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Audit Week 2

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Homework Assignment: Chapter 4, pp. 104-108: Problems 4-8, 4-18, 4-19, 4-20, 4-21
4-8) Explain how the rules concerning stock ownership apply to partners and professional staff. Give an example of when stock ownership would be prohibited for each.
If the partner is part of an audit engagement, they can not own stock for the company in which they are responsible for reporting the audit for, even if the client is out of another office. The audit report must be from an individual that is independent of the company. As for the professional staff members, they too can not own stock with any of the clients they conduct audits with, if they have been assigned to engagement or if they become partner of the office. The stock they own can only be for companies they do not participate in any audit engagements.
Example of violation:
A partner of John Burkes, CPA, of Woodstock, GA. owns stock for his partner client. His partner’s office is located out of Atlanta, GA.
A professional staff auditor owns stock for J& J’s Manufacturing Co. His manager states that one of the auditors has quit and left the engagement and they need them to fill it. The professional auditor takes the engagement on.
4-18) A. What is the meaning of the generally accepted auditing standard that requires the auditor be independent?
1) The auditor must be without bias with respect to the client under audit. B. The independent audit is important to readers of financial statements because it
3) involves the objective examination of and reporting on management prepared statements.
C. An auditor strives to achieve independence in appearance to
1) maintain public confidence in the profession.
4-19 A. In which one of the following situations would a CPA be in violation of the AICPA Code of Professtional Conduct in determining the audit fee?
1) A fee based on whether the CPA’s report on the

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