1. In late 2001 through 2002, the accounting profession faced a crisis of credibility. Describe the events that led up to these crises.

(10 marks)

2. Evaluate the following quotation: If a CPA firm completes a nonpublic company audit of Adam Companys financial statements following AICPA generally accepted auditing standards and is satisfied with the results of the audit, an unmodified audit report may be issued. On the other hand, if no audit is performed of the current years financial statements, but the CPA firm has performed satisfactory audits in prior years, has confidence in the management of the company, and make a quick review of the current years financial statements, a qualified report may be issued.

Do you agree? Give reasons to support your answer.

(10 marks)

3. Mr. John works as a manager in the Aster office of an international public accounting firm. His father has just taken a position as a purchasing agent for one of the public accounting firms Aster clients. Has Mr. Johns independence been impaired with respect to this audit client? Has the public accounting firms independence been impaired if John does not work on the audit?

(10 marks)