AC 410 Unit 2 Homework Assignment NEW

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Homework Assignment 3-31 Ron Barber, CPA, is
auditing the financial statements of DGF, Inc., a
publicly held company. During the course of the
audit, Barber discovered that DGF has been making
illegal bribes to foreign government officials to
obtain business, and he reported the matter to
senior management and the board of directors of
DGF. Required If management and the board of
directors take appropriate remedial action,
should Barber be required to report the matter
outside the company? Describe Barber's
appropriate response if management
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and the board of directors fail to take
appropriate remedial action. 3-43 Thomas Gilbert
and Susan Bradley formed a professional
corporation called Financial Services Inc.A
Professional Corporation, each taking 50 percent
of the authorized common stock. Gilbert is a CPA
and a member of the AICPA. Bradley is a CPCU
(Chartered Property Casualty Underwriter). The
corporation performs auditing and tax services
under Gilbert's direction and insurance services
under Bradley's supervision. One of the
corporation's first audit clients was Grandtime
Company. Grandtime had total assets of 600,000
and total liabilities of 270,000. In the course
of his examination, Gilbert found that
Grandtime's building with a carrying value of
240,000 was pledged as collateral for a 10-year
term note in the amount of 200,000. The client's
financial statements did not mention that the
building was pledged as collateral for the
10-year term note. However, as the failure to
disclose the lien did not affect either the value
of the assets or the amount of the liabilities,
and his examination was satisfactory in all other
respects, Gilbert rendered an unqualified opinion
on Grandtime's financial statements. About two
months after the date of his opinion, Gilbert
learned that an insurance company was planning to
loan Grandtime 150,000 in the form of a
first-mortgage note on the building. Realizing
that the insurance company was unaware of the
existing lien on
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the building, Gilbert had Bradley notify the
insurance company of the fact that Grandtime's
building was pledged as collateral for a term
note. Shortly after the events described above,
Gilbert was charged with several violations of
professional ethics. Required Identify and
discuss at least four ethical implications of
those acts by Gilbert that were in violation of
the AICPA Code of Professional Conduct. 4-21 Jense
n, Inc., filed suit against a public accounting
firm, alleging that the auditors' negligence was
responsible for failure to disclose a large
defalcation that had been in process for several
years. The public accounting firm responded that
it may have been negligent, but that Jensen,
Inc., was really to blame because it had
completely ignored the public accounting firm's
repeated recommendations for improvements
in internal control. Required If the public
accounting firm was negligent, is it responsible
for the loss sustained by the client? Does the
failure by Jensen, Inc., to follow the auditors'
recommendation for better internal control have
any bearing on the question of liability?
Explain. 4-26 The international CPA firm of
Arthur Andersen faced significant liability in
conjunction with its audits of Enron
Corporation. Required
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From a legal liability perspective, describe the
unique features of this audit case. Describe the
important implications of this audit case for a
firm of public accountants.
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