If the opinion issued on prior years’ financial statements is no longer appropriate and financial statements are presented in comparative form, the auditors’ current report should a. Not reference the prior years’ financial statements. b. Indicate that the opinion on the prior years’ financial statements cannot be relied upon. c. Reference the type of opinion issued on the prior years’ financial statements and indicate that the current opinion on these financial statements differs from that expressed in the prior years. d. Express the revised opinion on the prior years’ financial statements without referencing the previously issued opinion.
> The following table describes the production possibilities of two cities in the country of Baseballia: a. Without trade, what is the price of white socks (in terms of red socks) in Boston? What is the price in Chicago? b. Which city has an absolute adv
> Why do economists sometimes offer conflicting advice to policymakers?
> What is the difference between a positive and a normative statement? Give an example of each.
> Use a production possibilities frontier to describe the idea of “efficiency.”
> England and Scotland both produce scones and sweaters. Suppose that an English worker can produce 50 scones per hour or 1 sweater per hour. Suppose that a Scottish worker can produce 40 scones per hour or 2 sweaters per hour. a. Which country has the abs
> Draw and explain a production possibilities frontier for an economy that produces milk and cookies. What happens to this frontier if disease kills half of the economy’s cows?
> Imagine a society that produces military goods and consumer goods, which we’ll call “guns” and “butter.” a. Draw a production possibilities frontier for guns and butter. Using the concept of opportunity cost, explain why it most likely has a bowed-out sh
> Draw a circular-flow diagram. Identify the parts of the model that correspond to the flow of goods and services and the flow of dollars for each of the following activities. a. Selena pays a storekeeper $1 for a quart of milk. b. Stuart earns $4.50 per h
> Classify each of the following statements as positive or normative. Explain. a. Society faces a short-run trade-off between inflation and unemployment. b. A reduction in the rate of money growth will reduce the rate of inflation. c. The Federal Reserve s
> Classify the following topics as relating to microeconomics or macroeconomics. a. a family’s decision about how much income to save b. the effect of government regulations on auto emissions c. the impact of higher national saving on economic growth d. a
> An economy consists of three workers: Larry, Moe, and Curly. Each works 10 hours a day and can produce two services: mowing lawns and washing cars. In an hour, Larry can either mow one lawn or wash one car; Moe can either mow one lawn or wash two cars; a
> The first principle of economics is that people face trade-offs. Use a production possibilities frontier to illustrate society’s trade-off between two “goods”—a clean environment and the quantity of industrial output. What do you suppose determines the s
> List and briefly explain the three principles that describe how the economy as a whole works.
> Why is a country better off not isolating itself from all other countries? Why do we have markets, and according to economists, what roles should government play in them?
> Give three examples of important trade-offs that you face in your life.
> Give an example of a positive statement and an example of a normative statement that somehow relates to your daily life. Name three parts of government that regularly rely on advice from economists.
> Explain the two main causes of market failure and give an example of each.
> Water is necessary for life. Is the marginal benefit of a glass of water large or small?
> What items would you include to figure out the opportunity cost of a vacation to Disneyworld?
> Suppose Americans decide to save more of their incomes. If banks lend this extra saving to businesses, which use the funds to build new factories, how might this lead to faster growth in productivity? Who do you suppose benefits from the higher productiv
> In what ways is your standard of living different from that of your parents or grandparents when they were your age? Why have these changes occurred?
> Discuss each of the following statements from the standpoints of equality and efficiency. a. “Everyone in society should be guaranteed the best healthcare possible.” b. “When workers are laid off, they should be able to collect unemployment benefits unti
> Explain whether each of the following government activities is motivated by a concern about equality or a concern about efficiency. In the case of efficiency, discuss the type of market failure involved. a. regulating cable TV prices b. providing some po
> A 1996 bill reforming the federal government’s antipoverty programs limited many welfare recipients to only two years of benefits. a. How does this change affect the incentives for working? b. How might this change represent a trade-off between equality
> The Social Security system provides income for people over age 65. If a recipient of Social Security decides to work and earn some income, the amount received in Social Security benefits is typically reduced. a. How does the provision of Social Security
> The company that you manage has invested $5 million in developing a new product, but the development is not quite finished. At a recent meeting, your salespeople report that the introduction of competing products has reduced the expected sales of your ne
> In what sense is economics like a science? Draw a production possibilities frontier for a society that produces food and clothing. Show an efficient point, an inefficient point, and an infeasible point. Show the effects of a drought. Define microeconom
> Why should policymakers think about incentives?
> You were planning to spend Saturday working at your part-time job, but a friend asks you to go skiing. What is the true cost of going skiing? Now suppose you had been planning to spend the day studying at the library. What is the cost of going skiing in
> You are trying to decide whether to take a vacation. Most of the costs of the vacation (airfare, hotel, and forgone wages) are measured in dollars, but the benefits of the vacation are psychological. How can you compare the benefits to the costs?
> Describe some of the trade-offs faced by each of the following: a. a family deciding whether to buy a new car b. a member of Congress deciding how much to spend on national parks c. a company president deciding whether to open a new factory d. a professo
> Draw an example of a production possibilities frontier for Robinson Crusoe, a shipwrecked sailor who spends his time gathering coconuts and catching fish. Does this frontier limit Crusoe’s consumption of coconuts and fish if he lives by himself? Does he
> Suppose that a skilled brain surgeon also happens to be the world’s fastest typist. Should she do her own typing or hire a secretary? Explain.
> Robinson Crusoe can gather 10 coconuts or catch 1 fish per hour. His friend Friday can gather 30 coconuts or catch 2 fish per hour. What is Crusoe’s opportunity cost of catching 1 fish? What is Friday’s? Who has an absolute advantage in catching fish? Wh
> Suppose that there are 10million workers in Canada and that each of these workers can produce either 2 cars or 30 bushels of wheat in a year. a. What is the opportunity cost of producing a car in Canada? What is the opportunity cost of producing a bushel
> Pat and Kris are roommates. They spend most of their time studying (of course), but they leave some time for their favorite activities: making pizza and brewing root beer. Pat takes 4 hours to brew a gallon of root beer and 2 hours to make a pizza. Kris
> American and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. To keep things simple, assume that each country has 100million workers. a.
> How is economics a science?
> When component auditors are involved in the audit of group financial statements, the group auditors may issue a report that a. Refers to the component auditors, describes the extent of the component auditors’ work, and expresses an unmodified opinion. b.
> R. Wolfe became the new auditor for Royal Corporation, succeeding C. Mason, who audited the financial statements last year. Wolfe needs to report on Royal’s comparative financial statements and should disclose in the report an explanation about other aud
> Which of these situations would require auditors to append an emphasis-of-matter paragraph about consistency to an otherwise unmodified opinion? a. Entity changed its estimated allowance for uncollectible accounts receivable. b. Entity corrected a prior
> Assume that the auditors encountered the following separate situations when deciding on the report to issue for the current-year financial statements. 1. The auditors decided that sufficient appropriate evidence could not be obtained to complete the au
> Lando Corporation is a domestic company with two wholly owned subsidiaries. Michaels, CPA, has been engaged to audit the financial statements of the parent company and one of its subsidiaries and to serve as the group auditor. Thomas, CPA, has audited th
> D. Brady has been engaged as the auditor of Patriot Company and is currently planning the year-end physical inventory counts. Patriot is a retailer that holds significant inventories in its warehouses and stores in six regions across the United States. B
> Following are four possible scenarios that reflect scope limitations encountered by J. Bruce, CPA, during the audit of Weaver Inc. In all cases, assume that the ending balance in inventory is material to Weaver’s financial position, results of operations
> Which of the following statements is not true with respect to the audit examinations and reports for public and nonpublic entities? a. Audit examinations for nonpublic entities are based on user demand but based on legislative requirements for public ent
> The auditors determined that the entity is suffering financial difficulty and its going-concern status is seriously in doubt. Assuming that the entity adequately disclosed this matter in the financial statements, the auditors must choose between which of
> Auditors found that the entity has not capitalized a material amount of leases in the financial statements. When considering the materiality of this departure from GAAP, the auditors would choose between which reporting options? a. Unmodified opinion or
> Situations in which auditors are unable to obtain sufficient appropriate evidence necessary to support their opinion on the entity’s financial statements are referred to as scope limitations. Required: a. Distinguish between client-imposed scope limitat
> When financial statements are presented in comparative form and another firm audited the prior years’ financial statements (but the other firm’s report is not presented with the financial statements), the auditors’ report on the current-year financial st
> If the auditors decide to present separate reports on the entity’s financial statements and internal control over financial reporting, which of the following should be modified to refer to the other report? Report on Internal Contr
> Which of the following is not included in the standard (unmodified) report on the financial statements? a. An identification of the financial statements that were audited. b. A general description of an audit. c. An opinion that the financial statements
> Company A hired Samson & Delilah, CPAs, to audit the financial statements of Company B and deliver the report to Megabank. Who is the client? a. Megabank. b. Samson & Delilah. c. Company A. d. Company B.
> How is the auditors’ responsibility for expressing the opinion on financial statements disclosed in the standard (unmodified) report for a nonpublic company? a. Stated explicitly in the Auditor’s Responsibility section. b. Unstated but understood in the
> Which of the following is not required by generally accepted auditing standards? a. Written representations. b. Attorney letter. c. Management letter. d. Engagement letter.
> What actions should auditors take if evidence suggests that substantial doubt exists about the client’s ability to continue as a going concern?
> Under which of the following conditions can a disclaimer of opinion never be issued? a. The entity’s going-concern problems are highly material and pervasive. b. The entity does not allow the auditors access to evidence about important accounts. c. The a
> When auditors wish to issue an unmodified opinion but highlight that the entity changed its method of accounting for software development costs, they would most appropriately identify the change in accounting method in which of the following? a. The intr
> What factors may indicate that substantial doubt exists about the client’s ability to continue as a going concern?
> The auditing standards regarding subsequently discovered facts refers to knowledge obtained after a. The date the fieldwork began. b. The date of the auditor’s report. c. The date of the financial statements. d. The date interim audit work was complete.
> For each of the following departures from GAAP, indicate the type of opinion that the auditors would issue as well as any modifications that would be made to the standard (unmodified) report. a. A departure that had an immaterial effect on the financial
> The concepts of materiality and pervasiveness are important to auditors in examinations of financial statements and expressions of opinion on these statements. Required: How will materiality influence auditors’ reporting decisions in the following circu
> In December of the current year, Williams Company changed its method of accounting for inventory and cost of goods sold from LIFO to FIFO. The account balances shown in the trial balance have already been recalculated and adjusted retroactively as requir
> On January 1, Graham Company purchased land (the site of a new building) for $100,000. Soon thereafter, the state highway department announced that a new feeder road would run next to the site. The effect was a dramatic increase in local property values.
> Gustav Humphreys (chair of the board) and Ingrid VanEns (vice president, finance) prepared the draft of the financial review section of the annual report. You are reviewing it for consistency with the audited financial statements. The draft contains the
> AOW is the group auditor for the December 31, 2017, consolidated financial statements of Ferguson Company and subsidiaries. However, component auditors perform the work on certain subsidiaries for the year under audit amounting to 29 percent of total ass
> AOW has completed the audit of the financial statements of Musgrave Company for the year ended December 31, 2017, and is now preparing the report. AOW has audited Musgrave’s financial statements for several years, but this year Musgrave delayed the start
> Pitts Company has experienced significant financial difficulty. Current liabilities exceed current assets by $1 million, cash has decreased to $10,000, the interest on the long-term debt has not been paid, and a customer has brought a lawsuit against Pit
> One of the great resources for auditors is the SEC’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) system database at www.sec.gov. Public companies file SEC-required documents electronically. The SEC makes this information a
> What are the major differences in the auditors’ report for nonpublic and public entities?
> The following auditors’ report was drafted by Quinn Moore, a staff auditor with Tyler & Tyler, CPAs, at the completion of the audit of the financial statements of Park Publishing Company for the year ended September 30, 2017. The en
> Auditors have a responsibility related to management’s disclosure of new information related to subsequent events until a. The date of the financial statements. b. The date of the auditor’s report. c. The audit report release date. d. The following year’
> Your partner drafted the following auditors’ report yesterday. You need to describe the reporting deficiencies, explain the reasons for them, and discuss with the partner how the report should be corrected. You have decided to prepare a
> Following is Rex Wolf’s report on Bonair Corporation’s financial statements. Bonair publishes general-purpose financial statements for distribution to owners, creditors, potential investors, and the general public. R
> An assistant drafted the following auditors’ report at the completion of the audit of Cramdon Inc. on March 5, 2018. The partner in charge of the engagement has decided the opinion on the 2017 financial statements should be modified onl
> The board of directors of Cook Industries Inc. engaged Brown & Brown, CPAs, to audit the financial statements for the year ended December 31, 2017. Required: Identify the deficiencies in the following draft of the report. Do not rewrite the report.
> On September 23, 2018, Betsy Ross drafted the following report on Continental Corporation’s financial statements. Required: List and explain the deficiencies and omissions in the report prepared by Ross on Continental Companyâ&#
> For each of the following situations, indicate the type of opinion(s) that auditors could issue (more than one opinion may be appropriate in each circumstance). Unless otherwise noted, assume that no departures from GAAP were identified in the audit enga
> Assume that Stanford CPAs encountered the following issues during its various audit engagements in 2017: 1. It conducted the audit of Luck, a new client this past year. Last year, Luck was audited by another CPA, who issued an unmodified opinion on its f
> Central City was involved in litigation brought by Mexican American Legal Defense and Educational Fund (MALDEF) over the creation of single-member voting districts (which require candidates to receive only the highest number of votes, even if not a major
> Distinguish between client-imposed scope limitations and circumstance-imposed scope limitations. Which of these scope limitations is generally of more concern to auditors?
> Omega Corporation is involved in a lawsuit brought by a competitor for patent infringement. The competitor is asking $14 million actual damages for lost profits and unspecified punitive damages. The lawsuit has been in progress for 15 months, and Omega h
> For each of the following independent situations, describe the most appropriate course of action that the auditors should take. a. Drew Allison is conducting the audit of Anderson Inc. as of December 31, 2017. At the beginning of the evidence gathering,
> A. Griffin audited the financial statements of Dodger Magnificat Corporation for the year ended December 31, 2017. She completed gathering sufficient appropriate evidence on January 30 and later learned of a stock split voted by the board of directors on
> Jay Ralph completed the December 31, 2017, audit of Raider Company on February 3, 2018; Raider’s financial statements and Ralph’s reports on Raider’s financial statements and internal control over financial reporting were released on February 12, 2018. D
> The following are independent situations that have occurred in your public accounting firm, Arthur Hurdman: Case 1 During the internal inspection by a regional office of Arthur Hurdman, one of its clients, Wildcat Oil Suppliers, was selected for review.
> On June 1, Sidney Faultless of A. J. Faultless & Co., CPAs, noticed some disturbing information about the firm’s client, Hopkirk Company. A story in the local paper mentioned the indictment of Tony Baker, whom Faultless knew as the assistant controller a
> In connection with your examination of the financial statements of Olars Manufacturing Corporation for the year ended December 31, your post balance-sheet substantive procedures disclosed the following items: 1. January 3. The state government approved a
> You are in the process of completing the gathering of sufficient appropriate evidence for Top Stove Corporation, a company engaged in the manufacture and sale of kerosene space heaters. To date, there has been every indication that the financial statemen
> Crankwell Inc. is preparing its annual financial statements and annual report to stockholders. Management wants to be sure that all of the necessary and proper disclosures have been incorporated into the financial statements and the annual report. Two cl
> Michael Ewing is auditing the financial statements of Dallas Company for the year ended December 31, 2017. In concluding the process of gathering sufficient appropriate evidence, Ewing has asked to meet with his supervisor on the audit (John Ross) to dis
> How is the auditors’ standard (unmodified) report modified for qualified or adverse opinions issued as a result of departures from GAAP?
> From the “Inspections” section of the PCAOB’s website, access the most recent inspection reports for each of the Big Four firms (Deloitte, EY, KPMG, and PwC). Each inspection report contains the following information: An introductory preface. Inspection
> Officers of Richnow Company do not wish to disclose information about a product liability lawsuit filed by a customer seeking $500,000 in damages. They believe the suit is frivolous and without merit. Outside counsel is more cautious. The auditors insist
> The following subsequent event was disclosed in Dole Food Company’s 2009 annual report: Note 24: Subsequent Event On February 27, 2010, a significant earthquake struck the country of Chile. Although Dole’s Chilean operations resumed business after the e
> Subsequent knowledge of which of the following would cause the entity to adjust its December 31 financial statements? a. Sale of an issue of new stock for $500,000 on January 30. b. Settlement of a damage lawsuit for a customer’s injury sustained Februar
> Pat Colt is auditing the financial statements of Manning Company. The following is a summary of the uncorrected misstatements that Colt has identified during the past three years. These misstatements are immaterial and have related to isolated matters. I
> During the conduct of an audit, auditors may identify misstatements as a result of the completion of their substantive procedures. An important activity performed in the completion stages of the audit is considering the materiality of misstatements ident
> Aaron Rivers, CPA, is auditing the financial statements of Charger Company, a client for the past five years. During past audits of Charger, Rivers identified some immaterial misstatements (most of which relate to isolated matters and do not have common
> Faye Jaworski, CPA, is auditing the financial statements of Fulbright Company. As she is nearing the audit completion date, Jaworski realizes that she needs to evaluate whether all material contingencies are properly accounted for and disclosed in Fulbri
