The PSLRA requires auditors to report to the SEC illegal acts “that would have a material effect” on a client’s financial statements, assuming client management refuses to do so. Briefly describe three hypothetical situations involving potential illegal acts discovered by auditors. Indicate whether the auditors involved in these situations should insist that client management report the given item to the SEC. Defend your decision for each item.
Answer to relevant QuestionsPrepare common-sized financial statements for Leslie Fay for the period 1987–1991. For that same period, compute for Leslie Fay the ratios shown in Exhibit 2. Given these data, which financial statement items do you ...Should auditors evaluate the soundness of a client’s business model? Defend your answer.Explain how the acceptance of large, high-risk audit clients for relatively high audit fees may threaten an audit firm’s de facto and perceived independence. Under what circumstances should such prospective clients be ...Compute key ratios and other financial measures for Crazy Eddie during the period 1984–1987. Identify and briefly explain the red flags in Crazy Eddie’s financial statements that suggested the firm posed a ...What is the purpose of predecessor–successor auditor communications? Which party, the predecessor or successor auditor, has the responsibility for initiating these communications? Briefly summarize the information that a ...
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