Chapter 1 In Class Questions 20140311 4:07 PM
In Class #1.1
A. If the inadequate records affect several accounts Disclaimer (Denial)[If the affected account is singular
then it make be Qualified opinion – Scope limitation
B. Unqualified – emphasis paragraph
C. Qualified opinion – GAAP departure (if there had been multiple items you could upgrade to Adverse)
D. Qualified opinion – Scope limitation (depending on the severity of a possible lawsuit pending on the
client could downgrade to Disclaimer) [Client may also not want the charges associated with lawyers
E. Disclaimer (Denial) [even with the destroyed records it helps with future audits and validates some
accounts that could be verified]
F. Qualified opinion – Material misstatement
H. Unqualified – emphasis paragraph
In Class #1.2 Chapter 2 In Class Questions 20140311 4:07 PM
In Class #2.1
In essence this presents a loan situation (non monetary) and there may be a perception issue. You may
sign and issue a clean audit report due to the fact that the company owes you money – creating a conflict of
Legally the auditor could sign the audit report. Holding out on signing the audit and demanding payment
takes the ethical issue a different way and holds the client hostage for payment.
The key is to ensure payment before audit work is completed.
A selfinterest threat may be created if payments are not issued before the following year.
Contingency fees are restricted. Payment in advance or installment payments are allowed (interim billings)
In Class #2.2 (SIMILAR TO EXAM QUESTION)
A. Breached confidentiality, Joan should not be discussing that information with anyone. Selfinterest
threat exists with Joan purchasing shares of the company that she is a part of the audit team for.
Impairment to independence. The purchase of the shares is technically insider trading, which is an
B. There is an issue with saying they are the “premier accounting firm in Western Canada” because firms
are not allowed to claim they are better than other firms. In essence all firms operate on the same level
and this fact cannot be proven. As a professional accountant you are not allowed to work on a
contingency fee basis. Fees must be charged on a pre evaluation of work to be completed or hours
spent on work.
C. Selfreview threat exists because Sue would be auditing her own work. Professional accountants
cannot provide assurance on personal work done. Auditors are not allowed to do bookkeeping services
for a reporting issuer.
D. The professional accountant can provide journal entries for a private entity but must do so under
supervision and permission of the entity’s management and as well have management sign off and
review. There still may come issue in selfreview or independence depending on journal entries.
E. Compilation is a notice to reader. In this situation lacking written approval this is still okay but it is
always encouraged no matter the assurance service to get written and signed approval from
management. Chapter 2 In Class Questions 20140311 4:07 PM
F. There could be a possible perception problem. The terms of the loan and situation loan was granted
comes into question. Discounts or lower interest on loan