1.(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 andthe related statements of income, retained earnings, and cash flows for the past year. These financialstatements are the responsibility of the company’s management. Our responsibility is to express anopinion on these financial statements based on our audit.We conducted our audit in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includes examining, ona test basis, evidence supporting the amounts and disclosures in the financial statements. An audit alsoincludes assessing the accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believe that our audit provides areasonable basis for our opinion. The company has included in property and debt in the accompanying balance sheet certain leaseobligations that, in our opinion, should be expensed in order to conform with generally acceptedaccounting 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 thepast year. Required: Complete the above qualified audit report by preparing the opinion paragraph. Do not date orsign the report 2. (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 ornot the code has been violated, and (3) briefly explain how the situation violates (or does not violate) thecode. Your answer should be set up something like this: Rule # _____ Violation? Yes or No.Provide a one- or two-line explanation. 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 foodsamples that amounted to a year’s worth of dog food. 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 ornot the code has been violated, and (3) briefly explain how the situation violates (or does not violate) thecode. 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 officeron suspicion of driving under the influence. The Breathalyzer and a subsequent blood test revealed thatBrad 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. (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 mandatedfeatures of the audit committee of a public company under SOX. 5. (TCO D) There are four major sources of an auditor’s legal liability. One source is liability to the audit client under common law. Briefly summarize the other three sources6. (TCO F) Match nine of the terms (Aâ€“K) with the definitions provided below (1â€“9). A – FootB – ComputeC – ScanD – InquireE – CountF – TraceG – RecomputeH – ReadI – ExamineJ – ObserveK – Compare_____ 1: A calculation done by the auditor independent of the client_____ 2: Addition of a column of numbers to determine if the total is the same as the client’s_____ 3: A comparison of information in two different locations_____ 4: A use of the senses to assess certain activities_____ 5: Following details of transactions from original documents to journals_____ 6: A less detailed examination of a document or record to determine if there is something unusualwarranting further investigation_____ 7: Obtaining information from the client in response to specific questions
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