Unit 2 Assignment
1-38 A. The value of an audit to investors is critical because it allows them to assess performance, which in turn allows them to vote on organizational matters such as a board of directors. It also helps them make decisions on whether or not to buy or sell stock. As for creditors, an audit report serves a basis for realizing performance. With this they are able to make loan decisions and analyze risk. As far as the community as a whole, an audit reports shows true performance and therefore helps others understand its ability for future growth. With that being said, people have a chance to make investment decisions for the future.
B. An audit of internal control is vital for the investing public because it assures them that there is no corruption and that their money is safer. Before 2002 auditors weren’t required to test internal controls, which lead to huge controversy over the collapse of several big time companies. Now, auditors serve somewhat as investigators to make sure internal controls are correctly doing their job. It is also management’s responsibility to assess and report the quality of its internal controls over financial reporting.
C. An audit committee is responsible for hiring and firing an audit firm. The audit committee is established by a company as an independent subcommittee under the board of directors to provide oversight for audit functions. Because this committee is independent, it reduces any possible risk of bias when they elect the external audit.
1-40 A. I agree, auditors serve as investigators to detect any sort of fraud.
B. Disagree, that would become an independent issue because nobody knows the relationship between the manager and auditor.
C. Disagree, the Red Cross is not a publicly traded company.
D. Disagree, although a difficult position, the requirements of the auditor can and most certainly