Ethical Obligations and Decision Making in Accounting Text and Cases 5th edition Steven M. Mintz, Roselyn E. Morris - Solutions

Discuss the revenue recognition and internal control challenges when a company uses cloud computing.
In the study of earnings quality by Dichev et al., CFOs stated that “current earnings are considered to be high quality if they serve as a good guide to the long-run profits of the firm.” Discuss how and why current earnings may not be a good barometer of the long-term profits of the firm. How
What is the risk of management bias for each earnings judgment and estimate? What safeguards should be in place to mitigate the risk of management bias, if any? What is the external auditor’s role in this process?
Do you agree with each of the following statements? Explain.EBITDA makes companies with asset-heavy balance sheets look healthier than they may actually be.EBITDA portrays a company’s debt serviceability— but only some types of debt.EBITDA isn’t a determinant of cash flow at all.
Tinseltown Construction just received a $2.6 billion contract to construct a modern football stadiumfor the L.A. Rams and San Diego Chargers at the L.A. Sports and Entertainment District. The company estimates that it will cost $1.8 billion to construct the stadium. Explain how Tinseltown can make
In remarks in the speech, The Numbers Game, ________ described the technique of cookie-jar reserves used by Dell.a. Alan Greenspan, FED Chairmanb. Mary Shapiro at the SECc. Arthur Levitt at the SECd. Janet Yellen, FED Chairwoman
Explain the SEC rules and regulations applicable to the public disclosure of non-GAAP financial measures.
Dell used "cookie-jar reserves" to inflate income and "make the numbers" Wall Street wanted to see. Such reserves are an example of the use of what?a. Discretionary expensesb. Discretionary liabilitiesc. Discretionary revenued. Discretionary accruals
Why are non-GAAP financial measures used by many investors and analysts?
Dell did not reveal Intel’s "additional rebates" as an unusual cost reduction that might not continue in the future. A study by Dichev et al. revealed the beliefs of some 169 CFOs. CFOs believed that earnings quality is high when they are what?a. Predictable and accruedb. Sustainable and
Sarah and Paul are industry CPAs rather than public CPAs. R. Z. Elias conducted a study of corporate ethical values and earnings management ethics. He found that CPAs in industry in an organization are:a. Significantly more likely than those in public accounting to perceive high ethical values.b.
1. What is the underlying accounting and financial reporting concept at issue as described in EITF Issue No. 01-9 with respect to the way Monsanto accounted for customer rebates? Explain in your own words how Monsanto’s accounting led to materially misstated financial statements.2. Given that
Do you agree with Thomas McKee's conception of earnings management as applied to (a) operational earnings management and (b) accounting earnings management?
Suppose Sarah meets with Paul on Monday and no resolution is obtained; Paul does not back off. To whom should Sarah turn next?a. Board of Directorsb. Audit Committeec. External auditorsd. SEC as a whistleblower
Needles talks about the use of a continuum ranging from questionable or highly conservative to fraud to assess the amount to be recorded from for an estimated expense. Do you believe that the choice of an overly conservative or overly aggressive amount would reflect earnings management? Explain.
The approach Solutions is taking is most closely aligned witha. Operating expense managementb. Operating earnings managementc. Accounting expense managementd. Accounting earnings management
1. Consider the costs/harms and benefits of disclosing non-GAAP financial numbers. What value, if any, do you see in the use of non-GAAP metrics?2. What responsibilities do auditors currently have related to the use of non-GAAP measures by their attest clients? What responsibilities do you think
1. Was TierOne’s accounting for the loan loss reserve indicative of “managed earnings”? How would you make that determination?2. What is the purpose of the auditor's assessment of ICFR? Describe the deficiencies in KPMG's audit work in that regard?3. Would you conclude from the facts of
Solutions Network is attempting to manage earnings. Which features of earnings management is being employed by Solutions?a. Alter numbers not yet in the financial records by using discretionary accruals.b. Create or structure transactions for the purpose of altering the numbers.c. Alter numbers
1. In his analysis of the Dell fraud for Forbes, Edward Hess comments: "Too often, the market's maniacal focus on creating ever-increasing quarterly earnings drives bad corporate behavior, as it apparently did at Dell. That behavior produces non-authentic earnings that obscure what is really
Nortel tried to find a solution to the hundreds of millions of dollars of inventory sitting in its warehouses. The external auditors might have discovered this red flag with which of the following analytical procedures?a. Inventory growth is higher than revenue growth combined with increasing
1. What are the main arguments that you will need to counter? That is, what are the reasons and rationalizations you will need to address?2. What is at stake should you not convince King Bernard to follow the SEC guidelines on the use of non-GAAP metrics? Include both short and long-term potential
Nortel’s earnings management techniques were indeed detrimental to the long-term value of the firm. Such behavior links to which ethical model of behavior?a. Rest Four-Step Modelb. Kohlberg’s Six Pillars of Characterc. Burchard’s Ethical Dissonance Modeld. Levitt’s Epicurean Model
1. Do you believe Allergan’s financial information in its press release is useful? Why or why not?2. Do you believe this kind of information should be subject to audit procedures? If so, what procedures should be used? If not, why not?3. Do you believe the financial and non-financial information
The presentation of financial information should contain this characteristic, which was clearly lacking in the Nortel statements.a. Representational usefulnessb. Representational faithfulnessc. Representational relevanced. Representational materiality
Nortel began issuing financial restatements in 2004. The definition of a financial restatement is _________________.a. indications that the current year’s financial statements contained material misstatementsb. indications that the previous year’s financial statements contained material
1. Describe each of the financial shenanigans used by Nortel and how they manipulated earnings.2. What were the motivating factors that led to the fraud at Nortel? How should the auditors have considered these factors and the culture at Nortel in its risk assessment?3. Assume you had to prepare an
How does auditors’ meeting public interest obligations relate to avoiding legal liability?
What are the costs and benefits of voluntarily disclosing violations of the FCPA assuming an internal compliance official threatens to blow the whistle on the company under the Dodd-Frank Financial Reform Act?
What is the importance of having an effective compliance and ethics program with respect to the FCPA? What is the role of confidential reporting and internal investigations in the compliance program?
Answer the following with respect to deficiencies in ICFR.a. How should a SEC registrant evaluate whether a deficiency in ICFR is a material weakness?b. Why should SEC registrant’s document why a significant deficiency in ICFR is not a material weakness?
Carly Simmons is approached by a small sole proprietor to assist him in getting the record-keeping for the enterprise organized to firm up receivables, payables, payroll, and other taxes necessary to run the business. It seems the owner intends to apply for a $50,000 loan at the bank. During the
Given the recent changes in audit committee responsibilities under SOX and PCAOB standards, when might audit committee members be held at least partially responsible for a financial reporting failure?
Should Section 302 of SOX be broadened to establish legal liability for others in the certification process in addition to CEOs and CFOs? Explain.
How has the Sarbanes-Oxley Act affected the legal liability of accountants and auditors?
Explain your answers to the following questions about the PSLRA:a. Do you believe the standard for liability under the PSLRA better protects auditors from legal liability than the standards which existed before the Act was adopted by Congress?b. Do you believe the PSLRA standard better protects the
Nixon and Co., CPAs, issued an unmodified opinion on the 2015 financial statements of Madison Corp. These financial statements were included in Madison’s annual report and Form 10-K filed with the SEC. Nixon did not detect material misstatements in the financial statements as a result of
What do you believe would be required for an auditor to successfully assert the fraud of a client’s managers as a defense against the company’s charges of breach of contract, failure to exercise due care, and failure to uncover fraud?
There is an old industry joke that if you ask an accountant what is four plus four, she will tell you it's whatever you want it to be. Explain what might be meant by this statement.
1. What exactly is the difference between an auditor’s opinion and a statement of fact?2. In her opinion, Judge Forrest wrote that: “Section 10 and 11 claims regarding opinion statements require the statement was both objectively false at the time that it was made and also subjectively false
1. Analyze the facts of the case with respect to the AICPA Code and explain any perceived deviation from ethical standards.2. Assume Miller Energy is considering bringing a lawsuit against KPMG for malpractice. What would it have to demonstrate to be successful? What defenses are available to KPMG
What are the legal requirements for a third party to sue an auditor under Section 10 and Rule 10b-5 of the Securities Exchange Act of 1934? How do these requirements relate to the Louisiana School Employees’ decision?
1. What are the main arguments that the partner from PwC will need to counter when he meets with Billy? That is, what are the reasons and rationalizations he should expect to hear from Billy as to why a material weakness in the ICFR does not exist?2. What is at stake for both Billy and PwC should
What must a plaintiff assert in a Section 11 claim under the Securities Act of 1933 to properly allege an “opinion” statement is materially misleading? When might certain financial statement items constitute “opinions”?
Assume a third party such as a successor audit firm quickly discovers a fraud that the predecessor auditor has overlooked for years. Do you think this provides evidence supporting scienter? Explain.
Describe the possible entities that may sue an auditor and the possible reason for a lawsuit.
Grant Thornton prevailed in the Epic Resorts case with a defense that included, among other defenses:a. There was no evidence of a causal connection between the alleged misrepresentation and the funds’ alleged injury.b. There was evidence of actual and justifiable reliance.c. Liability for
1. Assume that a third party(ies) is considering whether to sue the external auditors of QSGI. What could they allege in their lawsuit and why?2. Assuming a third party(ies) files the lawsuit, what defenses could the external auditors use to rebut the charges?3. Did SOX fail to protect investors
Three of six defenses Kay & Lee might use would include which of the following?a. The third party did not suffer a loss; any loss was caused by other events; the claim is invalid because the statute of limitations has expiredb. The auditor did not have a duty to third party; the third party
1. Are the auditors guilty of malpractice? Explain.2. What defenses are available to Joker & Wild in this case? Explain what they must prove to successfully assert these defenses.3. Assume you are not aware of state laws on auditor legal liability. What legal concepts might a court of law use
To succeed in obtaining a judgment, the bank would have to prove these three things as part of a five-step process.a. False representation by the accountant; belief by the accountant the representation was accurate; the accountant intended to induce the third party to rely on accurate
As discussed in the opening reflection, MF Global filed a complaint charging PwC with professional malpractice, breach of contract, and unjust enrichment in connection with its advice concerning, and approval of, the company’s off-balance-sheet accounting for its investments. On March 23, 2017,
You may know the difference between right and wrong behavior and never would consider committing fraud. But how do you maintain the highest level of professional conduct as it relates to fraudulent behaviors in others or when fraud is suspected?
Assume you are inspecting EY’s audit of Medicis Pharmaceutical Corporation for the PCAOB. Read through the information provided about the case in the chapter and identify the factors the auditors should have taken into account in determining critical audit matters.
Do you believe the end-user cares whether the lead audit engagement partner signs his or her name to the report or the firm simply files Form AP with the PCAOB? Explain.
Answer the following questions about financial statement restatements.a. What are financial statement restatements?b. When should financial statements be restated?c. Assume the auditor has determined that prior financial statements need to be restated. What disclosures and other information
What is the purpose of an audit firm developing a system of quality controls?
Explain how PCAOB inspections can lead to improvements in audit engagement quality.
In 1995, Congress added Section 10A to the Securities Exchange Act of 1934 as part of the Private Securities Litigation Reform Act. Is it accurate to say that Congress enacted Section 10A with the intent to require auditors to blow the whistle on the fraudulent activities of their clients? Explain.
Discuss the link between skeptical judgment and skeptical action and Rest’s four-component Model of Ethical Decision Making.
Data analysis, often in the form of continuous monitoring of transactions and controls, is increasingly used as a key component of risk management and audit processes overall. How might data analytics contribute to fraud detection? What are the potential drawbacks to the use of data analytics?
The PCAOB believes there have been improvements in audit quality during the past few years. Discuss the indicators of audit quality and why they are important to protect the public interest.
1. Explain how pressures and incentives drove the actions taken by Hudgins and Kitay to commit financial statement fraud.2. Describe the problems in the audit of Weatherford International by Ernst & Young. Are any of these issues reflective of a violation of the rules of conduct in the AICPA
Gary James works for Hill & Beans, a professional services firm. James was a onetime business partner of former Florida state Senator Howard Clark and a donor to his campaign. Clark was recently charged with conspiring to defraud the IRS out of hundreds of thousands of dollars during the time
In the aftermath of frauds like ZZZZ Best and Enron, SOX beefed up the requirements to belong on the audit committee, as well as its responsibilities. These include which of the following?a. The external auditor follows the audit program of the audit committee.b. The Chair of the audit committee is
1. Given the facts of the case, what communications do you believe Forrester & Loomis should have made with the audit committee with regard to the transactions with the vendor to comply with PCAOB AS 1301?2. How should Forrester & Loomis have determined whether to communicate the critical
Ernst was expected to adhere to audit standards in preparation of their report. What is true about audit standards?a. The SEC requires the 10 standards created by the PCAOB and IFRS.b. The PCAOB requires the 10 standards mandated by the SEC and IFRS.c. The PCAOB requires the 10 standards created by
1. Use the Fraud Triangle to analyze the business and audit risks that existed at Diamond Foods during the period of its accounting fraud.2. How would you characterize Diamond's accounting? Did they commit an error in recording walnut grower payments? Was it an illegal act? A fraudulent act? For
A review differs from an audit in that ________________.a. The external auditor reviews company-prepared documentsb. The external auditor reviews internal control to prepare a SOX Section 404 opinionc. The external auditor does not express an opiniond. The external auditor reviews non-accounting
1. Who are the stakeholders in this case and what are Barry's obligations to them?2. What are related-party transactions? Why are related-party transactions a particularly sensitive area? What do you think Barry should do with respect to audit obligations for these transactions?3. Has fraud been
Describe the types of audit deficiencies that might arise because of problems with ICFR.
How might the existence of the dark triad personalities underlie undesirable behaviors by management and how might it influence the audit?
The audit failure on the part of Ernst can be traced to the failure to _____________.a. Gather sufficient evidential materialb. Realize the inherent risk in auditing a cleaning businessc. See the domination of management by one persond. All of these choices are correct
The external auditors at Ernst and Whinney succumbed to which part of the fraud triangle?a. Opportunityb. Incentive pressurec. Rationalizationd. A and C
Vick and Lester are engaging in fraud. The definition of fraud can include which of the following?a. Fraudulent financial reportingb. A violation of the Foreign Corrupt Practices Actc. Misappropriation of assetsd. Omissions of amountse. Fraudulent financial report and misappropriation of assets
Vick Jensen is now caught in what dynamic of the Fraud Triangle?a. Incentiveb. Pressurec. Opportunityd. All of these choices are correct
What are the objectives of audit risk assessment, and why is it important in assessing the likelihood that fraud may occur? How might the assessment influence the auditors’ evaluation of ICFR?
Vick and Ethan have both defrauded Fostermann. Each now knows the other is a fraudster. They are caught up in the Fraud Triangle. The components of the triangle are which of the following?a. Opportunity, incentive, financial difficultiesb. Opportunity, ability, incentivec. Opportunity, incentive,
1. Assume you are asked as part of an audit of GE’s insurance business to assess fraud risks, what would you include in your report and why?2. At GE’s annual meeting in November 2017, CFO Jamie Miller told shareholders that GE was likely to take a charge of more than $3 billion. Just fourteen
1. What issues should be of concern to Margaret in deciding whether Dairy and Cheese should accept the reaudit engagement?2. What are Mark’s ethical obligations in this matter? Should he discuss the situation with Margaret? How about bringing it up at his firm?3. Regardless of your answer to part
1. Analyze the facts of the case using the Fraud Triangle. Would you characterize what Ethan Lester did as a failure of internal controls? Explain.2. Assume Ethan sets a meeting with Vick in two days to follow-up on his request. Vick has decided not to be part of the cover-up. Use the GVV framework
On August 31, 2017, the SEC charged Evan R. Kita, a CPA and former accountant at Celator Pharmaceuticals, Inc., and three others with insider trading on market-moving news about the New Jersey-based pharmaceutical company where the accountant formerly worked. Kita tipped two of his friends with
Do you think the lead engagement partner in an audit should sign his or her name on the audit report itself or, instead, the informational Form AP with the PCAOB? Use ethical reasoning to weigh the costs and benefits of such a requirement.
You are the CFO of a privately-owned business and prepare financial statements and tax returns (which are distributed to lenders, bonding/insurance providers, shareholders, and the IRS). What are the rules of conduct in the AICPA Code that you should follow?
What are client hosting services? Would a CPA/CPA firm violate the Independence Rule if it provides hosting services for a client? Explain when it would or would not impair independence. Would independence be impaired in the following situations? Explain why or why not.(a) Electronically exchanging
Assume you disclosed information about a client. How would you determine if you violated the Confidential Client Information rule in the AICPA Code?
What are the specific threats to independence when a CPA accepts gifts or entertainment from an attest client? Does it matter whether the amount of the gift or entertainment was significant?
1. Do you believe covenants not to compete, such as the one in BDO Seidman, are ethical? Do they violate any rules of conduct in the AICPA Code?2. Who are the stakeholders in the BDO case and what are their interests? How might the various interests in a covenant be evaluated to determine whether
When do ethical conflicts arise in the performance of professional accounting services? How should a CPA go about resolving ethical conflicts?
The applicable section to Helen’s situation in the conceptual framework rules for CPAs in business would be which of the following?a. 110.010b. 1.130.020c. 1.000.020d. 2.000.010
1. Evaluate Mark’s conduct with respect to the Six Pillars of Character.2. Did Mark violate any ethics rules either of the state board or AICPA? Explain.Mark started his own practice ten years ago. He is a CPA and member of the AICPA. His firm grew quickly, helped along with the aid of his former
In the event that Carl and the CEO won’t change their position, Helen should probably take her concerns to which of the following?a. The SECb. The external auditorsc. The PCAOBd. The audit committee
1. What role does ‘Auditor Independence’ play in a CPA’s responsibility to protect the public interest?2. Explain the type of threat(s) to independence this case represents and explain why it is a threat to independence.3. Do you think the questions added by EY are a sufficient safeguard to
Helen Strom is in an ethical dilemma due to a(n) ____________.a. Adverse interest threatb. Familiarity threatc. Undue influence threatd. Financial self-interest threat
1. Evaluate the ethics of the tax shelter transactions, including your concerns about the practices.2. Who are the stakeholders in this case, and what are your professional responsibilities to them?3. What are the options available to you in this matter?4. What would you do and why?You are a tax
Do you believe the threats and safeguards approach establishes a situational or relativistic ethic? How might utilitarianism be used to evaluate the ethicality of permitting certain relationships when threats exist?
Carl Land’s observation that "we push the envelope around here" is typical of the rationalization employed in _____________.a. Groupthink tendencyb. Availability tendencyc. Overconfidence tendencyd. Confirmation tendency
Grace was lacking in several professional areas in relying on the client rather than external evidence. Arnold Schilder, Chair of the International Auditing and Assurance Standards Board (IAASB), cites which of the following traits to enable an auditor to maintain a skeptical mindset in executing
1. Identify any potential threats to judgment you think could exist based on the facts of the case?2. Thinking back to the biases discussed in Chapter 2, what biases might the identified threat(s) make Katy more susceptible to and why?3. This chapter discussed a link between the KPMG Professional
At the very center of the KPMG framework is __________.a. Attitudeb. Professional skepticismc. Mindsetd. Confidence tendency

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Ethical Obligations and Decision Making in Accounting Text and Cases 5th edition Steven M. Mintz, Roselyn E. Morris - Solutions

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