General Information
ACC 476/726 – Auditing
Discussion Case Questions Fall 2004
General Information
The audit discussion cases are real-world examples of problems that auditors face in practice. Each individual case is brief, and every member of the class should read the case prior to class and come prepared to participate in class discussion.
Instead of the questions in the casebook, we will discuss specific issues related to the topic currently being discussed in class. The questions can usually be answered using your own opinions and the case information. The issues to be discussed for the cases follow.
Berkshire Hathaway – Tuesday, September 7, 2004
Background: The case captures the dynamics of auditor-client relations. The SEC has recently been critical of the audit profession, arguing that CPA firms are too ready to agree with clients' questionable accounting decisions. This case demonstrates what can happen to an audit firm when it stands up to an audit client over an audit issue. Actors: Warren Buffett, Peat Marwick partner in 1983, KPMG partner in 1984 (assume a new partner was involved)
1. Consider the merits of each side’s position over the accounting treatment of the proportionate stock redemption (capital gain vs. dividend). Which position do you believe is correct? Explain why. (Note: a proportionate stock redemption is a transaction in which ownership interests are redeemed proportionate to the total shares outstanding. As a result, each shareholder owns the same percentage of the company after the redemption as before. For example, assume you owned 1000 shares of a company, representing 5 percent of the total shares outstanding. The company redeemed 10 percent of the shares. After the transaction, you own 900 shares, and they would still represent 5 percent of the total shares outstanding.)
2. Do you think Peat Marwick made a good decision in demanding that Berkshire Hathaway account for the proportionate redemption as a capital gain? (Ignore
Discussion Case Questions Fall 2004
General Information
The audit discussion cases are real-world examples of problems that auditors face in practice. Each individual case is brief, and every member of the class should read the case prior to class and come prepared to participate in class discussion.
Instead of the questions in the casebook, we will discuss specific issues related to the topic currently being discussed in class. The questions can usually be answered using your own opinions and the case information. The issues to be discussed for the cases follow.
Berkshire Hathaway – Tuesday, September 7, 2004
Background: The case captures the dynamics of auditor-client relations. The SEC has recently been critical of the audit profession, arguing that CPA firms are too ready to agree with clients' questionable accounting decisions. This case demonstrates what can happen to an audit firm when it stands up to an audit client over an audit issue. Actors: Warren Buffett, Peat Marwick partner in 1983, KPMG partner in 1984 (assume a new partner was involved)
1. Consider the merits of each side’s position over the accounting treatment of the proportionate stock redemption (capital gain vs. dividend). Which position do you believe is correct? Explain why. (Note: a proportionate stock redemption is a transaction in which ownership interests are redeemed proportionate to the total shares outstanding. As a result, each shareholder owns the same percentage of the company after the redemption as before. For example, assume you owned 1000 shares of a company, representing 5 percent of the total shares outstanding. The company redeemed 10 percent of the shares. After the transaction, you own 900 shares, and they would still represent 5 percent of the total shares outstanding.)
2. Do you think Peat Marwick made a good decision in demanding that Berkshire Hathaway account for the proportionate redemption as a capital gain? (Ignore