The document contains descriptions of multiple audit engagement scenarios involving different accounting firms and clients. It provides details about the audits, including information about the clients, engagement teams, any issues that arose, and in some cases asks questions about compliance with auditing standards or codes of ethics. The scenarios are presented to different engagement teams for analysis and response.
The document contains descriptions of multiple audit engagement scenarios involving different accounting firms and clients. It provides details about the audits, including information about the clients, engagement teams, any issues that arose, and in some cases asks questions about compliance with auditing standards or codes of ethics. The scenarios are presented to different engagement teams for analysis and response.
The document contains descriptions of multiple audit engagement scenarios involving different accounting firms and clients. It provides details about the audits, including information about the clients, engagement teams, any issues that arose, and in some cases asks questions about compliance with auditing standards or codes of ethics. The scenarios are presented to different engagement teams for analysis and response.
Diaz Company Case Study Olympic Sports, Inc. Michael Diaz, owner of Diaz Company, applied for a bank loan and Tracy Torres, CPA, is in charge of the audit of Olympic Sports, Inc. was informed by the banker that audited financial statements of the seven young members of the public accounting firm’s professional staff are business had to be submitted before the bank could consider the loan working with Tracy on this engagement, and several of the young auditors application. Michael then retained Arnold Benamer, CPA, to perform an are avid swimmers. Olympic owns two condominiums in Quezon City, which audit. Michael inform Arnold that audited financial statements were it uses primarily to entertain clients. The controller of Olympic has told required by the bank and that the audit must be completed within three Tracy that she and any of her audit staff are welcome to use the weeks. Michael also promised to pay Arnold a fixed fee plus a bonus if the condominiums at no charge any time that they are not already use. How bank approved the loan. Arnold agreed and accepted the engagement. would Tracy respond to his offer? Explain. The first step taken by Arnold was to hire two accounting students to conduct the audit. He spent several hours telling them exactly what to do. Arnold told the students not to spend time reviewing controls but instead to concentrate on proving the mathematical accuracy of the ledger accounts and summarizing the data in the accounting records that support Diaz Company’s financial statements. The students followed Arnold’s instructions and after 2 weeks gave Arnold the financial statements, which did not include any notes. Arnold reviewed the statements and prepared an unqualified audit report. The report, however, did not refer to generally accepted accounting principles. Indicate how the actions of Arnold resulted in a failure to comply with the Standards of Auditing.
Engagement Team 1 – Group 2 Engagement Team 2 – Group 2
DGF, Inc. Wilson Corporation Ronnie Bernabe, CPA, is auditing the financial statements of DGF, Leon Macapili, CPA and a member of the PICPA, was engaged to Inc., a publicly held company. During the course of the audit, Ronnie audit the financial statements of Wilson Corporation. Leon had half- discovered that DGF has been making illegal bribes to government officials completed the audit when he had a dispute with the management of Wilson to obtain business, and he reported the matter to senior management and and was discharged. Donald Guevarra, CPA, was promptly engaged to the board of directors of DGF. replace Leon. Wilson did not compensate Leon for his work to date; a) If management and the board of directors take appropriate remedial therefore, Leon refused to allow Wilson’s management to examine his action, should Ronnie be required to report the matter outside the working papers. Certain of the working papers consisted of adjusting journal company? entries and supporting analysis. Wilson’s management had no other source b) Describe Ronnie’s appropriate response if management and the board of this information. Did Leon violate the Code of Ethics for Professional of directors fail to take appropriate remedial action. Accountants? Explain Fully.
Engagement Team 3 – Group 1 Engagement Team 4 – Group 1
Rowell Mutya Bermudez & Co. Rowell Mutya, CPA, is interested in expanding his practice through The firm of Bermudez & Co., CPAs, has offices in Dagupan and acquisition of new clients. For each of the following independent cases, Quezon. Galeman Company, which has 1 million shares of outstanding indicate whether Rowell would violate the Code of Professional Conduct by stock, is audited by the Dagupan office of Bermudez; Mark Clemente of the engaging in the suggested practice and explain why. If more information is Dagupan office is the partner in charge of the audit. For each of the needed to arrive at a final determination, indicate the nature of such following circumstances, indicate whether the public accounting firm’s information. independence is impaired with respect to Galeman Company. a) Rowell wishes to form a corporation and use the name “AAAAAAAA the a) Gerald Montes, a partner in the Dagupan office, own 100 shares of the CPAs,” to obtain the first ad in the yellow pages of the telephone book. stock of Galeman. He has no responsibilities with respect to the b) Rowell wishes to prepare a one-page flyer which he will have his son Galeman audit. stuff on the windshields of each car at the MOA shopping mall. The flyer b) Jeff Malinay, a partner in the Quezon office, owns 600 shares of the will outline the services provided by Rowell’s firm and will include a stock of Galeman Audit. P500-off coupon for services provided on the first visit.
Engagement Team 4 – Group 2 Engagement Team 3 – Group 2 Bermudez & Co. - CONTINUATION Rowell Mutya - CONTINUATION c) Rommel Laguerta is a staff assistant in the Quezon office and owns 10 c) Rowell has a thorough knowledge of the tax law. He has a number of percent of Galeman’s outstanding common stock. Rommel provides no acquaintances who prepare their own tax returns. He proposes to offer services to Galeman and is not able to influence the engagement. to review these returns before they are filed with the Internal Revenue d) Bermudez, the partner in charge of the entire firm, works in Quezon Service. For this review, he will charge no fee unless he is able to office. He owns 100 shares of Galeman stock (market value P2 per identify legal tax savings opportunities. He proposes to charge each share), but provides no services on the engagement. individual one-third of the tax savings he is able to identify. e) Wally Arboleda is a staff assistant on the audit. Wally’s mother owns d) Rowell and his associates audit a number of municipalities. He proposes shares of Galeman that are material to her net worth and of which wally to contact other CPAs and inform them of his interest in obtaining more has knowledge. of these types of audits. He offers a P500 “finder’s fee” CPAs who forward business to him.
Engagement Team 5 – Group 1 Engagement Team 6 – Group 1
Ermita and Regencia Santos and Salvador, CPAs The firm of Ermita and Regencia, CPAs, has been asked to perform The firm of Santos and Salvador, CPAs, has two offices, one in Cavite attest services for Promenade Corporation (a nonpublic company) for the and one in Tarlac. The firm has audited the Cameron Corporation out of its year ended December 31, 2017. Ermita and Regencia have two offices: one Cavite office for the past five years. For each of the following independent in Samar and the other in Leyte. Promenade would be audited by the Samar cases, which occurred during the year under audit, indicate whether the office. For each of the following independent cases, indicate whether independence of either (a) the CPA involved or (b) the firm would be Ermita and Regencia would be independent with respect to Promenade and impaired. explain why. a) Leila Santos, a partner in the Tarlac office, fell wildly in love with Dennis a) A partner in the Samar office of Ermita and Regencia has been a long- Abello, the treasurer for Cameron Corporation. They were married in time personal friend of the chief executive officer of Promenade. Laguna. During the week, Leila still lives in Tarlac and works in that b) The former controller of Promenade became a partner in the Leyte office, while Dennis lives in Cavite, working for Cameron. On weekends office of Ermita and Regencia on March 15, 2017, resigning from they commute to their home in Batangas. Leila does not participate in Promenade on that date. the engagement. b) Jonathan Salvador is the father of Richard Salvador, a Cavite partner. Jonathan has a material investment in Cameron. Richard is unaware of his father’s investment, but does participate in the engagement.
Engagement Team 5 – Group 2 Engagement Team 6 – Group 2
Ermita and Regencia - CONTINUATION Santos and Salvador, CPAs - CONTINUATION c) A manager in the Leyte office of Ermita and Regencia is the son of the c) Erwin De Jesus, a senior in the Tarlac office, has a material investment in treasurer of Promenade. the capital stock of Cameron. He does not participate in the d) A partner in the Leyte office of Ermita and Regencia jointly owns a cattle engagement. ranch in Baguio with one of the directors of Promenade. The value of d) Sandra Sanchez, a staff assistant in the Cavite office, works on the the investment is material to both parties. Cameron audit. Her uncle works as the chief accounting officer for e) Promenade has not yet paid Ermita and Regencia for professional Cameron. services rendered in 2016. This fee is substantial in amount and is now 15 moths past due.
Engagement Team 7 – Group 1
March Corporation A nonpublic audit client, March Corporation, requested that Joseph Morales, CPA, conduct a feasibility study to advise management of the best way the corporation can use electronic data processing equipment and which computer, if any, best meets the corporation’s requirements. Joseph is technically competent in this area and accepts the engagement. Upon completion of Joseph’s study, the corporation accepts his suggestions and installs the computer and related equipment that he recommended. a) Discuss the effect that acceptance of this consulting services engagement would have upon Joseph’s independence in expressing an opinion on the financial statements of March Corporation. b) A local company printing data processing forms customarily offers a commission for recommending is as a supplier. The client is aware of the commission offer and suggests that Joseph accept it. Would it be proper for Joseph to accept the commission with the client’s approval? Discuss.
Engagement Team 7 – Group 2
Gary Alemania Gary Alemania, a graduating accounting student at a small college, is currently interviewing for a job. Gary was invited by both Palayan Manufacturing Co. and Blue Orient Company to travel to a nearby city for an interview. Both companies have offered to pay Gary’s expenses. His total expenses for the trip were P600 for mileage on his car and P400 for meals. As he prepares the letters requesting reimbursement, he is considering asking for the total amount of the expenses from both employers. His rationale is that if he had taken separate trips, each employer would have had to pay that amount. a) Who are the parties that are directly affected by this ethical dilemma? b) Are the other students at the college potentially affected by Gary’s decision? Explain. c) Are the professors at the college potentially affected by Gary’s decision? d) What would you do in this situation? e) What would you do if both companies mailed you P1,000 for your expenses with no action on your part?