Constructive fraud is present whenever the performance of the auditor is

Constructive fraud is present whenever the

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5-25 (Objective 5-5 ) Sarah Robertson, CPA, had been the auditor of Majestic Co. for several years. As she and her staff prepared for the audit for the year ended December 31, 2015, Herb Majestic told her that he needed a large bank loan to “tide him over” until sales picked up as expected in late 2016.In the course of the audit, Robertson discovered that the financial situation atMajestic Co. was worse than Majestic had revealed and that the company was technically bankrupt. She discussed the situation with Majestic, who pointed out that the bank loan would “be his solution”—he was sure he would get it as long as the financial statements didn’t look too bad.
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Heather McQueen-LP3 Exercises
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  • Summer '18
  • Financial audit, External auditor, U.S. Securities and Exchange Commission, Heather McQueen-LP3 Exercises

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