Define Newtons 1st, 2nd and 3rd Laws. How do these relate to an Essay

Define Newtons 1st, 2nd and 3rd Laws. How do these relate to an exercise Give at least 3 examples - Essay Example It states that if a force is exerted on a body with mass m then the body would only accelerate or decelerate in the direction of the relative forces. Hence it can be concluded that F=ma where f is force, m is mass and a is acceleration. A real life example of the second law can be considered when the horsepower of a car is analyzed. If a car has a horsepower of 2300CC then it would move at a great speed. Similarly if the mass of this car is increased then the speed would decrease in the same manner. And lastly if the horsepower of the car is increased without changing the mass then the car would move at an even higher speed. The third law of Newton states that every action has an opposite reaction which would try to oppose the action in real. A real life example of this law can be seen when we are swimming or rowing. It is seen that as we push the water behind the water exerts a force in response which helps us move ahead. Both action and reaction can be seen in this

Settlement of the West over the Whole Period Essay Example for Free

Settlement of the West over the Whole Period Essay In considering the process of the settlement of the West over the whole period, how far can the Louisiana Purchase of 1803 be seen as the key turning point? The war of 1812 was followed by a period of exploration of the West which had been greatly expanded by the Louisiana Purchase of 1803. The process of expansion was huge and resulted in the original 13 states being 45 states by 1906. As well as the Louisiana Purchase, the Mexican-American War and the Californian Gold Rush of 1848, the Homestead Act of 1862 and the Exodus movement from 1879 were all key turning points which helped the process of Westward Expansion. The key criteria for judging a turning point is if the event created opportunities to go west, if it opened up land to settle in and if it had a psychological impact on the nation. The Louisiana Purchase was a very significant event as it increased the size of the United States by double overnight for only $15 million. This was a key turning point in expansion as it opened up a huge amount of land for more settlers (an extra 828,000 square miles). Alongside this it created opportunities for people to travel west as it gave access to the Mississippi river which was important for travel and commerce. This purchase was also significant in the fact that it created a more secure environment for settlers as it eliminated the French from imperial competition, Jefferson believed the French were restricting US commerce and that they tried to control surrounding territory. Therefore this event affected the process of change as it allowed America to spread its resources and encouraged people to move west, such as the Indians which were encouraged to settle there. The most important reason for this event being a turning point was that it opened up a large amount of land to settle in, a lot of the further events which take place would not have happened if it wasn’t for this territory being the United States’ and so provided many reasons for expansion to continue. Another key event which took place was the Mexican American War of 1848 which begun because Texas was a gateway to the pacific and was a great agricultural prospect. This was a key turning point as it had a big psychological impact on the people of America as many believed in the Manifest destiny, in that America had a right to expand, and so supported the annexation of Texas which increased their spirits on westward settlement. Polk deliberately provoked a war as he knew they could easily be overcome. The treaty of Guadalupe Hidalgo was signed in 1848 which ceded California, Texas and New Mexico. Another reason for this being a turning point is that it gave access to the pacific meaning that farming was capable so created further opportunities to go west and again meant that transportation was made easier for commerce. The key reason this was a turning point was manifest destiny which was completed after this event. America had managed to secure land coast-to-coast which was a huge psychological moral boost for America who now knew they had a lot of power with a lot of land. The Treaty of Guadalupe Hidalgo led to California being ceded to Americ a. In 1848 there was the Californian Gold rush which primarily lasted until the early 1850’s with millions of families travelling from around the world to California and surrounding areas in search for fortune. In 1850, California (now a new state) had nearly 40% foreign born inhabitants, showing that this event increased the diversity of people settling West, but also inspired many to go as they believed a new life could be made from the Gold being found. Furthermore it dramatically increased the speed of people moving out west, by 1853 the population was approximately 250,000 whereas in 1848 the Californian territory had less than 1000 inhabitants. The Gold caused a great economic boom which created infrastructures leading to many people settling here and encouraged more to move west. The Californian Gold Rush’s most important reason that it is a turning point in westward expansion is that it created opportunities. It allowed people to make a lot of money from the Gold, but also from new businesses which were now being created due to a new market of people, and because of this and the great boom, many people started to settle here at a very fast rate. In 1862 the Homestead Act was put into place, this allowed farmers to acquire 160 acres of land if they lived there for 5 years, or for 6 months with an additional payment of $1.25 per acre. This was significant as it allowed small scale settlement to develop. In some ways this could be seen as a turning point as it gave farmers a chance to be economically dependent, which gave them opportunities to expand or to do other thing with their money. It also inspired many people to go west and take up these lands which could be seen from figures that show that 400,000 families set up there taking 285 million acres of land. On the other hand, there were points which showed that this wasn’t as significant as it seemed. Most significantly, there was a 43% failure rate for those trying to get land in Nebraska under the Homestead Act showing that it wasn’t as easy to settle west as the act tried to make it. Furthermore, land was put into the hands of men who had no sufficient foresight so even though this land was meant for farming, many people who didn’t know what to do with it took it up and eventually a lot of the land went to waste. This act of 1862 could be seen as a turning point mainly because of how it inspired many people to go west due to the huge amount of land it opened up allowing people to profit from it from farming. To conclude, the Louisiana Purchase which nearly doubled America overnight for just $15million was the key turning point in Westward expansion. This is because the other events which occurred which are all significant in their own right would not have occurred if they did not have the land. The conflict between Mexico and America would not have occurred as Polk would not have been inclined to want Texas as they would not have been near it. Therefore the Treaty of Guadalupe Hidalgo would not have taken place which ceded California. Even though the Gold Rush would have still occurred in 1848, the sudden increase in prosperity due to the economic boom would not have helped America and therefore would not have been made an American state. Lastly, even though the Homestead Act of 1862 was not very successful, it still inspired many families to travel west, increased settlement there and helped westward expansion. However even this would not have happened if it wasn’t for the land being there in the first place due to the Louisiana Purchase.

The Daily Problems Of Foreign Language Learners English Language Essay

The Daily Problems Of Foreign Language Learners English Language Essay Language learning is a very complex process and foreign language learners face great number of problems daily, while they try different strategies and educational tools to master the foreign language in the best possible way. One of the areas which seems have made trouble for language learners is the pragmatic competence which has also drawn attention of those who are interested in language teaching to itself. [P]ragmatic competence . . . is understood as the knowledge of the linguistic resources available in a given language for realising particular illocutions, knowledge of the sequential aspects of speech acts, and finally, knowledge of the appropriate contextual use of the particular languages linguistic resources (Anne Barron, 2003 : 10). Pragmatic rules are essential for a successful interaction with other people for language learners and they should learn them the right way, otherwise it will lead to misunderstanding or total failure of conveying and receiving the message and the speaker will unintentionally be considered as rude or insensitive person. The research that here wants to be reviewed wants to find what are differences between kind of refusal strategies of EFL learners in situations that deals with pragmatic competence (Allami Naeimi, 2009). The Researchers found that cultural factors play great role in learners conceptualization and verbalization of the speech acts, even though the learners may have access to wide range of speech acts and realization strategies as native speakers do as well. Research Questions Three questions which were posed in the research are as follow (Allami Naeimi, 2009): 1. What are the most common semantic formulas used by Iranian learners at different pro ¬Ã‚ ciency levels with regard to the contextual variables of the status of interlocutors (higher, equal, or lower) and the eliciting acts (requests, invitations, offers, and suggestions)? 2. What are the areas of difference between Iranian EFL learners and American speakers with regard to the strategies employed to make refusals? 3. If Iranian EFL learners refusals are different from those of the American native speakers, does the L2 pro ¬Ã‚ ciency of the Iranian learners affect their possible pragmatic transfer or not? Theoretical framework Different studies have tried to show that if learners want to give appropriate speech act to a given speech event pragmatic competence has a major role in it. Fraser de ¬Ã‚ ned pragmatic competence as the knowledge of how an addressee determines what a speaker is saying and recognizes intended illocutionary force conveyed through subtle attitudes in the speakers utterance (Allami Naeimi, 2009: 2). Rintell is one of scholar who has worked deeper than the other scholars in field of speech acts and he believes that L2 learners utterances for some specific communications purposes are because of their pragmatic ability (2009: 2). In addition, L2 learners should have enough knowledge of L2 sociocultural limitations so that they would have acceptable pragmatic level. According to Wolfson choosing appropriate pragmatic strategies is crucial for speech act ability (2009: 2). Moreover, social class and culture have effect on choosing those strategies. The main theory which Allami and Naeim i have tried to focused on is that the different cultures and languages make different pragmatic competence in the minds of people and there is a good chance that learners L1 interfere with learners L2 pragmatic competence, even though their command of L2 can be very good. Methodology of Research There are three questions which were posed by researchers and they were mentioned earlier (Allami Naeimi, 2009: 2). Researchers used experimental research method in which independent variables were learners language proficiency (lower-intermediate, intermediate and upper-intermediate) status of interlocutors (lower, equal and higher) and types of eliciting acts (requests, invitations, offer and suggestions) and the dependent measures were the realization of the strategies. The researchers chose 30 participants which their native language is Persian and all of them were undergraduate males, within the age range of 16 and 29. The data used in the research was collected through a written Discourse Completion Test (DCT) which was in the form of a questionnaire presented some natural situations to which the respondents were expected to respond when making refusals. The reason why 30 participants were chose was that it has been claimed that in using the DCT for interlanguage speech act st udies, questionnaires with 30 subjects will serve as an appropriate guide (2009: 5). The participants were divided into three different groups of 10 upper-intermediate, 10 intermediate and 10 lower-intermediate students at a Language Institute in Yazd. In order to have a pertinent cross-linguistic examination of the speech act of refusal responses to the same DCT conducted by another American researcher were also analyzed. There were 37 Americans responses to the same DCT which was conducted by Kwon (2009: 5). The American participants in the research were between 18 and 22 years of age and they were all students from Boston. The DCT consisted of three requests, three invitations and three asks a favor of the other person. In each situation type were supposed to refuse a person of higher status, one to a person of equal status, and one to a person of lower status. There were a second group of participants who were asked to answer DCT which was translated into Persian and the purpose of designing this DCT was to compare semantic formulas used by Persian native speakers with those of the EFL learners. DCT was given to learners and they were asked not to think about the given situations thoroughly and they are just supposed to respond quickly. All of the respondents returned their papers within 20-30 minutes and the researcher were there all the time while the subjects were writing the answers. The Reponses were compared in terms of language forms with the 31 native speakers responses in Persian, and with 37 native speakers responses in English. Researchers in order to be analytically honest analyzed components of each speech act present in the responses; the produced refusals were parsed into strategies (2009: 6). Data Analysis Taxonomy of refusal developed by Beebe was the basis of coding all data in the research. Units used in analysis were semantic formulas. According to Cohen definition of semantic formula is a word, phrase, or sentence that meets a particular semantic criterion or strategy; any one or more of these can be used to perform the act in questions (Allami Naeimi, 2009: 6). Through this study new categories of semantic formulas were identified. Number of strategies in each refusal indicated complexity of speech act of refusal. The average number of semantic formulas used by the American respondents, Iranian Persian speakers and EFL learners were 4.00, 3.10 and 3.30 respectively. Regarding numbers which were gained it was shown that Americans use more semantic formulas, but variety of Iranians strategies were significantly more. Analyzing each of the semantic formulas in detail is a big task so researchers focused on similarities and differences among three groups of American native speakers, Iranian EFL learners and Persian native speakers answering the translated DCT. Another factor which was taken into consideration was the shift of frequencies of semantic formulas regarding the status of interlocutors. For higher status a boss, lower status an employee, a salesman, a student and a cleaning lady and for equal status a classmate and a friend were used. Arguments One of the things that researchers of this article are looking for is whether L1 might influence the L2 or not (Allami Naeimi, 2009: 15). Majority of EFL learners cannot have interaction with native speakers therefore they do not have good knowledge of semantic formulas or the way they should be used in different situations. Linguistic and cultural differences affect the way language is used by the language learners because the way people provide a speech act regarding a speech event is culture bound. Iranian learners are more sensitive about the status level of interlocutor and used different strategies, whereas Americans used a same pattern regardless of the status level. In other words, Iranians are more concerned with the face saving act rather than Americans. Americans are more specific and clear in their responses rather than Iranians. The researchers work result was along with positive correlation hypothesis which was suggested by Takahashi and Beebe, in which language profic iency has effect on pragmatic transfer (2009: 16). Article Results Some of interesting findings in the research were as follow: Iranian English learners were depending on their native culture-specific refusal strategies was the direct refusal Americans subjects were more concrete and specific when it came to refusing a high status person in comparison with Iranian participants in the study. The main goal of doing this research among Iranian EFL learners was because of lack attention to sociocultural and sociolinguistic factors. If EFL learners are not aware these factors it will lead to their misunderstanding of the concept in real-life situations when they are communicating with native speakers. The outcomes of this research supported that there is great difference between using speech acts in different cultures and languages. Teachers of second language should increase students knowledge level of target language pragmatic competence and how they should deal with different speech events in proper way. Conclusion The researchers have tried to go deep and find why EFL learners do not interact in the same way as native speakers do especially when it comes to speech acts which in this research refusal was the case. One of good points about this research is that in the procedure of it researchers tried to be as honest as possible by considering all the aspects in their data analysis. Another good point about this research was previous studies which were done in the same field by different researchers, therefore the researchers made a laid a good background and comparison in their task. However, there are some downsides in this research as well. One of the shortcomings in the research is lack elaboration for status of a person in the cultures of Iran and America. According to Foley à ¢Ã¢â€š ¬Ã‚ ¦ understanding of what kind of person they are vis-à  -vis the other interlocutor is embodied in their habitus. To the extent they rate of higher rank, the habitus will enact that proper demeanor in bodi ly and linguistic practices à ¢Ã¢â€š ¬Ã‚ ¦ (Foley, 1997: 260). If someone does not know exact definition of person within a culture and society then certainly he or she will not interact properly in that culture or society the person is a social concept made up of local notions of the ones rights and obligations, and hence varies crossculturally (Foley, 1997 : 263). Another problem was choosing only males as participant in this research. Woods believed that gender has a great role in conversations especially at work place the gender was the most significant factor determining speech behavior, more important than status. With respect to patterns of interruption, higher status people were more likely to interrupt successfully than lower status conversational partners, but men of lower status were still usually successful in interrupting a higher status female speaker (Foley, 1997 : 294).

Evil Women Essay -- essays papers

Evil Women Women are not always the affectionate, compassionate, and nurturing people that humanly instincts make them out to be. On the contrary, they are sometimes more ruthless and savage than their male counterparts. A good example of this idea is in William Shakespeare’s Macbeth. Through the use of various feminine roles throughout the play, Shakespeare manages to portray how dramatically important the witches are, along with how imminent greed and power can eventually grasp hold of Lady Macbeth’s morals, and thrust her into a state of emotional stupor. Shakespeare begins the play with the witches for several reasons. First, the fact that they are witches portrays many evil themes since witches are a universal symbol for an advocate of the devil. They themselves foreshadow malign events to come. For example, to add to the witches’ representation of evil, the clichà ©d background is that of thunder and lightening, which also represents wickedness and confusion. Shakespeare also uses the witches to give some background to the play; they decide to meet with Macbeth â€Å"when the battle’s lost and won†. Here, Shakespeare makes clear the fact that there is a battle taking place and Macbeth is involved. They choose to meet with Macbeth â€Å"upon the heath†, wherein a heath is described as being uncultivated, open land. The uncultivated aspect of the heath can be used to foretell the uncivilized intentions the witches have for Macbeth. The last line of the scene is immensely important, for when the wit ches say that â€Å"fair is foul, and foul is fair†, the reader Komery later understands that this is the main theme of the play. This implies that appearances can be deceiving. What appears to be good can be bad, and this ... ...me will to have the throne, even at the cost of her own offspring. Similar to the witches, after Lady Macbeth states her desires to become male, Macbeth enters her room, and a discussion about the murder of King Duncan ensues. The dramatic effect that the witches and Lady Macbeth bring to the play is great. Without them, there would be no play, since Macbeth would have never even considered killing his faithful friend, King Duncan. Yet, because of them, he becomes torn between his lover and his comrade. Lady Macbeth’s greed for power overwhelms her to the point where she would sacrifice anybody that stands in her path. The witches toyed with Macbeth’s head just enough so that he thought he could commit the murder within reason. In the end, these two rationalities led to the death of King Duncan, physically by Macbeth, but mentally, by the women in his life.

Auditing Hw Solutions

Chapter 1 SOLUTIONS FOR EXERCISES AND PROBLEMS 1. 47 Audit, Attestation, and Assurance Services Students may encounter some difficulty with this matching question because the Special Committee on Assurance Services (SCAS) listed many things that heretofore have been considered â€Å"attestation services† (long before assurance services were invented). As a result, we believe that this question is a good vehicle for discussing the considerable overlap between attestation and assurance services. ? ? ? ? ? ? ? ? ? ? ? ? ? ? Real estate demand studies: Assurance serviceBallot for awards show: Assurance service Utility rates applications: Assurance service Newspaper circulation audits: Assurance service Third-party reimbursement maximization: Assurance service Annual financial report to stockholders: Audit service Rental property operations review: Assurance service Examination of financial forecasts and projections: Attestation service Customer satisfaction surveys: Assurance serv ice Compliance with contractual requirements: Attestation service Benchmarking/best practices: Assurance serviceEvaluation of investment management policies: Assurance service Information systems security reviews: Assurance service Productivity statistics: Assurance service ? ? Internal audit strategic review: Assurance service Financial statements submitted to a bank loan officer: Audit service 1. 48 Controller as Auditor When Hughes Corporation hired the CPA, she or he can no longer be considered independent with respect to the annual audit and, as a result, can no longer perform an independent audit of the financial statements.It is true that the in-house CPA can perform all procedural analyses that would be required of an independent audit; however, it is extremely unlikely that the CPA could inspire the confidence of users of financial statements outside the company. Because she or he is no longer independent of the company, the CPA cannot modify the perception of potential con flict of interest that creates demand for the independent audit. As a matter of ethics rules, this CPA would be prohibited from signing the standard unqualified attest opinion.Moreover, if Hughes were a public company, under Sarbanes-Oxley, it would be restricted from hiring one of its auditors into a senior accounting position for a full year under Section 206 of the law. 1. 49 ASB Assertions PCAOB Assertion Corresponding ASB assertion Nature of assertion Existence or Occurrence Existence Occurrence Balance Transactions Disclosures Rights and Obligations Rights and Obligations Balances Disclosures Completeness Completeness Transactions Balances Disclosures Cutoff Valuation and Allocation Accuracy Transactions Transactions Disclosures Valuation Balances DisclosuresPresentation and Disclosure Classification Transactions Disclosures Understandability Disclosures 1. 51 Auditor as Guarantor. Loot Starkin appears to be uninformed on the following points: Inform your neighbor that Dodge m anagement is primarily responsible for preparing the financial statements and deciding upon the appropriate accounting principles. The auditors did not prepare the Dodge Corporation financial statement. An unqualified opinion does not mean that an investment is safe. Rather, it merely means that the financial statements are free of material misstatement.Tell your neighbor that the financial statements are a historical record of the business’ performance. The value of Loot’s investment depends on future events, including the many factors that affect market prices. Thus, the financial statements are just one piece of information that should be analyzed. Tell Loot that the unqualified opinion means only that the statements conform to the appropriate reporting framework (e. g. , GAAP) and that the financial statements are free of material misstatement. 1. 52 Identification of Audits and Auditors The responses to this matching type of question are ambiguous.The engagement e xamples are real examples of external, internal, and governmental audit situations. You might point out to students that the distinctions among compliance, economy and efficiency, and program results audits are not always clear. The â€Å"solution† is shown in the following matrix form, showing some engagement numbers in two or three cells. The required schedule follows. Type of Audit Engagement Financial Statement Auditor Independent CPA Internal auditor Governmental (GAO) auditor IRS auditor Bank examiner 5 7 2, 10 6, 8 4, 8 1, 3 1, 3, 9 Compliance Economy and Efficiency Program ResultsType of Audit 1. Proprietary school’s training expenses Advertising agency financial statements Dept. of Defense launch vehicle Municipal services Tax shelters Test pilot reporting Bank solvency Economy and efficiency or program results Financial statement Economy and efficiency or program results Economy and efficiency Compliance Compliance Compliance Type of Auditor Governmental (GAO ) auditors Independent CPAs Governmental (GAO) auditors Internal auditors IRS auditors Internal auditors Bank examiners 2. 3. 4. 5. 6. 7. 8.Materials inspection by manufacturer States’ reporting chemical use data Sports complex forecast Compliance or Economy and Efficiency Program goal Internal auditors 9. Governmental (GAO) auditors Independent CPAs 10. Financial statement 1. 53 Financial Assertions and Audit Objectives The objectives for the audit of Spillane’s securities investments at December 31 are to obtain evidence about the assertions implicit in the financial presentation, specifically: 1. Existence. Obtain evidence that the securities are bona fide and held by Spillane or a responsible custodian. Occurrence.Obtain evidence that the loan transaction and securities purchase transactions actually took place during the year under audit. 2. Completeness. Obtain evidence that all the securities purchase transactions were recorded. 3. Rights. Obtain evidence that S pillane owned the securities. Obligation. Obtain evidence that $500,000 is the amount actually owed on the loan. 4. Valuation. Obtain evidence of the cost and market value of the securities held at December 31. Decide whether any write-downs to market are required by the appropriate reporting framework. 5. Presentation and disclosure.Obtain evidence of the committed nature of the assets, which should mean they should be in a noncurrent classification like the loan. Obtain evidence that restrictions on the use of the assets are disclosed fully and agree with the loan documents. Chapter 2 2. 54 Independence a. Independence in fact relates to the auditors’ â€Å"state of mind† and reflects an unbiased and impartial perspective with respect to the financial statements and other information they audit. Independence in appearance relates to others’ (particularly financial statement users’) perceptions of the auditors’ independence.The two general types o f relationships that compromise auditors’ independence are financial relationships (owning shares of stock or having an outstanding loan to or from a client) and managerial relationships (acting in a decision-making capacity on behalf of a client or providing advice on systems or information that will be audited). (1) Although auditors might still be independent in fact with respect to the audit of the client, the large revenues resulting from these services create a financial interest that many users would find to be troubling.For example, consider the possibility that clients might use the revenues from these services as a bargaining tool with auditors if an issue arises during the audit engagement. Currently, no prohibitions exist on the extent of consulting services or revenues other than the prohibition of certain types of services and the required approval of nonaudit services by the client’s audit committee. This would clearly pose a compromise to auditorsâ€⠄¢ independence and would not be permitted under current guidelines.The issues in this case are (1) the fact that the auditor is directly involved with the engagement and (2) the executive-level position occupied by his or her spouse with a client. This introduces a similar issue to (2) but would be less likely to compromise the auditors’ independence. The major differences in this scenario are (1) the auditor is not directly involved with the engagement, (2) the level of position held by the auditor’s relative is not at the executive level, and (3) the relationship between the auditor and other individual is not as close.Professional standards would likely not conclude that this situation would compromise the auditor’s independence. This represents a direct financial interest in a client. The issue is whether the fact that the staff member is not a part of the engagement team compromises her independence. Professional guidelines would not conclude that this sit uation compromises the independence of the staff member, but many firms have adopted the practice of not permitting any of their professional staff to hold financial interests in their audit clients. . c. (2) (3) (4) 2. 57 Performance Principle: Evidence a. Sufficiency refers to the amount of evidence, which is the number of transactions or components of an account balance of class of transactions examined by the audit team. As it relates to evidence, the term appropriate refers to the quality of evidence. Appropriateness is affected by the information the evidence provides to the audit team (relevance) as well as the extent to which the audit team can trust the evidence (reliability).Relevance refers to the nature of information provided by the audit evidence (the assertion or assertions supported by the evidence). Reliability refers to the extent of trust the audit team can place in the evidence. Relevance and reliability both affect the appropriateness of audit evidence; as the r elevance and reliability of evidence increases, the appropriateness of evidence increases. b. c. The five basic sources of evidence (from most reliable to least reliable) follow. The solution provides one example, but other possible answers would also be acceptable. 1) (2) (3) (4) (5) The auditors’ direct, personal knowledge, such as physical observation of inventory counts. External documentary evidence, such as confirmations returned directly to auditors from one of the client’s banks. External-internal documentary evidence, such as a vendor’s invoice received by auditors from the client. Internal documentary evidence, such as an invoice prepared by the client for the sale of products or services to one of its customers. Verbal evidence, such as client responses to auditors’ inquiries about potential litigation. d.As the entity’s internal control is more effective, auditors would assess lower levels of the risk of material misstatement. This woul d allow them to permit a higher level of detection risk, which means that they could gather less sufficient and less appropriate evidence. In contrast, as the entity’s internal control is less effective, auditors would assess higher levels of the risk of material misstatement. This would require auditors to control detection risk to lower levels, which means that they would be required to gather more sufficient and more appropriate evidence. . 61 Responsibilities and Performance Principles a. While auditors typically cannot influence the susceptibility of accounts to misstatements or the effectiveness of the entity’s internal control (both of which comprise the risk of material misstatement), this risk needs to be considered in order to determine the nature, timing, and extent of substantive tests. This statement is correct; if internal control is less effective, auditors are required to gather more sufficient and more appropriate evidence.However, in addition to the n umber of transactions and reliability of evidence, auditors should also consider the relevance of the evidence they gather and the extent to which that evidence supports the assertions of interest. Auditors are not required to provide absolute assurance as to the fairness of the financial statements, which is what is being suggested in this statement. It is true that a great deal of time and effort is necessary in an audit engagement, but auditors are required only to provide reasonable assurance with respect to the ability to detect material misstatements.This statement relates to the concept of materiality and is appropriate. However, it is important to note that the consideration of materiality in an audit is highly complex and requires an extremely high level of professional judgment. While physical inspection of the stock certificates provides more reliable evidence than confirming the certificates held with the custodian, it may not be necessary for auditors to conduct such an inspection. In many cases, a less reliable but still effective procedure such as confirmation with the custodian would be appropriate. . c. d. e. 2. 64 Fundamental Principles (Comprehensive) a. This situation is related to the competence and capabilities element of the responsibilities principle. In this case, auditors can accept this engagement assuming that they take appropriate measures to obtain the knowledge necessary to perform the audit and understand important issues affecting this client. It is important to note that the existence of industry-specific accounting issues will require auditors to obtain the knowledge necessary to complete the engagement.This situation is related to the reporting principle, which addresses the conformity of the financial statements with GAAP. If the client elects to treat these leases as operating leases in violation of GAAP, auditors should issue either a qualified or adverse opinion, depending upon the materiality of the departure from GAAP. This situation is related to the performance principle, which indicates that the audit should be properly planned. In this case, auditors should evaluate whether the client’s deadline will allow an audit to be properly planned and conducted according to generally accepted auditing standards.The fact that this would be an initial audit makes this possibility even more questionable than usual. This situation is related to the performance principle, which requires auditors to obtain sufficient appropriate audit evidence. Given the low level of control risk, auditors would then proceed to perform the necessary auditing procedures, which provide the basis for their opinion on the client’s financial statements. In this case, confirming a smaller number of customer accounts would be appropriate. This situation is related to the responsibilities principle, which requires auditors to be independent.In this particular case, the fact that the husband of one of the partner is an officer of the prospective client would likely result in the firm declining this particular engagement because of a lack of independence. This situation is related to the reporting principle. Auditors should insist upon disclosure of the potential litigation and, if the client refuses, issue either a qualified opinion or adverse opinion, depending upon the materiality of the omission of the disclosures. In addition, the auditors’ report should provide information regarding the omitted disclosures.This situation is related to the performance principle, which requires auditors to assess the risk of material misstatement, which includes obtaining an understanding of the entity and its internal control. Once this understanding has been obtained, auditors would then proceed to perform the necessary substantive audit procedures. This situation is related to the performance principle, which requires proper planning and supervision. An important element of supervision is critical rev iew of work performed by persons at various levels within the firm.Because the supervisor’s review of the work performed by the assistant indicates that the work supports the opinion on the financial statements, no further actions are necessary. b. c. d. e. f. g. h. Chapter 24 (Module C) C. 62 Liability to Clients a. b. Clients may bring suit against auditors for either breach of contract or tort actions. To bring suit against auditors, clients must ordinarily demonstrate: (1) (2) (3) (4) They suffered an economic loss. Auditors did not perform in accordance with the terms of the contract (for breach of contract).Auditors failed to exercise the appropriate level of professional care (for tort actions). The breach of contract or failure to exercise the appropriate level of professional care caused the loss. c. Auditors’ defenses against legal actions brought by their clients include: (1) (2) (3) Auditors exercised the appropriate level of professional care (tort) or per formed the engagement in accordance with terms of the contract (breach of contract). The client’s economic loss was caused by a factor other than auditors’ failure to exercise appropriate levels of professional care or breach of contract.Actions on the part of the client were, in part, responsible for the loss. d. The potential basis for legal action in each of these cases is as follows: Brown Company: Because the delay in completing the audit resulted in additional costs of financing, Brown’s legal action would be based on Thomas’s inability to complete the audit on a timely basis. Green Stores: Green Stores’ legal action would be based on Thomas’s failure to identify the embezzlement scheme during its audits of Green Stores’ financial statements.Green Stores would likely seek recovery of the $2 million in losses. Fuchsia, Inc: Fuchsia’s legal action would be based on any additional costs associated with changing auditors and any costs associated with delays in providing audited financial statements to its lenders as a result of the need to change auditors. e. Note to instructor: Depending upon the assumptions made by students, they may arrive at different conclusions with respect to Thomas’s liability to its clients in some of these scenarios.The key is that they considered the relevant facts and potential defenses that may either increase or decrease the likelihood of an unfavorable outcome to Thomas. Brown Company: It appears that Brown Company’s most viable action for recovery will be alleging that it informed Thomas of the need to have the audit completed by a certain date and that failure to do so would constitute a breach of contract. There is no evidence that a substandard audit has been conducted or that Thomas did not exercise the appropriate level of professional care. In this case, the following are important considerations: ?Was a deadline or other date explicitly communicated by Brown Company to Thomas or otherwise identified in the engagement letter? If no such date was communicated, or any deadline known by Thomas, it would not appear that Brown Company has a viable suit for breach of contract. Regardless of the response to the preceding point, did Brown Company’s actions result in delays or otherwise affect Thomas’s ability to complete the engagement on a timely ? basis? If so, this might serve as a defense for Thomas in the form of contributory negligence on the part of Brown Company.Green Stores: Green Stores would most likely bring suit for tort liability, alleging that an audit conducted under generally accepted auditing standards would have revealed the existence of the embezzlement scheme and prevented the $2 million loss. In this case, the following are important considerations: ? Were Thomas’s audits conducted in accordance with generally accepted auditing standards? If so, Thomas would likely use the defense that it exerc ised appropriate levels of care during the engagement and emphasize that a GAAS audit cannot be relied upon to detect all instances of fraud.Regardless of the response to in the preceding point, could Green Stores have taken actions (through strengthening internal controls or other) to create an environment that would have made the creation and execution of this embezzlement scheme more difficult? Certainly, if Thomas had communicated internal control deficiencies to Green Stores in previous audits related to the treasurer’s role or controls surrounding this function, it would appear that Thomas could assert contributory negligence as a defense. ? Fuchsia, Inc. This may appear to be a frivolous suit, but that would not prevent Fuchsia from alleging that Thomas’s actions resulted in the losses described in the scenario. Although it is difficult to comprehend how Fuchsia’s decision to change auditors would result in liability to Thomas, Thomas would appear to have a strong defense that its actions were, in fact, done to exercise appropriate levels of professional care by demonstrating how Fuchsia’s accounting treatment departed from generally accepted accounting principles. C. 65 Auditors’ Liability for Fraud a.Auditors will be liable for fraud to all third-party users of financial statements under common law or statutory law. Fraud is a misrepresentation of fact that an individual knows to be false. Constructive fraud (sometimes referred to as gross negligence) is the failure to provide any care in fulfilling a duty owed to others. The primary difference between these two levels of professional care is actual knowledge on the part of auditors, which is present under fraud but not under constructive fraud. Auditors will be liable for constructive fraud to all third-party users under common law and the Securities Act of 1933.To be held liable under the Securities Exchange Act of 1934, scienter (or intent to deceive, manipulate, or defraud) must be shown. Although scienter may be present in situations representing constructive fraud, this will not always be the case. b. c. Clearly, auditors should be liable in cases for which they intend to deceive. Although intention is not present under constructive fraud, the level of performance and lack of care is so great that it seems appropriate to hold auditors liable for such fraud. C. 69Common Law Liability Exposure a. Yes, Smith will be liable to the bank. The elements necessary to establish an action for liability for fraud under common law are clearly present. There was a material misstatement in the financial statements, intent and knowledge of the misstatements (scienter), actual reliance by the bank on the materially misstated financial statements, and economic damages resulting from that reliance. If action is based upon fraud, there is no requirement that the bank establish privity of contract with Smith.If the action by the bank is based on ordinary negl igence, the bank may still be in position to bring suit, depending upon the extent to which Smith was aware that his work would be used by the bank and the jurisdiction in which this case occurred. Based on the facts presented, it is difficult to determine whether the bank is a primary beneficiary. However, because Smith was aware that the financial statements would be used to obtain a loan, the bank would appear to be at least a foreseen third party and could prevail under the restatement of torts doctrine. . No, Smith will not be liable to the lessor because the lessor was a party to the â€Å"secret† written agreement. As such, the lessor cannot claim reliance on the financial statements and cannot recover uncollected rents. Even if the lessor were damaged indirectly, his own fraudulent actions led to his loss, and the equitable principle of â€Å"unclean hands† (â€Å"contributory negligence†) precludes him from obtaining relief. c. C. 71 Smith was not indep endent with respect to the audit of Juniper.The lack of independence is raised by Juniper’s threat to sue Smith in the event the loan was not obtained. Common Law Liability to Third Parties a. Because these parties provided loans to Madeoff and are nonshareholder third parties, they would pursue litigation against Allen based on common law rather than statutory law. Because First Trust and Bank was specifically known to Allen by name (in fact, First Trust and Bank was explicitly identified by name in the engagement letter), it would be classified as a primary beneficiary.Allen was aware that the purpose of the audit examination was to enable Madeoff to obtain financing. Because of this knowledge, as well as the fact that Madeoff had previous business relationships with MoonTrust, MoonTrust would likely be classified as a foreseen third party. The classification of Alice Lay is somewhat debatable. On one hand, any third party could potentially provide funding to Madeoff; using this rationale, one might classify Alice Lay as a foreseeable third party.However, because it is not common practice for entities to obtain financing from customers and Alice Lay had never entered into a loan agreement of this nature in the past, a justification could be made that she does not meet the classification as a foreseeable third party. c. The failure of Allen’s audit to comply with generally accepted auditing standards represents ordinary negligence, assuming that Allen’s audit did not demonstrate a lack of minimum care or Allen did not possess actual knowledge of the material misstatements. For ordinary negligence, the following represents these parties’ abilities to prevail against Allen: ?As a primary beneficiary who relied upon the audited financial statements and Allen’s report on the financial statements, First Trust and Bank would likely be able to bring suit and prevail against Allen. Although MoonTrust’s classification as a for eseen third party suggests that it would be able to prevail against Allen in certain jurisdictions, the fact that MoonTrust did not rely b. ? on the audited financial statements and Allen’s report on the financial statements would make it unlikely that MoonTrust could bring suit against Allen.If MoonTrust did bring suit against Allen and Allen could prove that the loan decision was made prior to receipt of the audited financial statements and auditors’ report, Allen could attempt to successfully assert the causation defense. ? Given Alice Lay’s very remote and unusual relationship to Madeoff as a provider of capital, it is unlikely that Alice would have an appropriate level of standing to bring suit against Allen. However, if Alice could demonstrate that she was a foreseeable third party and could meet the other criteria for bringing suit under common law, she could potentially prevail against Allen. . C. 80 If Allen had been aware of the material misstatements, this situation would be classified as fraud. Both First Trust and Bank and Alice Lay would be highly likely to prevail against Allen because auditors are liable to all third-party users (regardless of their relationship and classification) for acts of gross negligence or fraud. MoonTrust would still have the burden of demonstrating that it relied on the materially misstated financial statements and Allen’s report in bringing suit against Allen. Independence and Securities Exchange Act of 1934 a.One of the important concepts governing auditors’ independence is that auditors should not be in a position of serving as advocates for their clients. Testifying in court on behalf of the client’s damage claim is perilously close to serving as an advocate, although many auditors will claim that litigation support services (in general) are appropriate and do not impair independence. Although the litigation consulting itself may not impair independence, independence is lik ely impaired by the unpaid consulting fee of $265,000.AICPA interpretations and rulings hold that past due fees may impair auditors’ independence in certain situations. b. Violations of generally accepted auditing standards are based on the failure of auditors to exercise the appropriate level of professional care (third general standard). This violation is based on Ward’s (and, therefore, AOW’s) not insisting upon disclosure of the appeal of the Civic case, improper deferral of losses on new product start-up costs, and inappropriate accrual of sales revenue.Ward and AOW appear to have violated section 10(b) by being actively involved in using a â€Å"scheme or artifice to defraud,† namely management’s issuing the materially misstated financial statements with full knowledge of the auditors. Ward, and hence AOW, acted with scienter, which is required by section 10(b). In addition, by willfully enabling the 10-K to be filed with the SEC, Ward seemin gly violated section 32 of the Securities Exchange Act of 1934 by knowingly causing materially misstated statements to be filed (the financial statements and the auditors’ opinion).Chapter 23 (Module B) B. 45 SEC Independence Rules In these solutions, the following responses do not try to contemplate all exception conditions cited in the text related to the SEC independence rule exceptions. The solution focuses on the primary conditions. a. b. Yes. A member of the engagement team cannot hold a direct financial interest. Yes. No other partner in the Santa Fe office (covered persons) can own direct financial interest in CCC. Yes. Immediate family members of covered persons in the firm cannot hold direct financial interest in CCC. Yes.The son (presumed a dependent) is also an immediate family member. No. According strictly to the definition, the father is a close family member (not an immediate family member), so the financial interest in CCC does not impair independence. Yes. C ontrolling interests in audit clients when held by close family members of covered persons in the firm impair independence. c. d. e. f. g. B. 48 Yes. Independence is impaired when close family members of a covered person in the firm (Javier) holds a job with a client in an accounting or financial reporting role.Independence, Integrity and Objectivity Cases The following interpretation is relevant for responses a, b, c, d, e, and f. Interpretation 101-6: In general, when the present management of a client commences or expresses an intention to commence legal actions against its public accounting firm, the public accounting firm and the client management may be placed in adversary positions in which the management's willingness to make complete disclosures and the auditors’ objectivity may be affected by self-interest.Independence may be impaired whenever the auditors and the client or its management are in positions of material adverse interest by reason of actual or threatene d litigation. Various situations are sometimes difficult to generalize, and the following responses are guidelines expressed in AICPA Ethics Interpretations (Effect of Litigation). a. Independence would be impaired: An expressed intention by the client to begin litigation alleging deficiencies in audit work is considered to impair independence if the public accounting firm concluded that there is a strong possibility that such a claim will actually be filed.Independence would be impaired: The commencement of litigation alleging deficiencies in audit work impairs independence. Independence would be impaired: The commencement of litigation by the public accounting firm alleging management fraud or deceit would definitely impair independence. Independence could be impaired: The claim under subrogation by the insurance company would not necessarily affect auditors’ independence on its client. In this case, the client and members of management are not the plaintiffs. However, this situation would have to be carefully evaluated by the CPA firm.If members of Contrary management are going to testify on behalf of the insurance company's interest and thus act in an adversary relation to the public accounting firm, independence would likely be impaired. b. c. d. e. Independence would not be impaired: Litigation not related to the audit work, whether threatened or actual, for an amount that is not material to the audit form or to the financial statements of the client would not usually be considered to affect the CPA-client relationship in such a way as to impair independence. . Independence would not necessarily be impaired: The class action lawsuit against both public accounting firm and company in itself would not alter fundamental relationships between the management and directors and the public accounting firm and therefore would not be considered to have an adverse impact on the auditors’ independence.These situations should be examined carefully, howe ver, because the potential for adverse interests may exist if cross-claims alleging that the covered member is responsible for any deficiencies or if the covered member alleges fraud or deceit by the present management as a defense are filed against the covered member. g. Interpretation 101-15: Independence is impaired. The CPA's financial interest in Dove Corp. (as an investor) is sufficiently large to allow Lisa to potentially influence the actions of Dove.Because Dove has a significant ownership interest in Tate Company, the CPA's independence would be considered impaired for the audit of Tate Company. Simply stated, the CPA's ability to influence Dove Corp. could permit Lisa to exercise a degree of control over Tate Company that would place the CPA in a capacity equivalent to that of a member of management. Interpretation 101-15: Independence is impaired. Queens’s financial interest in Hydra is sufficiently large enough (12 percent) for it to exert influence. Because Quee ns’s audit client, Howard, owns 46 percent of Hydra, Queens can clearly exert influence over Hydra.Because Howard’s financial position will be dependent in part on the financial performance of Hydra, Queens cannot possibly be independent in its audit of Howard because of its ownership in Hydra. Interpretation 101-2: (1) Assuming that the First National Bank is a profit-seeking enterprise, the independence of the auditors is not impaired by the association of the two individuals who served both as members of the auditing firm and as directors for the client during the period examined as long as they have ended all ties with the bank and are not involved in the audit.The auditors’ services may consist of advice and technical services, but the former controller must not make management decisions or take positions that might impair objectivity. The independence of the auditing firm would be compromised by any partner making a decision on loan approvals and the minim um balance checking account policy but normally not by the former controller’s performing a computer feasibility study.If the former controller's participation in the feasibility study was objective and advisory, and if the former controller’s advice was subject to effective client review and decision, the firm's independence has not been compromised. It is desirable, however, that the former controller could not participate in the audit of the First National Bank's financial statements. h. h. (2) i. Rule 101: The acceptance by the CPA of the unsecured interest-bearing notes in payment of unpaid fees would not be construed as discrediting the CPA's independence in relation to Cather because the notes are merely a substitution for an open account payable.The rule of professional conduct that prohibits a CPA from having any financial interest in a client does not extend to the liability for the CPA's fee. Under SEC rules, however, a definite arrangement for paying the no tes must be stated by the client. However, the acceptance of two shares of common stock (or prior commitment to accept stock) would be a violation of Rule 101. Any direct financial interest such as common stock holdings are construed as discrediting the CPA's independence. Rule 101: The Code of Ethics does not apply to Debra.She's neither a CPA nor a member of AICPA. However, the ruling does apply to independence of a firm if an employee accepts more than a token gift. Independence is impaired because an AICPA member cannot permit employees to break rules that she or he is obligated to observe. k. l. Rule 101. 4. A: Ruling 52 (ET 191. 104): Independence is considered impaired. At the time a member issues a report on financial statements, the client should not be indebted for more than one year's fees. In the Groaner case, the debt would be for last year and the current year audit fees.Groaner will have to pay the fees for last year when the current year report is ready (or else get a non-independent disclaimer). The past due fees take on characteristics of a loan within the meaning of Rule 101, and collection may depend on the nature of the auditors’ report on the financial statements. Rule 102—Integrity and Objectivity: The CPA has violated the rule. The CPA (1) lacked integrity, (2) knowingly misrepresented facts by omitting the gain in the current-year tax return, and (3) subordinated CPA judgment to another (the client).The proper action is to file an amended return for last year and request a refund and then file a correct return for this year. m. n. Rule 102—Integrity and Objectivity: Both CPAs probably violated Rule 102. Lestrade has a conflict of interest in owning another business that provides services to her employer and (apparently) not disclosing the business to Baker's board of directors. The â€Å"prepaid expenses† classification is wrong. Lestrade has falsified an entry in the accounts and in the financial statements (a violation of Rule 501). Both CPAs have fooled the external auditors by lying about the related-party loan and the repayment erms. B. 58 Conflict of Clients' Interests. This situation raises a typical â€Å"Who's the client? † question. Unfortunately, the relevant relationships are William's individual engagements with Jack and Bill because Williams would have essentially the same problem if Oneway Corporation were not a client. The situation is â€Å"unfortunate† because Williams is in a no-win situation. If he keeps Bill informed, he might save the Oneway engagement and Bill's friendship, but he will suffer the guilt of having engaged in industrial espionage and might face an ethics complaint for having ignored the rule of accountants' confidentiality.If Jon keeps quiet, he might lose the engagement and a significant portion of his personal income at least temporarily. If Williams believes rules are the most important element of ethical behavior and the consequenc es of action or inaction must fall where they may, he will refuse Bill's request with an eloquent and sympathetic explanation of the professional reasons for not discussing other clients' business affairs.A happy outcome for this approach depends upon Bill's understanding the difficult situation he has created for Williams. If Williams believes in weighing the â€Å"good and evil consequences† of ethics-related choices, he will need to decide which ultimate outcome is most desirable: Bill's well-being (and his own income) or Jack's and Jill's well-being, whatever it may be. B. 61 Ethics Case a. Sally violated Rule 501.According to interpretation 501-7, a member who fails to comply with applicable federal, state, or local laws or regulations regarding the timely filing of his or her personal tax returns or tax returns of the member’s firm, or the timely remittance of all payroll and other taxes collected on behalf of others may be considered to have committed an act dis creditable to the profession in violation of rule 501. Sally could receive any of the penalties available to the AICPA and the state board including admonishment, suspension, or expulsion. A discussion of the penalties should ensue.Opinions may range from the least punitive penalty because Sally has now resolved her legal difficulties to the most severe penalties because the publicity regarding a member of the profession portrays a negative image of the profession and will send a message to the public regarding professional conduct of other members. That is, some students will want to make an example of Sally’s behavior. b. c. Engagement Planning 3. 48 General Audit Procedures and Financial Statement Assertions PCAOB Assertions Existence or occurrence Completeness Raises questions that may be relevant to all assertions but may not produce actual â€Å"evidence. Because it is performed on recorded amounts, it works best for existence or occurrence, valuation and allocation, r ights and obligations, and presentation and disclosure. When applied to source documents, it might work for the completeness assertion. Existence or occurrence, valuation Existence or occurrence, valuation Existence or occurrence Rights (ownership) Valuation (sometimes) Completeness (sometimes) All assertions; however, responses typically yield more assertions that in turn are subject to audit with corroborating evidence.ASB Assertions Existence, occurrence Completeness Existence Occurrence Valuation and allocation Rights and obligations Completeness Accuracy Classification Existence, valuation Existence, valuation Existence Rights (ownership) Valuation (sometimes) Completeness (sometimes). All assertions; however, responses typically yield more assertions that in turn are subject to audit with corroborating evidence Existence, valuation Valuation Existence Occurrence Valuation Completeness Audit Procedures 1a. Inspection of records or documents (vouching) 1b.Inspection of records o r documents (tracing) 1c. Inspection of records or documents (scanning) 2. Inspection of tangible assets 3. Observation 4. Confirmation 5. Inquiry 6. Recalculation 7. Reperformance 8. Analytical procedures Existence, valuation Valuation Existence or occurrence Valuation Completeness 3. 50 Confirmation Procedure a. Audit confirmation, a procedure widely used in auditing, refers to direct correspondence by the auditor with independent parties. It can produce evidence of existence and ownership and sometimes of valuation and cutoff.Auditors typically limit their use of confirmation to balances about which outside parties could be expected to provide information. The two main characteristics a confirmation should possess are: (1) The party supplying the information requested must be knowledgeable and independent (i. e. , must have knowledge of information of interest to the auditors and must be outside the scope of influence of the organization being audited). (2) The auditors must obta in the information directly from the informed party.In addition, the auditors must maintain control (at all times) over the mailing and receipt of confirmation requests. To be considered competent evidence, the client cannot have an opportunity to handle confirmation requests at any point in the process. b. 3. 52 Audit Documentation a. (1) Audit documentation is the auditors’ record of the procedures performed and conclusions reached in the audit. The functions of audit documentation are to aid the CPA in the conduct of the audit work and to provide support for the auditor’s opinion and compliance with auditing standards.Audit documentation can be classified in two categories: (1) permanent files (which contain information that is relevant to ongoing client relationships) and (2) current files (which relate to just one year of the client relationship). The documentation (usually in the form of either electronic files or hard copy work papers) should contain detailed su pport for the decisions regarding planning and performing the audit, procedures performed, evidence obtained, and conclusions reached. (2) b.The factors that affect the auditors’ judgment of the type and content of the audit documentation for a particular engagement include: (1) (2) (3) (4) (5) The nature of the auditors’ report. The nature of the client’s business. The nature of the financial statements, schedules, or other information on which the auditors are reporting and the materiality of the items included therein. The nature and condition of the client’s records and internal controls. The needs for supervision and review of work performed by assistants. c.Evidence that should be included in audit documentation to support auditors’ compliance with generally accepted auditing standards includes: (1) (2) (3) (4) (5) The financial statements or other information on which the auditors are reporting were in agreement or reconciled with the client ’s records. The client’s system of internal control was reviewed and evaluated to determine the nature, timing, and extent of audit procedures. The audit procedures performed in obtaining audit evidence for evaluation. How exceptions and unusual matters disclosed by audit procedures were resolved or treated.The auditors’ conclusions on significant aspects of the engagement with appropriate commentaries. d. The audit team should perform an adequate examination at minimum cost and effort, and the prior year’s plans will aid in doing this. Those audit plans ordinarily contain information useful in the current examination (such as descriptions of the unique features of a client’s operations or records, a formalized sequence of audit steps in logical order, and approximate time requirements to perform various phases of the work. ) The audit team should ecide whether to use the old plan or prepare a new one. 3. 54 Predecessor and Successor Auditors Wells & Ratley (W&R) needs to initiate communications with both predecessor auditors. The situation is unusual, but W&R needs to obtain complete information from all predecessors involved since the last audit (2007 financial statements). Both Canby & Co. and Albrecht & Hubbard (A&H) are predecessors. (If Canby & Co. had completed the 2007 audit and W&R had been hired to perform the 2008 audit, then Canby & Co. would be the only predecessor.A&H would be history. ) Inquiry of only one of the predecessors would not result in complete information because the circumstances surrounding each auditor change may be different. The two predecessors, having served at different times and for different lengths of time, may have different knowledge about Allpurpose Loan Company and its president. If the company is public and subject to SEC reporting requirements, forms 8-K for both changes should have also been filed. Management Fraud and Audit Risk 4. 46 Analytical Procedures and Interest Expense a.Th e audit estimate of interest expense for these notes is about $24,400. Notes Payable Balances Balance Rate Time $150,000 10. 0% $200,000 10. 0% $225,000 10. 0% $285,000 10. 0% $375,000 10. 0% $375,000 9. 5% $430,000 9. 5% $290,000 9. 5% $210,000 9. 5% $172,000 9. 5% $95,000 9. 5% 1 month Auditors’ Interest Calculation Interest 1 month 1 2 months 1 month 1 1 month 1 1 month 1 1 month 1 1 month 1 1 month 1 1 month 1 1 month 1 1 $752 12 months $1,250 2 $3,334 $1,875 $2,375 $3,125 $2,969 $3,404 $2,296 $1,663 $1,362 Date Jan 1 Feb 1 Apr 1 May 1 Jun 1 Jul 1 Aug 1 Sep 1 Oct 1 Nov 1 Dec 1Weighted Average $250,583 9. 75% 12 $24,405 $24,432 Calculated on Average Balance and Average Rate b. The type of analytical procedure is â€Å"study of the relationships of current-year account balances with relevant nonfinancial information. † While the interest rate may not seem to be an item of â€Å"nonfinancial information,† it is not a direct entry or element in the clientâ€℠¢s financial statements. Three of the other four types of analytical procedures do not describe the estimate (because it does not compare to prior periods, to budget, or to industry information).However, a case might be made that the estimate is an â€Å"evaluation of a relationship of current-year account balances (notes payable) to other current-year balances (related interest expense) for conformity with a predictable pattern (interest rate relation) based on the company’s experience. c. The recorded interest expense appears to be too small. The company may have forgotten or miscalculated the year-end interest expense accrual. (In fact, this amount was specified because the missing amount is approximately the $750 of the accrual for the December interest. ) d.The recorded interest expense is about right. Some differences in timing and calculation might explain the small difference, but it is not material enough to warrant further work. e. The recorded interest expense app ears to be too large. Maybe the company has other debt on which interest is being paid, but the debt is not recorded in the accounts. (In fact this amount was specified in terms of an extra $100,000 being borrowed in July at 9. 5% interest, not recorded, but paid back by August 1 before the next recorded borrowing. This would account for about $800 additional interest: $100,000 x 9. % x 1/12 = $792. ) Could be that Weyman found he could borrow the company’s cash for himself, earn interest, and then pay back the principal! ) Actually, this kind of maneuver could have been carried out in any month and not noticed by auditors who saw only the first-of-the-month balances. 4. 49 Analysis of Accounting Estimates The company has fudged the write-offs as being as small as possible, hoping to satisfy the auditors. Taken one at a time, only the uncertainty about the deferred subscription costs is large enough to break the materiality threshold. But the set of problems cannot be taken o ne at a time.Here is a suggested low-high audit estimate: Low Estimate High Estimate Write-off deferred subscription costs (1) $ 6,000,000 $12,000,000 Provide allowance for bad debts (2) $ 4,000,000 $ 4,000,000 Provide for expected warranty expense (3) $ 2,000,000 $ 6,000,000 Lower of cost or market inventory write-down (4) $ 5,600,000 $ 5,600,000 Loss on government contract refund (5) $ 1,000,000 $ 2,000,000 Total write-offs and losses $18,600,000 $29,600,000 (1) The low estimate gives the benefit of doubt to the survival of the business, writing off half the deferred costs as if one-half might be written off over the next two years.The company seems to have taken the 50% probability ($6 million) and allocated half to each of the two years. (2) (3) The company seems ready to provide the allowance for all the doubtful accounts receivable. There is not much information for the audit team (such as a probability distribution). (4) It appears that the company plans to rebuild the invent ory and recover as much as it can, namely the $4,400,000 that can be realized from selling the rebuilt parts, but the lower of cost or market was figured incorrectly.The company seems to have subtracted the selling price ($8 million) from the inventory cost ($10 million) to get the $2 million write-down. The correct calculation is: Net realizable value Selling price proceeds $ 8,000,000 Cost to rebuild $(2,000,000) Cost to market and ship (20% x $8 million) $ (1,600,000) Ceiling (net realizable value) $ 4,400,000 Floor; subtract â€Å"normal profit† (5% x $8 million) $ (400,000) Floor $ 4,000,000 Replacement cost is apparently $6 million for the modern part, so the â€Å"market† for lower of cost or market is NRV = $4,400,000, and the inventory write-down is $10,000,000 – $4,400,000 = $5,600,000.Sale of the rebuilt parts will produce zero profit in subsequent period(s): Selling price $ 8,000,000 Cost of goods sold Inventory sold (written-down cost) 4,400,000 Reb uilding cost 2,000,000 $(6,400,000) Cost to market and ship ($1,600,000) Profit $ 0 (5) For a contingency such as this government contract dispute, GAAP suggests recognizing loss at the lower end of a range for loss, so a $1 million loss provision would satisfy GAAP. Recommended adjustment: Management’s suggestion of $11,000,000 cost/loss recognition is not sufficient.It â€Å"leaves† $7,600,000 income overstatement, even using the auditors’ low estimate of $18,600,000. Even booking the low estimate â€Å"leaves† $10,000,000 unrecognized (including the government contract contingency at $1 million instead of $2 million). The minimum adjustment, given the limited information available in this problem, follows. Adequate disclosures should be made about the $6 million deferred subscription costs remaining and the prospects for the business as well as about the warranty expense estimate because these are the items that leave uncertain assets and liabilities i n the financial statements.Debit Credit Subscription expense $ 6,000,000 Bad debt expense $ 4,000,000 Warranty expense $ 2,000,000 Cost of goods sold $ 5,600,000 Government contract loss $ 1,000,000 Deferred subscription costs $ 6,000,000 Allowance for doubtful accounts $ 4,000,000 Estimated warranty liability $ 2,000,000 Inventory $ 5,600,000 Estimated liability on contract $ 1,000,000 4. 54 Audit Risk Model Evaluation of risk assessment conclusions with AR = IR x CR x DR as a model. 1.Paul is not justified in acting on a belief that IR = 0. He may have seen no adjustments proposed because (1) none were material or (2) Tordik’s control system has functioned well in the past and prevented or detected and corrected material errors. If IR = 0, then AR = 0, and no further audit work need be done. Conservative auditing standards and practice do not permit this level of (non)work based on this little evidence and knowledge. 2. Hill is not justified in acting upon a belief that CR = 0.She may well know that Edward’s internal accounting control is exceptionally good, but (1) her review did not cover the last month of Edward’s fiscal year and (2) control activities are always subject to lapses. If CR = 0, then AR = 0, and no further audit work need be done. Conservative audit practice does not permit assessment of control risk at 0% to the exclusion of other audit procedures. 3. Insofar as audit effectiveness is concerned, Fields’ decision is within the spirit of audit standards. Even if IR = 1 and CR = 1, if DR = 0. 02, the AR = 0. 02.This audit risk (AR) seems quite small. However, Fields’ decision may result in an inefficient audit. 4. This case was deliberately left ambiguous without quantifying the audit risks. Students will need to experiment with the model. One approach is to compare the current audit to a hypothetical last year’s audit when â€Å"everything was operating smoothly. † Assume: Last year: Current ye ar: AR = IR (0. 50) + CR (0. 20) x DR (0. 20) = 0. 02 AR = IR (1. 0) + CR (1. 0) x DR (0. 25) = 0. 25 Features of the hypothetical comparison: (1) Inherent risk is greater than last year. 2) Control risk is greater than last year. (3) The audit was less extensive, possibly resulting in more detection risk. (4) Audit risk appears to be very high. An alternative analysis is that Shad perceived higher inherent and control risk early, and he did not put any audit time into trying to assess the risks at less than 100%. He proceeded directly to performance of extensive substantive procedures and worked fewer total number of hours yet still performed a high-quality audit by keeping AR low by keeping DR low. 4. 6 Risk Assessment We gratefully acknowledge the assistance of Jeanie Folk in developing the following solution: Recall that audit risk is the risk that the auditor will give an inappropriate opinion on financial statements (e. g. , giving an unqualified opinion on the financial state ments that are misleading because of material misstatements that auditors failed to discover. The problem adds the perspective that the audit risk at the overall financial statement level is influenced by the risk of material misstatements, which may be indicated by a combination of factors related to management, the industry, and the company. . Decrease. Ordinarily, the fact that this is the first profitable year after a string of losses would cause concern. The auditor might suspect an overstatement of revenues or understatement of expenses. However, in this situation, the increase in revenues (and net income) appears to be the result of additional federal and state funding for environmental purposes to TWD’s customers, which are municipalities. Given that TWD has a limited number of customers, the year-end receivables (and even revenue) can be confirmed with those municipalities.As such, there would be no increase in audit risk. The decrease in audit risk would result from lessening the company’s need to get through a â€Å"difficult period,† that is, the years of losses. 2. Increase. TWD’s board of directors is controlled by its major stockholder who also acts as the company’s CEO. That person may act in his or her best interests rather than in accordance with those of the minority shareholders and other financial statements.The potential for financial statement fraud would increase as a result. 3. Increase. The internal auditor reports to the Controller, who has responsibility for the company’s accounting system and the preparation of its financial statements. The internal auditor should report to the audit committee so that objectivity is maintained. Because the controller could steer the internal auditor away from problem areas, audit risk would be increased. 4. Increase. Turnover is a red flag that the department might have problems.Additionally, turnover resulted in the hiring of inexperienced people (at least inexperienced with respect to TWD). 5. Decrease. Having an external party such as a bank loan officer involved in an ongoing review of the company’s performance would enhance the company’s system of internal controls. 6. No effect. The payment of employees on a weekly, biweekly, monthly, or other basis would have no effect on audit risk. 7. Decrease. Bond has audited TWD for five years.As a result, because Bond is familiar with the industry, the company, and its management team, Bond is in a position to identify information necessary to assess fraud risk factors, identify those risk factors, and assess fraud risk than the firm would be if it had little or no experience with this client. 8. Increase. Changing accounting practices increases inherent risk (the susceptibility of the accounts to misstatement). 9. Increase. TWD sold one-half of its controlling interest in UEL; its remaining interest is significant.As such, TWD now has significant influence over but no longe r controls the operations of UEL. With its lower influence and knowledge of UEL, TWD is not as able to assess the risk of fraudulent financial reporting by UEL. UEL’s results still impact TWD’s financial statements (because the equity method would be used in cases of significant influence) and, as such, the audit risk relating to TWD’s financials would accordingly increase. 10. Decrease. If the litigation were disclosed in prior years, either the potential loss was probable but could not be reasonably estimated or it was reasonably possible.In either case, the amount of potential loss must have been material. Because the litigation was dropped by the state, there is less uncertainty about the impact of this pending litigation on the company’s financial position and results of operations. 11. Increase. Related-party transactions generally increase the risk of fraud, especially because the transactions were not previously disclosed. 12. Increase. In Decembe r, This barter transaction is not only unusual, but will also present problems in terms of the measurement of the revenue earned. As such, audit risk will increase. 13.No effect. Inherent risk is a component of risk of material misstatement. However, insurance coverage, or the lack thereof, has no impact on inherent risk, which is the risk that, in the absence of internal controls, material errors or frauds could enter the accounting system used to develop financial statements. Furthermore, having such coverage would lower the business risk for the company. 14. Increase. Recall that revenues must be matched with all costs incurred to earn that revenue. As such, the cost, if any, of the guarantees issued must be estimated and recorded in the current year.Given the lack of historical information and difficulties involved in estimating the potential cost of its guarantee (and even considering the difficulties involved of determining whether the municipality has any responsibility for a ctions that might impact the results of the site inspections) that may materially impact the current year’s financial statements, audit risk will increase. 15. Increase. Generally, public offerings are successful for companies with strong financial performance. As such, going public often creates motivation for making the company appear as strong as possible.Audit risk would increase as a result. 4. 61 Errors and Frauds Students can probably think of many examples for each of the cases. This solution does not purport to be exhaustive. a. Overstate an asset, understate another asset Hold cash receipts journal open past the year-end (cutoff date) and record additional cash receipts occurring after year-end, reducing accounts receivable. b. Overstate an asset, overstate stockholder equity Record appraised value of property, plant, and equipment with a corresponding credit to a capital account. c.Overstate an asset, overstate revenue (1) Hold the sales journal open past the year- end (cutoff date) and record too much sales revenue and cash or accounts receivable. (2) Record fictitious sales and accounts receivable. d. Overstate an asset, understate an expense (1) Capitalize maintenance expense, making the asset amount higher than warranted and the expense amount lower. Subsequent depreciation would reverse this misstatement, but the first effect would be to overstate the asset and understate the expense. (2) Record an expenditure as a prepaid expense instead of a current expense. . Overstate a liability, overstate an expense Accrue too much liability for expenses not yet paid, such as wages, rent, interest, product warranties f. Understate an asset, overstate an expense (1) Calculate too much depreciation expense on assets. (2) Classify expenditures as curre

Biography of Pancho Villa, Mexican Revolutionary

Biography of Pancho Villa, Mexican Revolutionary Francisco Pancho Villa (born  Josà © Doroteo Arango Armbula; June 5, 1878–July 20, 1923) was a Mexican revolutionary leader who advocated for the poor and land reform. He helped lead the Mexican Revolution, which ended the reign of Porfirio Dà ­az and led to the creation of a new government in Mexico. Today, Villa is remembered as a folk hero and a champion of the lower classes. Fast Facts: Pancho Villa Known For: Villa was a leader of the Mexican Revolution, which overturned the government of Mexico.Also Known As: Josà © Doroteo Arango Armbula, Francisco VillaBorn: June 5, 1878 in San Juan del Rà ­o, Durango, MexicoParents: Agustà ­n Arango and Micaela ArmbulaDied: July 20, 1923  in Parral, Chihuahua, MexicoSpouse(s): Unknown (according to legend, he was married more than 70 times) Early Life Pancho Villa was born Josà © Doroteo Arango Armbula on June 5, 1878. He was the son of a sharecropper at the hacienda in San Juan del Rio, Durango. While growing up, Pancho Villa witnessed and experienced the harshness of peasant life. In Mexico during the late 19th century, the rich were becoming richer by taking advantage of the lower classes, often treating them like slaves. When Villa was 15, his father died, so Villa began to work as a sharecropper to help support his mother and four siblings. One day in 1894, Villa came home from the fields to find that the owner of the hacienda intended to have sex with Villas 12-year old sister. Villa, only 16 years old, grabbed a pistol, shot the owner of the hacienda, and then took off for the mountains. Exile From 1894 to 1910, Villa spent most of his time in the mountains running from the law. At first, he did what he could to survive by himself. By 1896, however, he had joined up with some other bandits and become their leader. Villa and his group of bandits would steal cattle, rob shipments of money, and commit other crimes against the wealthy. Because he stole from the rich and often shared his spoils with the poor, some saw Villa as a modern-day Robin Hood. It was during this time that Doroteo Arango began using the name Francisco Pancho Villa. (Pancho is a common nickname for Francisco.) There are many theories as to why he chose that name. Some say it was the name of a bandit leader he had met; others say it was Villas fraternal grandfathers last name. Villas notoriety as a bandit and his prowess at escaping capture caught the attention of men who were planning a revolution against the Mexican government. These men understood that Villas skills would make him an excellent guerilla fighter during the revolution. Mexican Revolution Since Porfirio Diaz, the sitting president of Mexico, had created many of the current problems for the poor and Francisco Madero promised change for the lower classes, Pancho Villa decided to join Maderos cause and agreed to be a leader in the revolutionary army. From October 1910 to May 1911, Pancho Villa was a very effective military leader. However, in May 1911, Villa resigned from command because of differences he had with another commander, Pascual Orozco, Jr. Orozco Rebellion On May 29, 1911, Villa married Maria Luz Corral and tried to settle into a quiet domestic life. Unfortunately, though Madero had become president, political unrest again appeared in Mexico. Orozco, angered by being left out of what he considered his rightful place in the new government, challenged Madero by starting a new rebellion in the spring of 1912. Once again, Villa gathered troops and worked with General Victoriano Huerta to support Madero in quashing the rebellion. Prison In June 1912, Huerta accused Villa of stealing a horse and ordered him to be executed. A reprieve from Madero came for Villa at the very last minute, but Villa was still remitted to prison. He remained in prison from June 1912 to when he escaped on December 27, 1912. More Fighting and Civil War By the time Villa escaped from prison, Huerta had switched from a Madero supporter to a Madero adversary. On February 22, 1913, Huerta killed Madero and claimed the presidency for himself. Villa then allied himself with Venustiano Carranza to fight against Huerta. He was extremely successful, winning battle after battle during the next several years. After Villa conquered Chihuahua and other northern areas, he spent much of his time reallocating land and stabilizing the economy. In the summer of 1914, Villa and Carranza split and became enemies. For the next several years, Mexico continued to be embroiled in a civil war between the factions of Pancho Villa and Venustiano Carranza. Raid on Columbus, New Mexico The United States took sides in the battle and supported Carranza. On March 9, 1916, Villa attacked the town of Columbus, New Mexico. His was the first foreign attack on American soil since 1812. The United States sent several thousand soldiers across the border to hunt for Villa. Though they spent over a year searching, they never caught him. Peace On May 20, 1920, Carranza was assassinated and Adolfo De la Huerta became the interim president of Mexico. De la Huerta wanted peace in Mexico, so he negotiated with Villa for his retirement. Part of the peace agreement was that Villa would receive a hacienda in Chihuahua. Death Villa retired from revolutionary life in 1920 but had only a short retirement, for he was gunned down in his car on July 20, 1923. He was buried in Parral, Chihuahua. Legacy For his role in the Mexican Revolution, Villa became a folk hero. His life has inspired numerous films, including The Life of General Villa, Viva Villa!, and Pancho Villa Returns. Sources Katz, Friedrich.  The Life and Times of Pancho Villa. Stanford University Press, 1998.Knight, Alan.  The Mexican Revolution: A Very Short Introduction. Oxford University Press, 2016.McLynn, Frank.  Villa and Zapata: A History of the Mexican Revolution. Basic Books, 2008.