Running head: WS2 QUESTIONS & PROBLEMS UPDATED/CORRECTED

WS2 Questions & Problems Updated/Corrected Clarence Allen Indiana Wesleyan University BSAO78-ACC-423-A Auditing Instructor: Debbie L. Philpott, March 17, 2013

We have read and understand the plagiarism policy as outlined in the syllabus and the sections in the Student Bulletin relating to the IWU Honesty/Cheating Policy. By affixing this statement to the title page of my paper, we certify that we have not cheated or plagiarized in the process of completing this assignment. If it is found that cheating and/or plagiarism did take place in the writing of this paper, we understand the possible consequences of the act/s, which could include expulsion from Indiana Wesleyan University.

WS2 QUESTIONS & PROBLEMS UPDATED/CORRECTED 19-14=c (page 464 under Ethics and Professional Conduct). 19-15=d (page 657 under Independence, Integrity, and Objectivity) 19-16=c (page 669 under required communication) 19-17=b (page 653 under the AICPA Code of Professional Conduct) 19-18=b (#1 is perfectly legal & #2/#3 conflict of interest and questioned integrity) 19-19=c (for this question, I felt b or c was correct. I went with c because getting the new audit done & holding to the report till paid for past services is what I would have done). Did I chose correct 19-20=c (page 665 under effect of actual or threatened litigation) 19-21=a (page 671under confidential client information) 19-22=c (page 648 under theories of ethical behavior) 19-23=b (page 649 under an ethical challenge) 19-24=b (page 671 under confidential client information) 19-25=a (page 676 under system of quality control) 19-26=a (page 677 under element of quality control) 19-29 A=Yes B=No C=Yes D=Yes (page 663 under effect of family relationships)

WS2 QUESTIONS & PROBLEMS UPDATED/CORRECTED 19-31 a. Services that Perez may perform: Counsel on potential expansion plans. Search for and interview new personnel. Train personnel. Services that Perez may not perform: Hire new personnel. Supervise the operation of the system. Monitor client-prepared source documents and make changes in basic IT-generated data without the concurrence of the client. B: The significant matters related to an engagement generally include: 1- The engagement's objectives. 2- The scope. 3- The approach. 4- The role of all personnel. 5- The manner in which results are to be communicated. 6-The timetable. 7-The fee. (Messier, Glover, Prawitt 8e. 2012 pg.665 & pg. 666). 20-14=d (page694 under overview of auditor legal liability) 20-15=c (page 695 under common law clients) 20-16=b (page 695 under common law clients) 20-17=d (page 699 under ordinary negligence third party claims) 20-18=b (page 707 under statutory law civil liability)

WS2 QUESTIONS & PROBLEMS UPDATED/CORRECTED 20-19=d (page 708 under statutory law civil liability) 20-20=c (page 708 under statutory law civil liability) 20-21=c (page 708 under statutory law civil liability) 20-22=a (page 709 under securities exchange act of 1934) 20-23=b (page 712 under private securities litigation reform act of 1995) 20-24=d (page 714 under Sarbanes-oxley act of 2002) 20-25=d (page 716 foreign corrupt practices act) 20-28 A:

1. Union Bank will be successful in its negligence suit against Meng. To be successful in a lawsuit for accountant's negligence, there must be: -Duty. -Breach. -Reliance. -Loss. Meng had a duty because it knew that Union would receive the financial statements and was thereby an intended user. Meng was negligent in performing the audit by failing to confirm accounts receivable, which resulted in failing to discover the overstatement of accounts receivable. Meng's failure to confirm accounts receivable was a violation of Meng's duty to comply with generally accepted auditing standards. Union relied on Meng's opinion in granting the loan and, as a result, suffered a loss. 2. Union Bank will be successful in its common-law fraud suit against Meng. To be successful in a lawsuit for common-law fraud, there must be:

WS2 QUESTIONS & PROBLEMS UPDATED/CORRECTED -An intentional material misstatement or omission. -Reliance. -Loss. Meng was grossly negligent for failing to qualify its opinion after being advised of Butler's potential material losses from the product liability lawsuit by legal counsel. Meng will be liable to anyone who relied on Meng's opinion and suffered a loss as a result of this fraudulent omission.

b. Butler's stockholders who purchased stock will also be successful in their suit against Meng under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. Under the act, stock purchasers must show: -Intentional material misstatement or omission. -Reliance. -Loss. Meng's failure to qualify its opinion for Butler's potential legal liability was material and done intentionally. Meng will be liable for losses sustained by the purchasers who relied on Meng's opinion. (Messier, Glover, Prawitt 8e. 2012 pg. 707-709).

WS2 QUESTIONS & PROBLEMS UPDATED/CORRECTED Reference Messier, W. F., Jr., Glover, S. M., & Prawitt, D. F. (2012). Auditing & assurance services: A systematic approach with ACL SW CD (8th ed.). New York, NY: McGrawHill/Irwin Publishing.