DQ1 week2.docx - 1 5-27(Objectives 5-5 5-6 Part 1 Whitlow...

1. 5-27 (Objectives 5-5 , 5-6) Part 1 .
Whitlow & Company is a brokerage firm registered under
the Securities Exchange Act of 1934. The act requires such
a brokerage firm to file audited financial statements with
the SEC annually.
Mitchell & Moss, Whitlow’s CPAs, performed the annual audit for
the year ended December 31, 2016, and rendered an unqualified
opinion, which was filed with the SEC along with Whitlow’s
financial statements. During 2016, Charles, the president of
Whitlow & Company, engaged in a huge embezzlement scheme
that eventually bankrupted the firm. As a result, substantial losses
were suffered by customers and shareholders of Whitlow &
Company, including Thaxton, who had recently purchased several
shares of stock of Whitlow & Company after reviewing the
company’s 2016 audit report. Mitchell & Moss’s audit was
deficient; if they had complied with auditing standards, the
embezzlement would have been discovered. However, Mitchell &
Moss had no knowledge of the embezzlement, nor can their
conduct be categorized as reckless.