Ch. 14 #23
a. Independence is impaired. Direct financial interest not permitted.
b. Indirect interest must be impartial, so independence is also impaired in this case.
c. Independence is impaired if the CPA had any loan to or form the client, except “grandfathered loans” or other permitted loans. Grandfathered loans are loans acquired before the requirement for independence. Other permitted loans are new loans obtained under “normal” lending procedures.
d. Independence impaired. This is a direct financial interest.
e. The employment would not impair independence unless the spouse is in a key position. A key position is one where the spouse has primary responsibility for significant accounting functions, primary responsibility for the financial statements, or is able to influence the content of the financial statements.
f. Yes, as long as it is obtained under the normal lending procedures and is reduced to $5,000 or less by the payment due date.
g. Yes, car loans are in the category of other permitted loans.
h. Only if it is a grandfathered loan
i. Yes, you have committed an act discreditable to the profession in violation of rule 501.
j. Yes, you have committed an act discreditable to the profession in violation of rule 501.
k. Yes, you have committed an act discreditable to the profession in violation of rule 501.
Ch. 14 #24
a. More substantive testwork: auditors looked at more transactions and were more likely to find misstatements. Misstatements could be generated by low level or high level employees.
More internal control documentation and testing: Companies with good internal controls should have fewer misstatements in the financial statements. Internal controls typically apply to transactions that are recorded many times during the year. This means that internal control testing is more likely to detect misstatements made by low level employees.
b. Competition is forcing auditors to spend more time on...