Practice Problems Ch. 4 (ACCT-422)

Practice Problems Ch. 4 (ACCT-422) - Solutions to Chapter 4...

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Solutions to Chapter 4 Practice Problems 4-8 The rules concerning stock ownership by partners and professional staff: A partner in the office of the partner responsible for an audit engagement cannot own stock in that audit client. A partner can own stock in an audit client, as long as (1) he or she cannot influence the audit engagement and (2) he or she is not in the same office as the partner responsible for the audit engagement. A professional staff member cannot own stock in an audit client if he or she is assigned to the engagement or if he or she becomes a partner in the office of the partner responsible for the audit engagement. A professional staff member can own stock in a firm’s audit client as long as he or she does not participate in the audit engagement. Partner violation : A partner in the San Francisco office owns one share of stock of a client whose audit is conducted by a different partner in the San Francisco office. Professional staff violation : An audit manager owns stock in a client whose audit is performed by the office where the audit manager works. The manager is promoted to partner mid-year. As soon as the manager becomes a partner, there is a violation of Rule 101. 4-18 a. (1) b. (3) c. (1) 4-19 a. (1) b. (3) c. (3) 4-20 Service Violation? a. Providing bookkeeping services to a public company. The services were pre-approved by the audit committee of the company. Yes b. Providing internal audit services to a public company that is not an audit client. No c. Designing and implementing a financial information system for a private company. No d. Recommending a tax shelter to a client that is publicly held. The services were pre-approved by the audit committee. No * e. Providing internal audit services to a public company client with the pre-approval of the audit committee. Yes
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f. Providing bookkeeping services to an audit client that is a private company. No Recommending tax shelters is not prohibited as long as the service does not meet the characteristics of an abusive tax avoidance strategy, but has the potential to impair independence. 4-24 a. Independence is essential for an auditor because users of financial statements expect an unbiased viewpoint in the CPA's attestation to the fairness of the financial statements. If users believe that auditors are not independent, the value of the audit function is eliminated. b. Most other professions (attorneys, doctors, dentists, etc.) represent their clients and perform services intended primarily to assist their clients. For this reason no assumption of independence is required. The importance of independence for CPAs is similar to that for judges. For both, a nonadvocacy position is essential. c.
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Practice Problems Ch. 4 (ACCT-422) - Solutions to Chapter 4...

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