Required information The following information applies to the questions displayed below. Forestcrest Woolen Mills is a closely held North Carolina company that has existed since 1920. The company manufactures high-quality woolen cloth for men's and women's outerwear. Your firm has audited Forestcrest for 15 years. Five years ago, Forestcrest signed a consent decree with the North Carolina Environmental Protection Agency. The company had been convicted of dumping pollutants (such as bleaching and dyeing chemicals) into the local river. The consent decree provided that Forestcrest construct a water treatment facility within eight years. You are conducting the current-year audit, and you notice that there has been virtually no activity in the water treatment facility construction account. Your discussion with the controller produces the following comment: "Because of increased competition and lower sales volume, our cash flow has decreased below normal levels. You had better talk to the president about the treatment facility." The president (and majority shareholder) tells you the following: "Given the current cash flow levels, we had two choices: lay off people or stop work on the facility. This is a poor rural area of North Carolina with few other job opportunities for our people. I decided to stop work on the water treatment facility. I don't think that the state will fine us or close us down." When you ask the president if the company will be able to comply with the consent decree, he informs you that he is uncertain a. Which of the following statement(s) is/are correct regarding the implications of this situation for the audit and the audit report? (Select all that apply.) Check All That Apply The auditor might require the client to provide more detailed disclosure of the issue in the footnotes to the financial statements. If the client provides some assurance that work will start on the facility and that construction can be completed on time, the auditor will likely issue a standard unqualified audit report The auditor should require the company to continue working on the water treatment facility regardless of the consequences. If the client refuses, then the auditor should issue a going concern opinion. The auditor would not be concerned with this situation because it has no bearing on the financial statements. Required information The following information applies to the questions displayed below Section 301 of the Sarbanes-Oxley Act requires that public companies have an audit committee. Independent auditors are increasingly involved with audit committees. Which of the following best describes an audit committee? Multiple Choice An audit committee is a subcommittee of the board of directors that is responsible for the financial reporting and disclosure process. An audit committee is a committee made up of the board of directors and all members of the audit team to assist in the communication related to the audit. An audit committee is a committee made up of the board of directors and the upper levels of the audit team to assist in the communication related to the audit. b. Which of the following best describes why audit committees are formed? Multiple Choice Audit committess are formed so that management can maintain the confidentiality of information. exercising due care in the performance of their duties. Audit committees are formed to satisfy the shareholders' need for assurance that directors are Audit committees are formed because the governement wants to obtain some authority into the communication and management of the business. c. Select all of the following that are functions of the audit committee: (Select all that apply.) Check All That Apply Selection of the independent auditor, discussion of audit fee with the auditor, and review of the auditor's engagement letter Review of the independent auditor's overall audit plan (scope, purpose, and general audit procedures) Review of the annual financial statements before submission to the full board of directors for approval. Review of the results of the auditor's examination including experiences, restrictions, cooperation received, findings, and recommendations. Matters that the auditor believes should be brought to the attention of the directors or shareholders should be considered