Two Separate Discussion Questions

timer Asked: Oct 17th, 2018
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Question Description

Question 1

The following are independent situations. Analyze each situation and provide your assessment of the potential resolution of each scenario, including potential liability for the auditor.

  • The audit firm, Smith and Jones, LLP, received a subpoena for its documentation related to the audit of Sanders Corporation’s financial statements. The firm has refused to respond, alleging that the documentation is considered privileged communication between the firm and its client.
  • John Doe, CPA is a defendant in a lawsuit alleging that Doe should be held legally liable for gross negligence for a fraud involving the valuation of securities included in the financial statements of one of his clients. Doe was uncertain how to establish a correct valuation for the securities and decided to rely on the price estimation provided by management.
  • Joan Rogan is a partner in an audit firm that operates as a limited liability partnership (LLP). The firm has been sued for alleged audit failure related to an audit engagement handled by a different partner of the firm. While Joan had no involvement in the engagement, she is concerned that the plaintiff may successfully sue her seeking restitution from her personal assets.
  • Eastman Kodak filed for bankruptcy in January 2012. A recent blog suggested that Kodak’s external auditors should be sued for failure to qualify the firm’s opinion on the financial statements issued before the bankruptcy, even though the fair presentation of the financial statements is not disputed.

Question 2

The Sarbanes-Oxley Act mandates that the audit committee of the board of directors of public companies be directly responsible for the appointment, compensation, and oversight of the external auditors. In addition, the audit committee must pre-approve all non-audit services that might be performed by the audit firm.

  • Discuss the rationale for this mandate as opposed to the alternative of letting the shareholders, CEO, or CFO have these responsibilities.
  • What factors should the audit committee consider in evaluating the independence of the external auditors?
  • Locate the proxy statement for a publicly traded company. Search for the disclosures pertaining to the audit committee members. Summarize and discuss your findings.

MUST PROVIDE REFERENCE (Limit to two for each question)

Tutor Answer

School: UIUC

Hi, please see the attached paper. Have ...

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