Quintina Richmond Chapter 5 5-20 a. b. c. d. e. 5-22 a. The legal issue is whether or not the auditor conducted due care.

As a defense the auditor can state that the audit was performed in accordance with auditing standards and that he gave the exceptions to the controller to investigate therefore it was their responsibility to review the exceptions and return the explanations to the auditor as true to his knowledge. He can also say it was contributory negligence. b. The auditor should have investigated the evidence that should have shown the difference in timing which then the auditor should have discovered more discrepancies. 5-24
Ward & East's defense should be that they used due care in performing the audit and that they followed auditing standards. Ward & East will have to prove that they planned and had sufficient evidence evaluate the audit.

False there is no privity in contract between Martison and Watts and Williams. True if gross negligence can be proven the firm can be sued True ordinary negligence is insufficient for third parties unless the third party is a primary beneficiary. False gross negligence is fraud False Martison is a unknown third party and could recover under gross negligence

5-27 Yes the bank will succeed in suing Roberts for fraud because she knew that Majestic was bankrupt and she did not include a going concern in the audit report. Robertson let Herb persuade her into not adding going concern in her report which shows Robertson lack of independence. In Robersons defense she can say that she performed in accordance with GAAS and that she did not see where Majestic was going bankrupt.

Chapter 6 6-23
Class Transaction Purchase retuns rental revenue chargeoff of uncollectible accounts acquistions of goods and services rental allowances adjusting entries for payroll payroll services and payments cash disbursements cash reciepts Financial statement balance purchases returns & allowances rental revenue bad debt expense acquistions of goods and sevices rental allowances accrued salaries salaries accounts payabl accounts receivable journal acquistions journal revenue journal adjustment journal acquistions journal adjustment journal adjustment journal payroll journal cash disbursement journal cash receipts journal transaction cycle acquistion and payment sales and collection sales and collection acqusitions and payment sales and collection payroll ad personal payroll and personal acquistion and payment sales and collection

d. Phillips Equipment Rental should make a journal entry to debit to cash and a credit to rental revenue. They should also be keeping a listing of clients as to how they paid and when. As far as rental allowances Phillips may have to make reversing entries. 6-25 a. Managements assertions about transactions and events are reflected in the accounting records. Assertions about account balances are the ending balances on the financial statements. Assertions about presentation and disclosure relate to how the ending balances are disclosed in the financial statements.
Type of Assertion Transaction and events presentations and disclosures account balances Transaction and events Transaction and events presentations and disclosures account balances account balances presentations and disclosures Transaction and events account balances Transaction and events presentations and disclosures Name of assertion made by management completeness classification and understanability valuation and allocation cut-off classification completeness completeness rights and obligations accuracy and valuation occurrence existence accuracy and valuation occurrence and rights and obligations

a b c d e f g h i j k l m

6-28 a. All required disclosures regarding fixed assets have been made. 2. Completeness b. Footnote disclosures related to fixed assets are clear and understandable. 4. Classification and understandability c. Methods and useful lives disclosed for each category of fixed asset are accurate. 3. Accuracy and valuation d. Disclosed fixed asset dispositions have occurred. 1. Occurrence and rights and obligations 6-30 a. b. c. d. e. f. g. h. 9 Occurrence 6 detail tie-in 14 posting and summarization 15 occurrence and rights 10 completeness 1 existence 5 cutoff 10 completeness