No 5-18 (OBJECTIVES 5-3, 5-7) The following independent scenarios describe auditor behavior on an audit engagement In-c 1. The audit engagement partner, Marc Johnson, recently received a subpoena for work- Discu papers related to an audit engagement on which his audit firm has been named as a defendant. Marc asked the staff auditor to remove and discard two memos from the workpaper files documenting communication between the engagement partner and the CFO regarding the goodwill impairment analysis. 2. Chad Lewis is the lead audit partner on the audit engagement of a publicly traded company. Chad followed auditing standards on the audit engagement and issued an unqualified opinion. It was subsequently discovered that the financial statements contained a material misstatement that had been undetected by the management of the company and by the audit team. 3. Maria Marquez, CPA, is a sole proprietor. She recently accepted a new audit client who was applying for a bank loan and needed to present audited financial statements to the bank. Maria was not able to complete the audit engagement by herself, so she hired several college students to assist her. The students completed the audit procedures without much guidance, and Maria issued an unmodified opinion on the client's financial statements. Chapter 5 / LEGAL a significant percentage of inventory was stored at an outside warehouse. As a result , 4. On a recent audit engagement, the client firm neglected to inform the audit firm that the auditors did not observe the physical inventory count for that inventory, which represented 20 percent of the client's inventory balance. The auditors were able to sat- isfy themselves that the inventory existed through alternative procedures, and issued an unmodified opinion on the financial statements as a whole. 5. Melissa Louis is the lead engagement partner on a publicly traded company. The com- pany's CEO recently approached Melissa and informed her that they had identified a material misstatement in the prior year's financial statements, which had been au- dited by Melissa's firm and submitted to the SEC. The CEO suggested they correct the misstatement by recording a journal entry in the current year for half of the amount of the misstatement, and in the following year for the remaining half. Melissa agreed to this plan to avoid a public announcement of a restatement and a potential lawsuit, since the amount of the journal entries recorded in the current and subsequent years would be considered immaterial to the financial statements. Ut med for each of the