1. 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.
2. 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.
Sarah Marin, CPA, is a senior auditor in the San Francisco office of Coopers & Snoopers, CPAs. Sarah's father is employed as the controller of Line Electronics, a large, publicly held company in Michigan. Line Electronics is one of Coopers & Snoopers audit clients. Neither Sarah nor the San Francisco office of Coopers & Snoopers is involved in the audit of Line Electronics.
3. 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.
Brad Heist, CPA, was traveling from Dallas to Houston, TX, when he was pulled over by a police officer on suspicion of driving under the influence. The Breathalyzer and a subsequent blood test revealed that Brad was definitely impaired. He was convicted in court of driving while under the influence of alcohol (DUI). This was Brad's fourth conviction of DUI in less than a year, a felony under current Texas law. Accordingly, Brad was sentenced to 18 months in prison.
4. 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.
5. 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.
6. Discuss the four primary purposes of analytical procedures performed during the planning phase of an audit.