Crystal McPherson
Homework-Week 1
1-18:
a. The services provided by Consumers Union are comparable to the assurance services provided by that of a CPA firm. Both the services of Consumers Union and that of a CPA firm are designed to improve the quality of information for decision makers related to their services. While CPA’s are valued for their independence, Consumers Union is valued for their reports due to their independence of the products tested. b. The concepts of information risk for the buyer of an automobile and for the user of financial statements is generally the same. Both parties are worried with unreliable information being provided. The buyer of an automobile would be concerned with misinformation or lack of information provided by the manufacturer or dealership. Where the user of a financial statement would be concerned with unreliable information that is provided in the financial statements. c. Remoteness of information: It can difficult for an automobile buyer to obtain necessary information about either an automobile without incurring considerable cost to them. The automobile buyer does have an advantage though of possibly knowing other users who are satisfied or dissatisfied with a similar automobile. Word of mouth.
Biases and motives of provider: There is a conflict between the automobile buyer and the manufacturer. The buyer wants to buy a high quality product at minimum cost whereas the seller wants to maximize the selling price and quantity sold.
Voluminous data: There is a large amount of available information about automobiles that users might like to have in order to evaluate an automobile. Either that information is not available or too costly to obtain.
Complex exchange transactions: The purchasing of an automobile is expensive and certainly a complex decision because of all the components that go into making a good automobile and choosing between a large number of alternatives. d. The three ways users of financial statements and buyers of automobiles reduce information risk are as follows:
User verifies information themselves: That can be obtained in many different ways, such as by test driving many different vehicles, examining the specifications of the automobiles, word of mouth, and doing research online.
User shares information risk with management: The manufacturer of a product (automobile) has a responsibility to meet its manufacture warranties and to provide a reasonable product. The buyer of an automobile can possibly return the automobile for correction of defects. In some cases a refund may be obtained.
Examine the information prepared by Consumer Reports: This is very similar to that of an audit in the sense that independent information is provided by an independent party. The information provided by Consumer Reports is comparable to that provided by a CPA firm that audited financial statements.

2-19: a. Engagement Performance b. Human Resources c. Engagement Performance d. Engagement Performance e. Independence, objectivity, and integrity f. Monitoring g. Acceptance and continuation of clients and engagements h. Human Resources i. Human Resources
4-22:
a. No this is not a violation. b. Violation of Rule 201. The audit partner must accept legal liability for their performance otherwise they will not be performing with due professional care c. No this is not a violation d. No this is not a violation. While this one in particular is questionable as to why the company made changes after his leave, I do not believe that there was a violation here on the company’s behalf or Mr. Stokley’s. e. Violation of Rule 101- Independence. Independence is impaired because fees remain unpaid for services provided more than 1 year ago. f. Violation of Rule 102- Integrity and Objectivity. This is a violation due to the fact that Bradley is a partner and this is a new loan. Bradley obtained a mortgage from this bank therefore is connected to the bank. But if this is a home mortgage then he will be exempt from the violation. g. No this is not a violation due to the fact that she was removed and there was no cool down period. h. No this is not a violation. i. Violation of Rules 203- Accounting Principles. This action goes against the accounting principles. You cannot account for transactions that have not occurred yet. This is what got Enron in a heap of trouble because there is no such thing as “creative” accounting. j. No this is not a Violation
26-25:
a. The department turnover rate should be compared with rates in other departments of White Division, other divisions of Weston Corporation, and industry rates if possible. The present department turnover rate should be compared with previous rates in the department. The nature of skills needed in the department should be reviewed and compared to job descriptions, if a job descriptions exists. The hiring procedures employed by the human resource department should be reviewed. The labor efficiency variance should be examined in an attempt to determine the portion attributable to inadequate training. Multiple standards or a new standard may be appropriate. Present and former departmental workers should also be interviewed in an attempt to get additional points of view on the problems in the department. The information gathered during the performance of field work would form the basis for any recommendations. Audit findings would be included in the audit report and unfavorable findings would lead, in most cases, to recommendations. Recommendations likely to result from the audit findings might include the preparation/revision of job descriptions and the establishment of formal training programs. The internal auditors should adopt a participatory or problem-solving approach in reviewing audit findings and making recommendations to the department being reviewed. The report should be discussed with the departmental supervisor before the report is finalized. The comments and suggestions of the supervisor should be considered and, if appropriate, included in the report. b. The participation of the internal audit department in the computer feasibility study, including advising and concurring with the system selected, creates an objectivity problem. The internal audit department could not accept an audit assignment involving the problems of the existing computer system without placing themselves in a position of conflict of interest. To eliminate the existing objectivity problem, outside consultants should be brought in and used to study the problems with the computer system. To reduce future objectivity problems, the internal audit department should not perform functions that may place them in a position of auditing their own work. Auditors should not assume a decision making role as this will hinder their future independence from those decisions. c. 1. The location of Weston Corporation's internal audit department is inappropriate. Independence is the major key to the work of the internal auditor and is achieved only through organizational status and objectivity. A Director of Internal Auditing should report to a high level management executive in order to promote independence, ensure adequate audit coverage, and to assure the proper consideration of audit reports. Having the Director of Internal Audits directly reporting to the Corporate Controller is inappropriate. A major portion of the internal auditor's responsibility involves the review of the accounting function. Thus, the Director may be far less than objective in evaluating the work of a superior. 2. Reports of Weston's Internal Audit Department should be distributed to all those having a direct interest in the audit, including: The executive to whom the internal audit function reports, those who reply to the report are required, and those who are responsible for the activity or activities reviewed, generally auditees and superiors.