AC 410 All Assignments

AC 410 Unit 1 Homework Assignment 

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homework-assignment 

1–20 

Public accounting firms are sometimes grouped into categories of local 

firms, regional firms, national firms, and international firms. Explain 

briefly the characteristics of each. Include in your answer the types of 

services stressed in each group. 

1–26 

The Sarbanes-Oxley Act of 2002 created the Public Company 

Accounting Oversight Board. Explain the major responsibilities of this 

board. 

2–7 

Evaluate the following quotation: “If a CPA firm completes a nonpublic 

company audit of Adam Company’s financial statements following 

AICPA generally accepted auditing standards and is satisfied with the 

results of the audit, an unmodified audit report may be issued. On the 

other hand, if no audit is performed of the current year’s financial 

statements, but the CPA firm has performed satisfactory audits in prior

years, has confidence in the management of the company, and makes a 

quick review of the current year’s financial statements, a qualified 

report may be issued.” 

Do you agree? Give reasons to support your answer. 

2–28 

Reed, CPA, accepted an engagement to audit the financial statements 

of Smith Company. Reed’s discussions with Smith’s new management 

and the predecessor auditor indicated the possibility that Smith’s 

financial statements may be misstated due to the possible occurrence 

of errors, fraud, and illegal acts. 

a. Identify and describe Reed’s responsibilities to detect Smith’s errors 

and fraud. Do not identify specific audit procedures. 

b. Describe Reed’s responsibilities to detect Smith’s material 

noncompliance with laws. Do not identify specific audit procedures. 

c. Identify and describe Reed’s responsibilities to report Smith’s 

noncompliance with laws. 

AC 410 Unit 10 Assignment 

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assignment 

Reflect and describe which key concepts and topics in this course have 

made you a stronger candidate to enter the business world. 





3-31 

Ron Barber, CPA, is auditing the financial statements of DGF, Inc., a 

publicly held company. During the course of the audit, Barber 

discovered that DGF has been making illegal bribes to foreign 

government officials to obtain business, and he reported the matter to 

senior management and the board of directors of DGF.

Required: 

If management and the board of directors take appropriate remedial 

action, should Barber be required to report the matter outside the 

company? 

Describe Barber's appropriate response if management and the board 

of directors fail to take appropriate remedial action. 

3-43 

Thomas Gilbert and Susan Bradley formed a professional corporation 

called “Financial Services Inc.—A Professional Corporation,” each taking 

50 percent of the authorized common stock. Gilbert is a CPA and a 

member of the AICPA. Bradley is a CPCU (Chartered Property Casualty 

Underwriter). The corporation performs auditing and tax services under 

Gilbert's direction and insurance services under Bradley's supervision. 

One of the corporation's first audit clients was Grandtime Company. 

Grandtime had total assets of $600,000 and total liabilities of $270,000. 

In the course of his examination, Gilbert found that Grandtime's 

building with a carrying value of $240,000 was pledged as collateral for 

a 10-year term note in the amount of $200,000. The client's financial 

statements did not mention that the building was pledged as collateral 

for the 10-year term note. However, as the failure to disclose the lien 

did not affect either the value of the assets or the amount of the 

liabilities, and his examination was satisfactory in all other respects, 

Gilbert rendered an unqualified opinion on Grandtime's financial 

statements. About two months after the date of his opinion, Gilbert 

learned that an insurance company was planning to loan Grandtime 

$150,000 in the form of a first-mortgage note on the building. Realizing

that the insurance company was unaware of the existing lien on the 

building, Gilbert had Bradley notify the insurance company of the fact 

that Grandtime's building was pledged as collateral for a term note. 

Shortly after the events described above, Gilbert was charged with 

several violations of professional ethics. 

Required: 

Identify and discuss at least four ethical implications of those acts by 

Gilbert that were in violation of the AICPA Code of Professional 

Conduct. 

4-21 

Jensen, Inc., filed suit against a public accounting firm, alleging that the 

auditors' negligence was responsible for failure to disclose a large 

defalcation that had been in process for several years. The public 

accounting firm responded that it may have been negligent, but that 

Jensen, Inc., was really to blame because it had completely ignored the 

public accounting firm's repeated recommendations for improvements 

in internal control. 

Required: 

If the public accounting firm was negligent, is it responsible for the loss 

sustained by the client? Does the failure by Jensen, Inc., to follow the 

auditors' recommendation for better internal control have any bearing 

on the question of liability? Explain. 

4-26

The international CPA firm of Arthur Andersen faced significant liability 

in conjunction with its audits of Enron Corporation. 

Required: 

From a legal liability perspective, describe the unique features of this 

audit case. 

Describe the important implications of this audit case for a firm of 

public accountants. 





5–36 

Comment on the reliability of each of the following examples of audit 

evidence. Arrange your answer in the form of a separate paragraph for

each item. Explain fully the reasoning employed in judging the reliability 

of each item. 

5-49 

Audit risk should be considered when planning and performing an audit 

of financial statements in accordance with generally accepted auditing 

standards. 

6–25 

Mary Deming has been asked to accept an engagement to audit a small 

financial institution. Deming has not previously audited a financial 

institution. 

6–26 

Assume that you have been assigned to the audit of Lockyer 

Manufacturing Company. You have completed the procedures for 

gathering information about the company and its environment, 

including internal control. 





Questions Requiring Analysis: 7-28 

Problem 7-28. 

Discuss the advantages to CPAs of documenting internal control by 

using: 


Problem 7-33. 

Required: 

Identify the weaknesses in Randall's system of corporate governance 

and provide suggestions for improvement in the system. Organize your 

answer as follows: 


Problem 9-29. 


Problem 9-38. 

AC 410 Unit 5 Homework Assignment




Refer to Chapter 11 of the textbook, Objective Question 11-38. 

Assume that fraud has been discovered in the “Possible Errors and 

Fraud” list, shown as A through O in the problem. Select two of the 

fraud items from the list and note them here: 

Following the scientific method, answer the following questions below: 

Do background research in relationship to the issue to get a more indepth 

understanding of the situation. 

Construct your hypotheses concerning the issue which we will use to 

test our data against. 

Test your Hypotheses by doing experiments. 

Analyze your data and draw a conclusion concerning the population 

under study. 

Communicate your results.





Questions Requiring Analysis 12-21 

Nolan Manufacturing Company retains you on April 1 to perform an 

audit for the fiscal year ending June 30. During the month of May, you 

make extensive studies of internal control over inventories. 

All goods purchased pass through a receiving department under the 

direction of the chief purchasing agent. The duties of the receiving 

department are to unpack, count, and inspect the goods. The quantity 

received is compared with the quantity shown on the receiving 

department’s copy of the purchase order. If there is no discrepancy, the 

purchase order is stamped “OK—Receiving Dept.” and forwarded to the 

accounts payable section of the accounting department. Any 

discrepancies in quantity or variations from specifications are called to 

the attention of the buyer by returning the purchase order to him with 

an explanation of the circumstances. No records are maintained in the 

receiving department, and no reports originate there.

As soon as goods have been inspected and counted in the 

receiving department, they are sent to the factory production area and 

stored alongside the machines in which they are to be processed. 

Finished goods are moved from the assembly line to a storeroom in the 

custody of a stock clerk, who maintains a perpetual inventory record in 

terms of physical units, but not in dollars. 

What weaknesses, if any, do you see in the internal control over 

inventories? 

Problem 12-35 

Described below are potential financial statement misstatements that 

are encountered by auditors. 

Inventory is understated because warehouse personnel overlooked 

several racks of parts in taking the physical inventory. 

Inventory is overstated because warehouse personnel included 

inventory items received subsequent to year-end while recording the 

purchase in the subsequent year to hide inventory shortages. 

Inventory is overstated because management instructed computer 

personnel to make changes in the file used to price inventories. 


You are part of the audit team that is auditing Happy Chicken, Inc., a 

company that franchises Happy Chicken family restaurants. During the 

current year, management of Happy Chicken purchased for $2 million 

one of its franchised locations, a store that was having financial 

difficulties. In performing its analysis for impairment of assets at yearend, 

management of Happy Chicken determined that the carrying value

of the asset may not be recoverable. As a result, management 

developed an estimate of the fair value of the location using a 

discounted cash flow model. The estimated fair value of the location 

was determined to be $1.5 million, which resulted in an impairment 

loss of about $500,000. The undiscounted future cash flows are equal 

to $1.7 million. 

Problem 13-34 

The following are typical questions that might appear on an internal 

control questionnaire relating to plant and equipment: 

Are subsidiary ledgers for plant and equipment regularly reconciled 

with general ledger controlling accounts? 

State the purpose of each of the above controls. 

Describe the manner in which each of the above procedures might be 

tested. 

Assuming that the operating effectiveness of each of the above 

procedures is found to be inadequate, describe how the auditors might 

alter their substantive procedures to compensate for the increased 

level of risks of material misstatements. 

AC 410 Unit 7 Homework Assignment





Early in your first audit of Star Corporation, you notice that sales and 

year-end inventory are almost unchanged from the prior year. 

However, cost of goods sold is less than in the preceding year, and 

accounts payable also are down substantially. Gross profit has 

increased, but this increase has not carried through to net income 

because of increased executive salaries. Management informs you that 

sales prices and purchase prices have not changed significantly during 

the past year, and there have been no changes in the product line. Star 

Corporation relies on the periodic inventory system. Your initial 

impression of internal control is that several weaknesses may exist. 

Suggest a possible explanation for the trends described, especially the 

decrease in accounts payable while sales and inventory were constant 

and gross profit increased. Explain fully the relationships involved. 

For this question, you’ll need to look at the ratios presented and 

analyze the trends. What do the trends mean? 

Problem 14-38 

The following are typical questions that might appear on an internal 

control questionnaire for accounts payable.

1. Are monthly statements from vendors reconciled with the accounts 

payable listing? 

Monthly statements from vendors should be reconciled to the payables 

ledger. 

2. Are vendors’ invoices matched with receiving reports before they are 

approved for payment? 

The two procedures are test controls that provides auditors the 

evidence to access control risk of financial statements. 

Required: 

a. Describe the purpose of each of the above internal control activities. 

b. Describe the manner in which each of the above procedures might 

be tested. 

c. Assuming that the operating effectiveness of each of the above 

procedures is found to be inadequate, describe how the auditors might 

alter their substantive procedures to compensate for the increased 

level of the risk of material misstatement. 


You are retained by Columbia Corporation to audit its financial 

statements for the fiscal year ended June 30. Your consideration of 

internal control indicates a fairly satisfactory condition, although there

are not enough employees to permit an extensive separation of duties. 

The company is one of the smaller units in its industry, but it has 

realized net income of about $500,000 in each of the last three years. 

Near the end of your fieldwork, you overhear a telephone call received 

by the president of the company while you are discussing the audit with 

him. The telephone conversation indicates that on May 15 of the 

current year the Columbia Corporation made an accommodation 

endorsement of a 60-day $430,000 note issued by a major customer, 

Brill Corporation, to its bank. The purpose of the telephone call from 

Brill was to inform your client that the note had been paid at the 

maturity date. You had not been aware of the existence of the note 

before overhearing the telephone call. 


Valley Corporation established a stock option plan for its officers and 

key employees this year. Because the options granted have a higher 

option price than the stock’s current market price, the company has not 

recognized any cost for the options in the financial statements. 

However, a note to the financial statements includes all required 

disclosures. 

a. Do you believe that Valley’s management has appropriately 

accounted for the stock option plan? Explain your answer. 

b. What responsibility do the auditors have for the information in the 

notes to the financial statements? 

c. List the audit procedures, if any, which you believe should be applied 

to the stock option plan.

AC 410 Unit 8 Alternate Assignment 



alternate-assignment 

The types of subsequent events and their importance to the audit 

The procedures auditors cannot perform before the end of the audit 

The different types of audit reports and the conditions under which 

each is issued 





Questions Requiring Analysis: 16–31 

The auditor's opinion on the fairness of financial statements may be 

affected by subsequent events. 

Required: 

- Define what is commonly referred to in auditing as a subsequent 

event, and describe the two general types of subsequent events. 

- Identify those auditing procedures that the auditor should apply at or 

near the completion of fieldwork to disclose significant subsequent 

events. 

Questions Requiring Analysis: 16–35 

Required: 

- Using the iron curtain approach, describe how Tanner would consider 

whether an adjustment is required. 

- Using the rollover approach, describe how Tanner would consider 

whether an adjustment is required. 

- Describe what SEC Staff Accounting Bulletin No. 108 requires in this 

situation. 

Questions Requiring Analysis: 17–24

While performing your audit of Williams Paper Company, you discover 

evidence that indicates that Williams may not have the ability to 

continue as a going concern. 

- Discuss types of information that may indicate substantial doubt 

about a client's ability to remain a going concern. 

- Explain the auditors' obligation in such situations. 

Objective Questions: 17–26 

AC 410 Unit 9 Alternate Assignment 



alternate-assignment 

AC 410 Unit 9 Alternate Assignment

AC 410 Unit 9 Chapter 18 Assignment 



chapter-18-assignment 

AC 410 Unit 9 Chapter 18 Assignment 




homework-assignment

18–29. The CPA firm of Carson & Boggs LLP is performing an internal 

control audit in accordance with PCAOB Standard No. 5.The partner in 

charge of the engagement has asked you to explain the process of 

determining which controls to test. Describe the process, presenting 

each of the links in this process and a short summary of how the 

auditors approach each of them. 

18–34. Simulation 

Bill Jensen, a staff member of Zhan & Co., CPAs, has given you the 

following list of what he refers to as “internal control deficiencies” for 

the Zabling Co. audit and has asked you to review each point and make 

certain that you agree that each is an internal control deficiency. For 

each of the following items, reply A (Agree) or D (Disagree) indicating 

whether the item represents an internal control deficiency. 

18–35. Match the following definitions (or partial definitions) to the 

appropriate term. Each term may be used once or not at all. 

18–36. Your working papers for an integrated audit being performed 

under PCAOB Standard No. 5 include the narrative description below of 

the cash receipts and billing portions of internal control of Slingsdale 

Building Supplies, Inc. Slingsdale is a single-store retailer that sells a 

variety of tools, garden supplies, lumber, small appliances, and 

electrical fixtures to the public, although about half of Slingsdale’s sales 

are to construction contractors on account. Slingsdale employs 12 

salaried sales associates, a credit manager, three full-time clerical 

workers, and several part-time cash register clerks and assistant 

bookkeepers. The full-time clerical workers perform such tasks as cash 

receipts, billing, and accounting and are adequately bonded. They are

eferred to in the narrative as “accounts receivable supervisor,” 

“cashier,” and “bookkeeper.”

AC 410 All Assignments

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