1. Are auditors providing high assurance when they fail to disclose going-concern problems for failing companies?

2. What is wrong with the self-fulfilling prophecy argument from the auditor’s perspective?

3. Identify the perspectives possible and the resulting arguments regarding the expensing of stock option compensation.

4. How does the auditor know if the disclosure of going-concern problems is complete; that is, what criteria tell the auditor that the client needs to disclose going-concern problems?

5. What do you think fair presentation should mean, in addition to not being materially misstated from a GAAP number? Can you defend your decision to the rest of the class?

The auditor's unqualified report claims that the financial statements "present fairly" in conformity with Canadian GAAP. Note that this is a claim the auditor makes and, therefore, he or she is fully responsible for justifying this claim if challenged. Also note that merely citing references to the CPA Canada Handbook may not be sufficient to support such a claim, since the CPA Canada Handbook does not define fairness of presentation but only provides guidance on GAAP and generally accepted auditing standards (GAAS).

How do we know then when this claim is justified? As you will see, the text is devoted to the topic of gathering sufficient appropriate evidence to help support this claim. However, you will also need to make use of the GAAP that you learned in your accounting courses as part of the justification. Furthermore, you need to consider other issues, such as the role of ethics, and you may need to consider whether the hidden assumptions of accounting theory apply under the circumstances to fully support this claim from a critical thinking perspective. Proper accounting depends on the legal, cultural, and regulatory aspects of the environment that can affect the economics of the auditee. Critical thinking reminds auditors to consider these broader aspects of financial reporting.

You can think of the accounting issues in auditing as consisting of two basic parts: (1) the financial reporting in conformity with GAAP and (2) the financial reporting that is fairly presented. Historically, most auditors assumed that if sufficient appropriate evidence showed that the financial statements were within a material difference of GAAP numbers, then an unqualified opinion was justified. However, as accounting standards become more "principles based" and accounting standard setters put more focus on the meaning of "present fairly," auditors need to focus on fairness of presentation within GAAP. In other words, there is increasing appreciation that not all GAAP will result in fair presentation in all circumstances.

Auditors are expected, instead, to make decisions about the proper application of GAAP under the circumstances. And if GAAP is vague on an issue, the auditor's critical thinking is further complicated.............