QUESTION 2

Consider the following independent situations:

(i) The owner/manager of a privately-held company also owns 3 other companies. The entities could all be run as one entity, but they engage extensively in related-party transactions to minimise the overall tax burden for the owner/manager.

(ii) The president of a public company has a reputation for being hard-nosed with a violent temper. He has been known to fire a divisional manager on the spot if the manager did not achieve profit goals.

(iii) The chief financial officer (CFO) of a public company has worked her way to the top by gaining a reputation as a great accounting manipulator. She has earned the reputation by being very creative in finding ways to circumvent accounting standards to keep debt off the Statement of Financial Position and in manipulating accounting to achieve short-term earnings. After each short-term success, she has moved on to another company to utilise her skills.

Required : For each situation (i) to (iii) above.

c) Briefly discuss how the situation will affect your overall plan for the expected scope and conduct of the audit.

Thank you for your help on this question !