Question

In: Accounting

The case states that the firm of Abernethy and Chapman is considering the acceptance of clients...

The case states that the firm of Abernethy and Chapman is considering the acceptance of clients that are publicly traded. What specific steps would the firm have to take before they could accept an audit client that is publicly traded?

Solutions

Expert Solution

The firm should consider whether a relationship with or service provided by an auditor :

a)creates a mutual or conflicting interest with their audit client

b)places them in the position of auditing their own work

c)results in their acting as management or an employee of the audit clent ;or

d)places them in a position of being an advocate for the audit client

Specific Prohibited Non -Audit Services

providing following non -audit services to an audit client including its affiliates :

*Bookkeeping

*Financial information system design and implementation

*Appraisal or valuation services ,fairness option or cntribution in kind reports

*Actuarial services

*internal audit outsourcing services

*management function or human resourses

legag services and expert servicesunrelated to the audit

Pre -approval of Permitted services

alisting company standard require to pre approve all audit ,review and attest services regardless of whether the firm performing the services is the company principal auditor


Related Solutions

Scenario: The firm of Abernethy and Chapman was asked to do consulting work for the Lakeside...
Scenario: The firm of Abernethy and Chapman was asked to do consulting work for the Lakeside company that is completely separate and unrelated to the audit of the financial statements. Discuss the potential conflict of interest when an auditor does consulting work for an audit client. Does this relationship cause the independence of the auditor to be violated? Why or why not? Since the Enron debacle, how has the accounting profession dealt with this issue?
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2017. As of that...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2017. As of that date, Abernethy has the following trial balance:DebitCreditAccounts payable$53,700Accounts receivable$41,000Additional paid-in capital50,000Buildings (net) (4-year remaining life)184,000Cash and short-term investments77,250Common stock250,000Equipment (net) (5-year remaining life)400,000Inventory117,500Land107,500Long-term liabilities (mature 12/31/20)173,000Retained earnings, 1/1/17417,450Supplies16,900Totals$944,150$944,150During 2017, Abernethy reported net income of $98,000 while declaring and paying dividends of $12,000. During 2018, Abernethy reported net income of $128,250 while declaring and paying dividends of $39,000.Assume that Chapman Company acquired Abernethy’s common stock...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2017. As of that...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2017. As of that date, Abernethy has the following trial balance:DebitCreditAccounts payable$55,100Accounts receivable$44,700Additional paid-in capital50,000Buildings (net) (4-year remaining life)163,000Cash and short-term investments83,750Common stock250,000Equipment (net) (5-year remaining life)207,500Inventory122,000Land85,500Long-term liabilities (mature 12/31/20)162,500Retained earnings, 1/1/17202,150Supplies13,300Totals$719,750$719,750During 2017, Abernethy reported net income of $105,000 while declaring and paying dividends of $13,000. During 2018, Abernethy reported net income of $136,750 while declaring and paying dividends of $36,000.Assume that Chapman Company acquired Abernethy’s common stock...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that date, Abernethy has the following trial balance: Debit CreditAccounts payable   $55,100Accounts receivable$44,700   Additional paid-in capital    50,000Buildings (net) (4-year remaining life) 163,000   Cash and short-term investments 83,750   Common stock    250,000Equipment (net) (5-year remaining life) 207,500   Inventory 122,000   Land 85,500   Long-term liabilities (mature 12/31/23)    162,500Retained earnings, 1/1/20    202,150Supplies 13,300   Totals$719,750 $719,750 During 2020, Abernethy reported net income of $105,000 while declaring and paying dividends of $13,000. During 2021, Abernethy reported net income of $136,750 while declaring and paying...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that date, Abernethy has the following trial balance: Debit CreditAccounts payable   $55,800Accounts receivable$42,500   Additional paid-in capital    50,000Buildings (net) (4-year remaining life) 209,000   Cash and short-term investments 67,250   Common stock    250,000Equipment (net) (5-year remaining life) 357,500   Inventory 136,000   Land 114,000   Long-term liabilities (mature 12/31/23)    168,500Retained earnings, 1/1/20    414,650Supplies 12,700   Totals$938,950 $938,950 During 2020, Abernethy reported net income of $104,500 while declaring and paying dividends of $13,000. During 2021, Abernethy reported net income of $137,750 while declaring and paying...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that date, Abernethy has the following trial balance: Debit Credit Accounts payable $ 56,700 Accounts receivable $ 43,800 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 143,000 Cash and short-term investments 80,250 Common stock 250,000 Equipment (net) (5-year remaining life) 295,000 Inventory 110,500 Land 112,000 Long-term liabilities (mature 12/31/23) 171,000 Retained earnings, 1/1/20 268,750 Supplies 11,900 Totals $ 796,450 $ 796,450 During 2020, Abernethy...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that date, Abernethy has the following trial balance: Debit Credit Accounts payable $ 57,700 Accounts receivable $ 45,000 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 124,000 Cash and short-term investments 68,250 Common stock 250,000 Equipment (net) (5-year remaining life) 327,500 Inventory 103,000 Land 106,000 Long-term liabilities (mature 12/31/23) 183,500 Retained earnings, 1/1/20 252,350 Supplies 19,800 Totals $ 793,550 $ 793,550 During 2020, Abernethy...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2017. As of that...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2017. As of that date, Abernethy has the following trial balance: Debit Credit Accounts payable $ 59,500 Accounts receivable $ 46,600 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 145,000 Cash and short-term investments 84,250 Common stock 250,000 Equipment (net) (5-year remaining life) 257,500 Inventory 106,000 Land 129,000 Long-term liabilities (mature 12/31/20) 151,000 Retained earnings, 1/1/17 273,050 Supplies 15,200 Totals $ 783,550 $ 783,550 During 2017, Abernethy...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2020. As of that date, Abernethy has the following trial balance: Debit Credit Accounts payable $ 55,800 Accounts receivable $ 42,500 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 209,000 Cash and short-term investments 67,250 Common stock 250,000 Equipment (net) (5-year remaining life) 357,500 Inventory 136,000 Land 114,000 Long-term liabilities (mature 12/31/23) 168,500 Retained earnings, 1/1/20 414,650 Supplies 12,700 Totals $ 938,950 $ 938,950 During 2020, Abernethy...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2017. As of that...
Chapman Company obtains 100 percent of Abernethy Company’s stock on January 1, 2017. As of that date, Abernethy has the following trial balance: Debit Credit Accounts payable $ 58,000 Accounts receivable $ 40,200 Additional paid-in capital 50,000 Buildings (net) (4-year remaining life) 170,000 Cash and short-term investments 66,750 Common stock 250,000 Equipment (net) (5-year remaining life) 372,500 Inventory 109,500 Land 116,000 Long-term liabilities (mature 12/31/20) 165,000 Retained earnings, 1/1/17 369,150 Supplies 17,200 Totals $ 892,150 $ 892,150 During 2017, Abernethy...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT