Question
Michael Cruz, owner of MC Company, applied for a bank loan and was informed by the banker that audited financial statements of the business had
Michael Cruz, owner of MC Company, applied for a bank loan and was informed by the banker that audited financial statements of the business had to be submitted before the bank could consider the loan application. Michael then retained Risa Trinidad, CPA, to perform an audit. Michael informed Risa that audited financial statements were required by the bank and that the audit must be completed within three weeks. Michael also promised to pay Risa a fixed fee plus a bonus if the bank approved the loan. Risa agreed and accepted the engagement. The first step taken by Risa was to hire two accounting students to conduct the audit. She spent several hours telling them exactly what to do. Risa told the students not to spend time reviewing controls but instead to concentrate on providing the mathematical accuracy of the ledger accounts and summarizing the data in the accounting records that support MC Company's financial statements. The students followed Risa's instructions and after two weeks gave Risa the financial statements, which did not include any notes. Risa reviewed the statements and prepared an unqualified audit report. The report, however, did not refer to generally accepted accounting principles. Indicate how the actions of Risa resulted in a failure to comply with the Standards of Auditing.
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