Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 22, Problem 6C
To determine
Discuss whether the ethical perspectives of the actions of Department of Justice regarding the employees of Company AA were fair.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Nixon & 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 negligence in the performance of the audit. Based upon the financial statements, Harry Corp. purchased stock in Madison. Shortly thereafter, Madison became insolvent, causing the price of the stock to decline drastically. Harry has commenced legal action against Nixon for damages based upon Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. What would be Nixon’s best defense to such an action? Explain.
A group of investors sued Anderson, Olds, and Watershed, CPAs (AOW) for alleged damages suffered when the entity in which they held common stock went bankrupt. To avoidliability under the common law, AOW must demonstrate which of the following?a. The investors actually suffered a loss.b. The investors relied on the financial statements audited by AOW.c. The investors’ loss was a direct result of their reliance on the audited financial statements.d. The audit was conducted in accordance with generally accepted auditing standards andwith due professional care.
EY did not modify the 2007 audit opinion of Lehman Brothers for going-concern uncertainty, yet the entity filed for bankruptcy less than a year later. In your opinion, is this indicative of an audit failure? Why?
Chapter 22 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 22 - Prob. 1GICh. 22 - Prob. 2GICh. 22 - Prob. 3GICh. 22 - What steps are necessary to apply the...Ch. 22 - Prob. 5GICh. 22 - Prob. 6GICh. 22 - Prob. 7GICh. 22 - Prob. 8GICh. 22 - Define a change in estimate. What is the proper...Ch. 22 - Prob. 10GI
Ch. 22 - How is a change in depreciation method accounted...Ch. 22 - Describe a change in a reporting entity. How does...Ch. 22 - Prob. 13GICh. 22 - Prob. 14GICh. 22 - Prob. 15GICh. 22 - Prob. 16GICh. 22 - Prob. 17GICh. 22 - Prob. 18GICh. 22 - Prob. 19GICh. 22 - Prob. 20GICh. 22 - The cumulative effect of an accounting change...Ch. 22 - When a change in accounting principle is made...Ch. 22 - Prob. 3MCCh. 22 - A change in the expected service life of an asset...Ch. 22 - During 2019, White Company determined that...Ch. 22 - Generally, how should a change in accounting...Ch. 22 - On January 2, 2017, Garr Company acquired...Ch. 22 - A company has included in its consolidated...Ch. 22 - Shannon Corporation began operations on January 1,...Ch. 22 - Shannon Corporation began operations on January 1,...Ch. 22 - Prob. 1RECh. 22 - Heller Company began operations in 2019 and used...Ch. 22 - Refer to RE22-2. Assume the pretax cumulative...Ch. 22 - Refer to RE22-2. Assume Heller Company had sales...Ch. 22 - Bloom Company had beginning unadjusted retained...Ch. 22 - Suppose that Blake Companys total pretax...Ch. 22 - Bliss Company owns an asset with an estimated life...Ch. 22 - At the end of 2019, Framber Company received 8,000...Ch. 22 - At the end of 2019, Cortex Company failed to...Ch. 22 - At the end of 2019, Jayrad Company paid 6,000 for...Ch. 22 - At the end of 2019, Manny Company recorded its...Ch. 22 - Abrat Company failed to accrue an allowance for...Ch. 22 - The following are independent events: a. Changed...Ch. 22 - Prob. 2ECh. 22 - The following are independent events: a. A...Ch. 22 - Change in Inventory Cost Flow Assumption At the...Ch. 22 - Fava Company began operations in 2018 and used the...Ch. 22 - Berg Company began operations on January 1, 2019,...Ch. 22 - Prob. 7ECh. 22 - In 2020, Frost Company, which began operations in...Ch. 22 - Gundrum Company purchased equipment on January 1,...Ch. 22 - Prob. 10ECh. 22 - On January 1, 2014, Klinefelter Company purchased...Ch. 22 - The following are independent errors made by a...Ch. 22 - The following are independent errors made by a...Ch. 22 - Refer to the information in E22-13. Required:...Ch. 22 - The following are independent errors: a. In...Ch. 22 - Dudley Company failed to recognize the following...Ch. 22 - Prob. 1PCh. 22 - Prob. 2PCh. 22 - Koopman Company began operations on January 1,...Ch. 22 - Schmidt Company began operations on January 1,...Ch. 22 - Prob. 5PCh. 22 - Kraft Manufacturing Company manufactures two...Ch. 22 - Jackson Company has decided to issue common stock...Ch. 22 - At the beginning of 2020, Holden Companys...Ch. 22 - At the end of 2020, while auditing Sandlin...Ch. 22 - At the beginning of 2020, Tanham Company...Ch. 22 - A review of Anderson Corporations books indicates...Ch. 22 - Prob. 12PCh. 22 - Gray Companys financial statements showed income...Ch. 22 - Prob. 14PCh. 22 - There are three types of accounting changes:...Ch. 22 - Prob. 2CCh. 22 - Berkeley Company, a manufacturer of many different...Ch. 22 - When the FASB issues a new generally accepted...Ch. 22 - It is important in accounting theory to be able to...Ch. 22 - Prob. 6CCh. 22 - Prob. 7CCh. 22 - Prob. 8CCh. 22 - Prob. 9CCh. 22 - Sometimes a business entity may change its method...
Knowledge Booster
Similar questions
- Sawyer and Sawyer, CPAs, audited the financial statements of Rattler Corporation that were included in Rattler’s Form 10-K, which was filed with the SEC. Subsequently, Rattler Corporation went bankrupt and the stockholders of the corporation brought a class-action lawsuit against management, Sawyer and Sawyer, and the corporation’s board of directors and attorneys for misstatements of the financial statements. Assume that the jury in the case decides that responsibility for $5 million in losses should be allocated as follows: Management 70% Board of directors 20 Auditors 5 Attorneys 5 100% Under what securities act would the stockholders initiate this lawsuit? Assuming that all the defendants in the case are financially able to pay their share of the losses, calculate the amount of losses that would be allocated to Sawyer and Sawyer. Assuming that management had no financial resources, describe how Sawyer and Sawyer’s share of the losses might be increased.arrow_forwardKim Company, a CPA firm, conducted an audit for the 2020 financial statements of Erin Corporation. The auditors found that the accounting manager changed the journal entry for estimating bad debt expense to a smaller number to hide the poor results from extending credit to high risk customers. This made income materially higher than it otherwise would have been. This is an example of: Embezzlement Employee fraud Larceny Management fraud O None of the abovearrow_forwardLiability under the Securities Acts. Orange is a public entity whose shares are traded ona national exchange. A Public Company Accounting Oversight Board inspection revealed adeficiency in audits conducted by Orange’s auditor, LeGrow. LeGrow had failed to performimportant auditing procedures; after performing these procedures in response to the inspection, LeGrow identified several material misstatements and requested that Orange restateits financial statements. These restatements had the effect of reducing Orange’s reportedincome and cash flow from operations and increasing its liabilities.Upon the disclosure of these restatements, Orange’s stock price declined more than 40percent. Angered over this decline, investors are contemplating bringing legal action againstLeGrow for failing to detect the misstatements.Required:a. Assume that investors are bringing suit under the Securities Act of 1933. What wouldinvestors need to demonstrate to bring suit against LeGrow under this act?b. What…arrow_forward
- In an audit of the Marco Corporation as of December 31, 2013,the following situations exist. No entries have been made in the accounting records inrelation to these items.1. During the year 2013, the Marco Corporation was named as a defendant in a suit fordamages by the Dalton Company for breach of contract. An adverse decision to theMarco Corporation was rendered and the Dalton Company was awarded $4,000,000damages. At the time of the audit, the case was under appeal to a higher court.2. On December 23, 2013, the Marco Corporation declared a common stock dividendof 1,000 shares with a par value of $1,000,000 of its common stock, payableFebruary 2, 2014, to the common stockholders of record December 30, 2013.3. The Marco Corporation has guaranteed the payment of interest on the 10-year, firstmortgage bonds of the Newart Company, an affiliate. Outstanding bonds of theNewart Company amount to $5,500,000 with interest payable at 5% per annum, dueJune 1 and December 1 of each year. The…arrow_forwardIn Barclays Bank plc v Grant Thornton UK LLP [2015] a disclaimer, a clause by which auditors disclaim liability to third parties (commonly referred to as a “Bannerman” clause), was upheld as effective. Auditors will welcome this important Commercial Court decision, which is the first authority on the point. Barclays suffered loss when its borrower entered administration, and argued Grant Thornton was liable alleging it had relied upon two non-statutory audit reports which did not uncover certain allegedly fraudulent manipulation of the borrower's accounts. The accountants, whilst expressly denying any negligence, sought summary judgment on the basis that Barclays had no reasonable cause of action and the claim had no real prospect of success due to the existence of the Bannerman clause. Grant Thornton sought to strike out the claim on the ground that its Bannerman clause excluded 'responsibility to anyone other than the company and the company's director'. Barclays argued that the…arrow_forwardHoltz Rubenstein Reminick, CPAs, audited year-end financial statements of Quality Food Brands, Inc., and related companies. Signature Bank, relying upon the audited financial reports prepared by Holtz Rubenstein Reminick, extended a term note to Quality in the principal sum of $10 million. Quality subsequently filed a petition under Chapter 7 of the United States Bankruptcy Code, and Signature Bank only then learned of various false and misleading statements contained in the audited financial reports. Explain whether Signature Bank can recover damages for negligent misrepresentation.arrow_forward
- An auditor issued an unqualified opinion on financial statements that failed to disclose that a significant portion of the accounts receivable was uncollectible. The auditor also failed to follow professional auditing standards with respect to inventory. The auditor knew that the client would use the financial statements to obtain a loan. The client subsequently declared bankruptcy. Under what concepts might a creditor, who loaned money to the client based on the financial statements, recover losses from the auditor?arrow_forwardMark Williams, CPA, was engaged by Jackson Financial Development Company to audit the financial statements of Apex Construction Company, a small closely held corporation. Williams was told when he was engaged that Jackson Financial needed reliable financial statements that would be used to determine whether to purchase a substantial amount of Apex Construction’s convertible debentures at the price asked by the estate of one of Apex’s former directors. Williams performed his audit in a negligent manner. As a result of his negligence, he failed to discover substantial defalcations by Carl Brown, the Apex controller. Jackson Financial purchased the debentures, but it would not have done so if the defalcations had been discovered. After discovery of the fraud, Jackson Financial promptly sold them for the highest price offered in the market at a $70,000 loss. If Apex Construction also sues Williams for negligence, what are the probable legal defenses Williams’s attorney would raise?…arrow_forwardMark Williams, CPA, was engaged by Jackson Financial Development Company to audit the financial statements of Apex Construction Company, a small closely held corporation. Williams was told when he was engaged that Jackson Financial needed reliable financial statements that would be used to determine whether to purchase a substantial amount of Apex Construction’s convertible debentures at the price asked by the estate of one of Apex’s former directors. Williams performed his audit in a negligent manner. As a result of his negligence, he failed to discover substantial defalcations by Carl Brown, the Apex controller. Jackson Financial purchased the debentures, but it would not have done so if the defalcations had been discovered. After discovery of the fraud, Jackson Financial promptly sold them for the highest price offered in the market at a $70,000 loss. Will the negligence of Mark Williams, CPA, prevent him from recovering on a liability insurance policy covering the practice of…arrow_forward
- Mark Williams, CPA, was engaged by Jackson Financial Development Company to audit the financial statements of Apex Construction Company, a small closely held corporation. Williams was told when he was engaged that Jackson Financial needed reliable financial statements that would be used to determine whether to purchase a substantial amount of Apex Construction’s convertible debentures at the price asked by the estate of one of Apex’s former directors. Williams performed his audit in a negligent manner. As a result of his negligence, he failed to discover substantial defalcations by Carl Brown, the Apex controller. Jackson Financial purchased the debentures, but it would not have done so if the defalcations had been discovered. After discovery of the fraud, Jackson Financial promptly sold them for the highest price offered in the market at a $70,000 loss. What liability does Williams have to Jackson Financial? Explainarrow_forwardDuring its deliberations on the Sarbanes-Oxley Act, the U.S. Senate considered numerous reports evaluating the quality of work done by external auditors. One study by Weiss Ratings, Inc. focused on auditors’ ability to predict bankruptcy. The study criticized auditors for failing to identify and report going-concern problems for audit clients that later went bankrupt. Based on a sample of 45 bankrupt companies, the Weiss study concluded that had auditors noted unusual levels for just two of seven typical financial ratios, they would have identified 89 percent of the sample companies that later went bankrupt. A follow-up to the Weiss study found that had the criteria in the Weiss study been applied to a larger sample of nonbankrupt companies, 46.9 percent of nonbankrupt companies would have been predicted to go bankrupt. In other words, the Weiss criteria would have incorrectly predicted bankruptcy for nearly half of the companies in the follow-up study and would have led the auditors…arrow_forwardMF 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. The court’s decision points out that absent PwC’s advice, MF Global Holdings would not have invested heavily in European sovereign debt to generate immediate revenues and would not have suffered the massive damages that befell the company in 2011. Do you believe that auditors should be held legally liable when they advise clients on matters related to the company’s finances that turn out to be wrong? Explain with reference to legal and professional standards.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning