AFM_451_2007Midterm

AFM_451_2007Midterm - UNIVERSITY OF WATERLOO School of...

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UNIVERSITY OF WATERLOO School of Accountancy Accounting 451 – Audit Strategy MIDTERM EXAMINATION Linda A. Robinson Friday, October 26, 2007 -- 4:30p.m. – 6:00 p.m. Instructions: 1. Write legibly. Illegible answers will not be graded. Write in pen. 2. There are 3 questions on 7 pages plus 2 pages of schedules for question one 3. Ensure when you make a statement you support your statement with an explanation . It is up to you to provide answers that show you understand what you are saying. The marker will only mark what is written we will not assume what you mean if you did not written it. Ask yourself ‘why am I saying this?’ A full answer should support the why. Full sentences should be used as much as possible. 4. You may have to make assumptions in order to answer certain questions on the exam: state any assumptions clearly and include them with your answer. Be careful not to assume away all or part of the question. Question Marks Suggested Time 1 45 40 minutes 2 40 36 minutes 3 15 13 minutes Total 100 90 minutes AFM 451 October 26, 2007 Page 1 of 7
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Question 1 (45%) It’s going to be a long night! First thing this morning, the senior partner of the three- partner PA firm, Robinson, Russell and Right (“RRR”), called you into her office to tell you that she had a confidential but exciting assignment for you. The firm has been retained to review the audit working papers of another firm in connection with its audit of TVB Software (TVB), a public company. That PA firm, Yeller, Louder and Soft (YLS), had performed the audit of TVB for the last two years, since the date it went public. It appears that the bank did not renew TVB’s loan when it matured some six months ago and TVB was unable to obtain other financing. As a result, your firm’s client, Mr. Leung, lost a good portion of the $2 million he had invested in the shares of TVB. Your client, Mr. Leung, is suing the auditors of TVB, alleging that they failed to perform the audit in accordance with generally accepted auditing standards (GAAS), and that as a result, your client relied on financial statements that were not correct when he made his decision to hold on to his TVB shares. The last audited statements are attached. Linda Robinson, the partner, has reviewed the contents of YLS’s working papers. Her notes are attached. You have been asked to review these notes and prepare a report identifying any departures from GAAS to support your client’s view that the audit was not conducted in accordance with GAAS. In this regard, you should note whether each instance is a clear departure from GAAS or whether the matter is grey and, therefore, subject to potential challenge in court. Linda Robinson is also concerned that your firm may have some professional responsibilities under the Rules of Professional Conduct in connection with this agreement. She would like you to identify these for her. Required
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AFM_451_2007Midterm - UNIVERSITY OF WATERLOO School of...

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