Jyra Mitra

Professor Hyde
ACCT 452
20 January 2015
Chapter 1
1. The crisis of credibility happened when companies restated their
previously issued financial statements that resulted to fraud. Enron is the
prime example for this case, which later filed for bankruptcy. The situation
lead the accounting board to question credibility and have companies
investigated. This also led the auditing firm Arthur Andersen to be closed.
2. Assurance services is described the broad range of information
enhancement services that are provided by CPAs. The two types of
assurance services are those that increase the reliability of information
and those that involve putting information in a form or context that
facilitates decision making.

3. The most common type of attest engagement is audit. Management most

frequently asserts financial statements.
5. Banks, factories, stores, non-governmental and governmental companies,
non-profits would need for report of an independent public accountant.
9. An operational audit is a study of a specific unit of an organization for the
purpose of measuring its performance. Evaluations are made in terms of
its effectiveness, that is, its success in meeting its stated goals and
responsibilities and objectives are less than compliance audits or financial
statement audits. The operational audit tends to require more subjective
judgment. The reports are usually directed to top management.
17. Other types of professional services offered by public accounting firms
include tax, consulting services, accounting and review services, litigation,
support services, fraud investigation services, and personal financial
planning.

22. Partners on an engagement are ultimately responsible for adequate

planning, supervision, and execution of the audit. They are also
responsible for maintaining primary contacts with clients. An important
aspect of partners' active participation in various business and civic
organizations is the prestige and recognition that may come to their firms.
23. The International Auditing and Assurance Standards Board establishes
establish International standards on Auditing, International Standards on
Quality control and standards for other assurance and related services.
The pronouncements of these standards do not override the national
auditing standards of its members. Rather they are meant to foster the
development of consistent worldwide professional standards.
26. The Sarbanes-Oxley Act of 2002 includes a set of reform that toughened
penalties for corporate fraud, restricted the types of consulting CPASs may
perform for public company audit clients and created the Public Company
Accounting Oversight Board.
28. a.
b.
c.
d.

3
1
1
2

e.
f.
g.
h.

4
4
3
4

i.
j.
k.
l.

3
4
1
2

31. 1.
2.
3.
4.

i.
h.
e.
j.

5.
6.
7.

c.
d.
a.

8.
9.
10.

f.
b.
g.

33. a.
b.
c.

1
9
2

d.
e.

4
7

f.
g.

8
6

Chapter 2
2. Generally accepted accounting principles are accounting principles that
have substantial authoritative support, such as approval by the

Governmental Accounting Standards Board or the Financial Accounting

Standards Board, or its predecessor, the Accounting Principles Board.
These standards provide the criteria for financial reporting, including the
nature and content of financial statements.
Generally accepted auditing standards (GAAS) refer to the 10 broad
standards and the Statement on Auditing Standards (SASs) set forth by
the Auditing Standards Board of the AICPA. Generally accepted auditing
standards vary depending upon whether the audit is of a public or
nonpublic company.
4. The relationship between SASs and GAAS is that SASs were organized
around ten generally accepted auditing standards that are still included in
the PCAOB Auditing Standards.
6. The auditors responsibility for detecting noncompliance with laws by
clients is to find them and be able to test them to assess the risk of
material misstatements.
8. Pike Company Management is primarily responsible for the fairness of the
financial statements as they are responsible for maintaining adequate
accounting records and of preparing proper financial statements, and the
auditors responsibility is to offer up an opinion on the financial statements
based on having conducted an audit following GAAS.
10. Circumstances that can cause an auditor to issue a modified opinion are
when a financial statement contains material deficiencies.
16. The size of the organization being audited influences the materiality in the
eyes of the auditors. Something as small as $10,000 could be considered
material for a small business, where as something at the value of $10
million could be considered immaterial for a large public company.
17. Auditors determine whether a clients accounting is appropriate when there
is no specific guidance in the FASB Codification by first checking SEC
guidance, and then by looking to non-authoritative accounting guidance
such as industry regulations/standards, FASB concept statements, AICPA
issue papers, IFRS, and more

19. The meaning of quality control and peer review as they relate to the
operation of a CPA firm is that they are necessary to provide assurance
that the firm is running their business properly. Peer review is mandatory. It
is mandated by the AICPA as the firms are required to have a sample of
their work reviewed by a CPA, CPA firm, or a team of CPAs.
20. a. Engagement performance the firms engagements are consistently
performed in accordance with professional standards and regulatory and
legal requirements.
b. Human resources it has enough personnel with the needed
competence, capabilities, and commitment.
c. Monitoring The policies and procedures relating to quality control are
relevant, adequate, and operating effectively.
30. a.
b.
c.
d.

4
2
2
2

e.
f.
g.
h.

2
3
1
3

i.
j.
k.
l.

1
1
3
4

33. a.
b.

D
S

c.
d.

Q
A

e.

36. a. Rezzo would not be justified in complying with Whites request for an
auditors opinion because Rezzo is technically not independent from White
Company.
b. If Rezzo were to issue an audit report, he should first perform an audit
of the company to follow GAAS.
c. No it would not be reasonable for the national CPA firm to assign Rezzo
to perform the audit because he would not be technically independent
from White Company.