AUDITING - CHAPTER 5 - AUDITING CHAPTER 5 1 In connection...

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AUDITING - CHAPTER 5 1. In connection with a public offering of first mortgage bonds by DuMond Corp., the bond underwriter has asked DuMond's CPA to furnish him with a comfort letter giving as much assurance as possible relative to DuMond's unaudited financial statements for the three months ended March 31, 2000. The CPA had expressed an unqualified opinion on DuMond's financial statements for the year ended December 31, 1999; he has performed a limited review of DuMond's financial statements for the three months ended March 31, 2000. Nothing has come to his attention that would indicate that the March 31, 2000 statements are not properly presented. Under these circumstances, the CPA's response to the underwriter's request should be to a.furnish to the underwriters an opinion that the March 31, 2000 statements are fairly presented subject to year-end audit adjustments. b. give negative assurance as to the March 31, 2000 financial statements but disclaim an opinion on these statements. c.inform the underwriters that no comfort letter is possible without an audit of the financial statements for the three months ended March 31, 2000. d. Furnish to the underwriters an adverse opinion covering financial statements for the three months ended March 31, 2000. 2. As a consequence of his failure to adhere to generally accepted auditing standards in the course of his examination of the Lamp Corp, Harrison, CPA, did not detect the embezzlement of a material amount of funds by the company's controller. As a matter of common law, to what extent would Harrison be liable to the Lamp Corp. for losses attributable to the theft? a.He would have no liability, since the ordinary examination cannot be relied upon to detect thefts of assets by employees. b. He would have no liability because privity of contract is lacking. c.He would be liable for losses attributable to his negligence. d. He would be liable only if it could be proven that he was grossly negligent. 3. The King Surety Company wrote a general fidelity bond covering thefts of assets by the employees of Wilson, Inc. Thereafter, Cooney, an employee of Wilson, embezzled $17,200 of company funds. When the activities were discovered, King paid Wilson the full amount in accordance with the terms of the fidelity bond, and then sought recovery against Wilson's auditors, Lynch & Merritt, CPAs. Which of the following would be Lynch & Merritt's best defense? a.King is not in privity of contract. b. The shortages were the result of clever forgeries and collusive fraud which would not be detected by an examination made in accordance with generally accepted auditing standards. d.
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This note was uploaded on 02/22/2010 for the course CCA 401 taught by Professor Mohammad during the Spring '10 term at Abraham Baldwin Agricultural College.

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AUDITING - CHAPTER 5 - AUDITING CHAPTER 5 1 In connection...

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