Scenario for Part C Smuckers & Nudge, CPAs, have previously been engaged by Gerrimander Corporation to...

Scenario for Part C

Smuckers & Nudge, CPAs, have previously been engaged by Gerrimander Corporation to perform compilations and tax returns. Harry Gerrimander, the company’s president, indicated to the accountants that he needed “something more” than they previously provided. Mr. Gerrimander told Jenny Holt, the partner in-charge of the engagement, that the resulting ?nancial statements from this proposed engagement would be used primarily for management’s purposes internally as well as short-term bank loans. Holt recommended that a review of the ?nancial statements be performed and work be commenced without an engagement letter.

As Holt proceeded with the work, she indicated uneasiness about certain ?gures and conclusions but said she would take the client’s word about the validity of some entries since the review was primarily for internal use and was not an audit.

If Holt had not relied on the representations of management, she would have detected a material act of fraud committed by management.

(a)Explain the role that an engagement letter could have played in this scenario and indicate what should have been covered in the letter.

(b)What was Holt’s duty in this review? What is the potential liability faced by Smuckers & Nudge, CPAs? Who may assert claims against the ?rm?

Solutions

Expert Solution

A. Engagement letter can be defined as a contract between client and accountant which defines his scope of work and decides the accountability and responsibilty of each of the respective party.

An engagement letter have played a very important role in this scenario because the purpose of this letter is to create a legal relationship among the parties. if Smukers & Nudges, CPA would have received the engagement letter it would have bring them into a contractual agreement and hence, Jenny Holt would have done her job according to her discreation. Following points should be included in the engagement letter:

- Responsibility and obligation of each party

-Fees Estimates

-Acceptance from the receipient for appointment.

-It should defines the scope of work

B. Holt' s duty in this review is to give a true and fair view on the financial statements of the garrimander Corporation. It is the responsibility of the auditor to give the unbias judgement on the financial statement of the company.

Holt can take the management representation but it is her discreation whether to accept the same or not. If she is satisfied that the representation made by company is false , she should have taken the correct step and should give the report accordingly.

Smukers and Nudge, CPAs could have lost their certificate of practice due to this act of Holt because it comes under the miscondut.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

You are engaged in the audit of Mazel Corporation, whose records have not previously been audited...

You are engaged in the audit of Mazel Corporation, whose records have not previously been audited by your firm. The company has an independent transfer agent, as well as a registrar for its capital stock. The transfer agent maintains the record of stockholders, while the registrar checks that there is no overissue of stock. Both the transfer agent and registrar are required to validate stock certificates. Deanna Long, a senior on the audit proposes that confirmations be obtained from both...

You have been engaged to review the financial statements of Tamarisk Corporation. In the course of...

You have been engaged to review the financial statements of Tamarisk Corporation. In the course of your examination, you conclude that the bookkeeper hired during the current year is not doing a good job. You notice a number of irregularities as follows. 1. Year-end wages payable of $3,590 were not recorded because the bookkeeper thought that “they were immaterial.” 2. Accrued vacation pay for the year of $33,400 was not recorded because the bookkeeper “never heard that you had to...

a) Congratulations! You have been hired by the U.S. government’s “nudge” unit to work on reforming...

a) Congratulations! You have been hired by the U.S. government’s “nudge” unit to work on reforming the federal and state health care marketplaces (for example MNsure). What reforms (nudges) would you suggest and why (discuss at least three)? Make sure to specifically refer to the “Human” failings that these nudges are designed to overcome. (25 points) Nudge is basically that people’s choices are their own but it is influenced by their perceptions of what others around them are doing.

A) Congratulations! You have been hired by the U.S. government’s “nudge” unit to work on reforming...

A) Congratulations! You have been hired by the U.S. government’s “nudge” unit to work on reforming the federal and state health care marketplaces (for example MNsure). What reforms (nudges) would you suggest and why (discuss at least three)? Make sure to specifically refer to the “Human” failings that these nudges are designed to overcome.

You have been engaged to review the financial statements of Walsh Corporation. While examining the work...

You have been engaged to review the financial statements of Walsh Corporation. While examining the work of the bookkeeper hired during the year that just ended, you noticed a number of irregularities for the past fiscal year: 1. Year-end wages payable of $13,000 were not accrued, because the bookkeeper thought that “it was immaterial.” 2. Accrued vacation pay for the year of $35,200 was not recorded, because the bookkeeper “never heard that you had to do it.” 3. Insurance that...

Exercise 22-16 You have been engaged to review the financial statements of Teal Corporation. In the...

Exercise 22-16 You have been engaged to review the financial statements of Teal Corporation. In the course of your examination, you conclude that the bookkeeper hired during the current year is not doing a good job. You notice a number of irregularities as follows. 1. Year-end wages payable of $3,130 were not recorded because the bookkeeper thought that “they were immaterial.” 2. Accrued vacation pay for the year of $34,100 was not recorded because the bookkeeper “never heard that you...

Scenario: Rocky Mountain Corporation (RMC) has relocated to a new building that was previously wired and...

Scenario: Rocky Mountain Corporation (RMC) has relocated to a new building that was previously wired and set up for a local area network (LAN). The company implemented a 50-user client/server-based Wireless network, using WPA in which all printers, folders, and other resources are shared; everyone has access to everything and there is no security outside of the defaults that were in place when the system was set up. You have been hired to secure the RMC network and ensure that...

You are part of an accounting firm Advisory team that has been engaged by a client...

You are part of an accounting firm Advisory team that has been engaged by a client to assess how they might make their “sales to order” process more “efficient”, perhaps with the introduction of new technologies. The client has provided a written description of their business, and the process under review, as follows: HHH is a small manufacturer of university based sportswear (a highly competitive market where fast response times are prized by customers). Sales span every region of the...

As an audit manager at Gung & Ho, CPAs, you have been scheduled to serve as...

As an audit manager at Gung & Ho, CPAs, you have been scheduled to serve as the discussion leader for an in-office training session on consideration of the internal control structure in a financial statement audit. Gung & Ho's audit practice consists of audits of privately owned companies and not-for-profit organizations. Required Prepare an outline of comments you plan to make to indicate similarities and differences in how each of the following items is handled under a primarily substantive approach...

Copier Choice Corporation (CCC) is a calendar year, accrual method, C corporation engaged in the business...

Copier Choice Corporation (CCC) is a calendar year, accrual method, C corporation engaged in the business of selling, leasing, and servicing copiers primarily to service businesses such as accounting and law firms. During the fourth quarter of 2017, CCC received the following two payments: -Service payment: CCC received a $375,000 fee for a 15-month service contract on 375 copiers sold be CCC in Oct of 2017 to a national law firm. Under the terms of the contract, CCC will provide...

Subjects