help lower- and middle-income Americans […]

Case 5-6 Dunco Industries The following two cases deal with accounting issues at Dunco Industries. Part 1 – Marcus Yamabuto Marcus Yamabuto graduated from Washington State University in June 2013. He began his career working for Dunco Industries, a public […]

Case 5-1 Computer Associates Computer Associates (CA) is a business consulting and software development company that designs, markets, and licenses computer software products that allow businesses to efficiently run and manage critical aspects of their information technology. CA’s stock trades […]

Case 5-4 Audit Client Considerations and Risk Assessment Lanny Beaudean joined the CPA firm of Cardinal & Coyote LLP in 200 11after working for two years for the IRS in Phoenix, Arizona. Cardinal & Coyote is a second-tier CPA firm […]

44. To whom do the accounting codes of professional conduct (either the state board of public accountancy or AICPA) apply? A. Those CPAs in public accounting only. B. Those CPAs in industry, government, and education. 45. Integrity is measured in […]

Test Bank Chapter 4 Multiple Choice Questions 1. The International Federation of Accountants (IFAC) research report, Rebuilding Public Confidence in Financial Reporting: An International Perspective, has as its goal which of the following: A. Creating an international CPA certificate B. […]