1)Kate has a very unusual auditing situation. An unusual transaction has created a situation where following GAAP seems problematic. Kate needs advice. Which of the following is true as Kate considers how to handle the situation?

To depart from GAAP, all Kate needs to do is demonstrate that following GAAP would mislead investors.

To depart from GAAP, all Kate needs to do is describe the departure, its approximate effects, and the reasons why compliance with GAAP would mislead.

To depart from GAAP, Kate needs to demonstrate that following GAAP would mislead investors, and then describe the departure, its approximate effects, and the reasons why compliance would mislead.

Circumstances justifying departure from GAAP do not include new legislation or evolution of a new business form.

2)The Yoyogurt accounting firm has developed an expertise in auditing airlines. Both FlySkies Airlines and SailAway Airlines wish to hire Yoyogurt as their auditor. FlySkies and SailAway are competitors. Which of the following istrue?

Yoyogurt may not audit two firms that are competitors.

Yoyogurt may audit both firms and not concern itself with any conflicts of interest so long as it has disclosed to each client that it is auditing the other company.

Yoyogurt may audit both firms even without disclosing to FlySkies that it is auditing SailAway and vice versa because both clients should be pleased with the extra expertise Yoyogurt is developing by auditing competitors.

Yoyogurt may audit both firms, but should take steps to minimize the impact of the potential conflict of interest by, for example, using separate engagement teams.