William Schlich implied that E&Y’s British affiliate had the responsibility for reviewing the legal opinion issued by a British law firm regarding the treatment of Repo 105s as sales of securities. Do you believe that Schlich or one of his subordinates should have reviewed that letter? Why or why not? In general, how should the responsibility for different facets of a multinational audit be allocated between or among the individual practice offices involved in the engagement?
Answer to relevant QuestionsLehman’s net leverage ratio was not reported within the company’s audited financial statements but rather in the company’s financial highlights table and MD&A section of its annual report. What responsibility, if any, ...Just for Feet operated large, high-volume retail stores. Identify internal control risks common to such businesses. How should these risks affect the audit planning decisions for such a client?Jill Karnick abandoned her attempt to complete an inventory roll-forward because of the considerable amount of work the procedure involved. Do you believe she made an appropriate decision given the circumstances she faced? ...Explain why the SEC ruled that BDO Seidman’s independence was jeopardized by the lawsuits that named the accounting firm, Leslie Fay, and top executives of Leslie Fay as codefendants.How is an auditor’s examination affected when a client has engaged in significant related-party transactions? What measures should an auditor take to determine that such transactions have been properly recorded by a client?
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