Interim Financial Information

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Questions:

1. Is David Robinson suggested compromise appropriate? Why or why not?

2. Do you believe that Zachariah Crabtree is a person of integrity? What about David Robinson? Defend both of your answers. Does Robinson have an impropriate relationship with Crabtree? Explain.

3. Identify the primary audit objectives for client’s year-end discretionary expense accruals. Is it permissible for companies to overstate period-ending expense accruals to make their financial statements more “conservative”?

4. Discuss the scope and nature of an auditor’s responsibilities during a review of client’s quarterly financial statements.

Answers:

1.
The American Institute of Certified Public Accountants is a professional organization responsible for developing professional accounting ethical values. The AICPA requires professional accountants to act responsibly when engaging in accounting services and reviewing sensitive financial information. Accountants should always exercise sound moral judgment in all accounting activities. Accountants have responsibility to provide clients with professional services while presenting a truthful and accurate assessment of a company financial health to the general public. I think David first needs to determine the reasonableness of the amounts previously recorded by Crabtree. According to AU Section 312A, in determining the amount of the likely misstatements to be aggregated, the auditor considers the “closest reasonable estimate” which may be a range of acceptable amounts or a point estimate, if that is a better estimate than any other amount. Moreover, the Rule 102 Integrity and Objectivity states that the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others. I think that David Robinson suggested compromise was an appropriate and violated the Rule 102. He wanted to increase the allowances for bad debts and inventory obsolesces to more normal levels while allowing the Belot Company to use “precise point estimates” for the other three discretionary accruals. The “precise point estimate” is not a GAAP method because refers to as “add-ons” to “fudge” numbers a little higher then they should be. He knew AU Section 328 Auditing Fair Value Measurements and Disclosures states that management is responsible for making the fair value measurements as well as selecting an appropriate valuation methods to ensure that the presentation of the fair value measurements are in accordance with GAAP In addition, Robinson should be free of conflicts of interest when doing review; meanwhile he knew that Hansen, audit engagement partner, thinks about him as future partner within the company. His judgment about suggested compromise was not objective because he violated Rule 102 as well as AU Section 328. Therefore, the result of Belot Company financial statements and records where materially false and misleading financial users.

2.
Integrity is an important fundamental element of the accounting profession. Integrity requires accountants to be honest in financial reporting. Zachariah Crabtree is not a person of integrity. As a Belot’s general accounting manager he should know to follow the standard framework of guidelines for financial accounting GAAP. Moreover, he should always exercise a moral judgment in all accounting activities as well as applies Principals of Personal Conduct established by AICPA. His methods of desire to help save Belot were unhealthy and probably will harm company financial statements. ET Section 102 states that in the performance of any professional service, a member shall maintain objectivity and integrity, shall be free of conflicts of interest, and shall not knowingly misrepresent facts or subordinate his or her judgment to others. Moreover, Crabtree was becoming very snappy when David...
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