III. Short Answer (20 points, 5 points each). Below are four short fact patterns. Please respond to each with the cometer Auditing is a risky business. Many problems may arise during an audit For questions 1 and 2 below discuss the primary risks involved in each scenario, Pinse be specific 1. Sam and Dave are audit partners, and have decided to undertake the audit of ABC Cop Doring some preliminary analytical procedures they determined that the cash account was low relative to the amount of sales. Sam proceeds to double check the bank reconciliations, but they seem to be correct. Dave reviews the Chart of Organization to see the responsibility level of those that examine the cancelled checks for proper signatures. However, Sam and Dave are still warried 2. KPMX is a very large andising firm. The Chairman of the Board of Endrun Corp. Tom Smith wants to hire KPMX for its annual audit. However, Jane Green, the audit partner at KPMX knows that the turnover in the Accounting Department at Endrun Corp is very high, and she also heard that the lindrum Corp, is poorly managed Moreover, Lindnan Corp's business is imvative and unique, and none of the auditors at KPMX have ever sadited a company in that industry The next two quedin 3. And 4. involve litigation against auditors 3. You are a partner in a CPA firm, and you just were served with a summoni and complaint by a financial firm to appear in the NYS Supreme Court based upon an audit that your firm performed three years ago That client is no longer in business, and the plaintiff finance company believes that the unqualified opinion that accompanied the financial statements was in emor. Of the lawsuits cited in the textbook which would enable your auditing firm to have the best outcome? Wie? You are the accountant for XYZ. Corp, a succesful family busines for mer 20+ years. New that the business has grown and matured, the matriarch and majority stockholder. Dean Marks want to go public. You prepare the audited financial statements, as you have for the last 20- years, and file the required registration statement. However, you inadvertently fail to disclose that the land upon which the XYZ Comp factory is situated has a lease that will terminute in the next three years. Initially, the stock does well in the stock market. However, at the first anna meeting of sharcholders, the news breaks about the lease arrangement, and the next day the shares of XYZ plummet. If shareholder, Jim Flanigan, decides to commence a lawsuit, will he prevail?