ACCT 555 ACCT555 Midterm Part 2 Answers (Spring 2016)

ACCT 555 ACCT555 Midterm Part 2 Answers (Spring 2016)

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ACCT 555 Midterm Part 2 (Spring 2016)

  1. (TCO A) Match the following definitions to the appropriate terms.
  2. (TCO B) The following is a portion of a qualified audit report issued for a private company.

    To the shareholders of Tamarak Corporation,
     
    We have audited the accompanying balance sheet of Tamarak Corporation as of October 31, 2009, and the related statements of income, retained earnings, and cash flows for the past year. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
     
    We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
     
    The company has included in property and debt in the accompanying balance sheet certain lease obligations that, in our opinion, should be expensed in order to conform with generally accepted accounting principles. If these lease obligations were capitalized, property would be decreased by $4,000,000, long-term debt by $2,000,000, and retained earnings by $180,000 as of October 31, 2009, and net income and earnings per share would be decreased by $180,000 and $0.62, respectively, for the past year.
     
    Required: Complete the above qualified audit report by preparing the opinion paragraph. Do not date or sign the report.
  3. (TCO C) The following situation involves a possible violation of the AICPA's code of professional conduct. For this situation, (1) determine the applicable rule number from the code, (2) decide whether or not the code has been violated, and (3) briefly explain how the situation violates (or does not violate) the code. Your answer should be set up something like this:
  4.  
  5. Rule # _____ Violation? Yes or No.
  6.  
  7. Provide a one- or two-line explanation.
  8.  
  9. Auditor Tex Gato of the CPA firm Smackey and Smackey, CPAs, enjoyed auditing his favorite client, Super Pup Dog Food, because the client would allow him to take home to his dog a variety of dog food samples that amounted to a year's worth of dog food.
  10. TCO C) The following situation involves a possible violation of the AICPA's code of professional conduct. For this situation, (1) determine the applicable rule number from the code, (2) decide whether or not the code has been violated, and (3) briefly explain how the situation violates (or does not violate) the code. Your answer should be set up something like this:
     
    Rule # _____ Violation? Yes or No.
     
    Provide a one- or two-line explanation.
     
    Howard Cunningham & Co., CPAs, designates its firm as Members of the American Institute of Certified Public Accountants. All of the partners of the firm are CPAs. However, one of the partners has recently chosen to allow her membership to lapse because of personal reasons.
  11. (TCO C) Under the provisions of the Sarbanes-Oxley Act of 2002 (SOX), the audit committee of a public company has specific guidelines to which employees must adhere. Discuss some of the mandated features of the audit committee of a public company under SOX.
  12. (TCO D) Discuss some of the steps the AICPA and the accounting profession as a whole can and are taking to reduce practitioners' exposure to lawsuits. You answer should provide at least five steps.
  13. (TCO F) Match nine of the terms (A–K) with the definitions provided below (1–9).
  14. A - Foot
  15. B - Compute
  16. C - Scan
  17. D - Inquire
  18. E - Count
  19. F - Trace
  20. G - Recompute
  21. H - Read
  22. I - Examine
  23. J - Observe
  24. K - Compare
  25.  
  26. _____ 1: A calculation done by the auditor independent of the client
  27. _____ 2: Addition of a column of numbers to determine if the total is the same as the client's
  28. _____ 3: A comparison of information in two different locations
  29. _____ 4: A use of the senses to assess certain activities
  30. _____ 5: Following details of transactions from original documents to journals
  31. _____ 6: A less detailed examination of a document or record to determine if there is something unusual warranting further investigation
  32. _____ 7: Obtaining information from the client in response to specific questions
  33. _____ 8: A determination of assets on hand at a given time
  34. _____ 9: An examination of written information to determine facts pertinent to the audit
  35. (TCO G) Discuss the essential activities involved in the initial planning of an audit.

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