Question and Answer - 4

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Write a literature review on a various dynamics that impact an organizations management and
how they pay a part in influencing their financial reporting decision.
Discuss Simultaneous Moves Games and Nash Equilibrium Concept.
In a brief paragraph or two, describe your past experience working in groups. What is your
personality type? What are your annoyances? How do you react under stress? How would your
boss at work describe you?
Describe and discuss the Intellectual Capital Terms. Conduct an Internet search to find and read
3 recent articles that relate to the term. Select the 1 article that you wish to discuss. Submit a
thread that contains the following information. a. Definition: Give a brief definition of the key
term b. Summary: Gi
What have you learned through the rough seasons/failures of life?
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Write an essay explaining how Sophocles' Oedipus exemplifies or refutes Aristotle's definition of
a tragic hero. Take a background and overview of Aristotle's concept of tragedy/the tragic hero
and drama. This chapter also contains critical information on Sophocles and the play Oedipus.
You may use any of the critical
Highlight and discuss the main features of and processes involved in the following. Strategic
Moves (Credibility in Commitments) The Prisoner's Dilemma and Repeated Games Collective
Action Games Evolutionary Games Auctions Bargaining (Voting)
Conduct research to determine the impact of the Sarbanes-Oxley Act (SOX), Generally Accepted
Accounting Principles (GAAP), Generally Accepted Auditing Standards (GAAS), and the
International Financial Reporting Standards (IFRS) on the accounting profession and decision-
making of publicly traded companies. In discussing
Global Economics the International Monetary Fund (IMF) and World Bank have played a major
role in globalization and socio-economic reform. Tax incentives too many developing countries
in exchange for making economic reforms have helped widen globalization. The Liberalization,
Privatization, Globalization (LPG) approach
You just hired a former individual tax preparer to be in your tax accounting department. While
she has a degree in taxation, all her experience has focused on individual returns. To make sure
she completely understands the differences between individual and business tax accounting, you
ask her to review some of the mat

Outline the following in context of "Evolution of Animals and Population of Humans" Discuss
what you believe to be the origins of animals. Consider three problems out of control population
growth will create in regards to the environment. Discuss three effects of China's one child rule.
In your response please co
There is no doubt that Microsoft Office (including Access & Excel) is the industry leader for
office productivity software - it can be found in almost all businesses. But, recently there has
been a shift toward cloud computing -- that is, using software as a service (either free or
subscription) via the Internet. With
Write an essay your comments, thoughts, and insights focusing on integrating faith into
international business. Can all domestic managers be global managers? Why or why not Explain
and give example how business integrates a biblical worldview and mindset within a company
and its products and service. (On a biblical
a. Describe a personal experience of culture shock. b. In your opinion, was it a positive or

negative experience? Why? c. Research coping mechanisms that you could use to deal with the
culture shock you described. d. How might you have handled your personal experience with
culture shock differently after your res
Write a paper summarizing each of the following areas for Togo and describing the influence of
each on global business: Reflect on how your personal beliefs and values will be affected by
doing business in this country in the following areas Religion Government Technology structures
Write a research paper on change in a human resource development (HRD) organization that you
work for, or would like to work for. Within your research paper, explain how the following tasks
can be accomplished at your chosen organization using competency or case-based decision
making training methods: 1. Improve prod
Outline the following cultural issues regarding the Brazilian entrepreneurial environment. Briefly
describe the Individual and Collective Dimension of the country. Briefly describe the Equality
and Hierarchy Dimension of the country. Briefly describe the Change Orientation Dimension of
the country. Briefly describe
According to the Sarin and O'Connor (2009) article, certain style and goal structures of team
leaders have a strong influence on internal team dynamics. Based on your research within the
article, as well as your own experience, what team leader management style would be most
effective in leading a team in which you wer
What specific behaviors will lead to successful completion of the project? What behaviors
threaten the project's completion? How do you want others to describe the quality and quantity of
your effort? Describe your conflict resolution style.
Discuss the following Terms and provide a sufficient explanation (a) What is meant by the term
"Game Theory"? (b) Identify some Basic Ideas and Examples of Games. (c) Explain Probability,
Relief and Prediction as they relate to Game Theory.
Develop a list of 10 interview questions you will ask a person who has conducted business
globally. Use your readings and research throughout the course to develop comprehensive
questions dealing with cultural issues and business.
Outline the following question: (a) What is meant by "Mixed Strategy"? (b) How useful can the
following be in relation to Game Theory? Combing Games with Simultaneous and Sequential
Moves. Reasoning with Probability and Mixed Strategies Uncertainty and Information Risk
(Signaling and Screening)
Provide a description of Visa and MasterCard: its products, markets, employees, location of
headquarters, location of production, etc. Explain what the firm does to earn its money, to stay in
business. Do not exceed one page for the description. Draft a Ratio Analysis between Visa and
MasterCard with comprehensive ex
Discuss the notion of Strategic Thinking as Strategic Games as they relate to Game Theory.
Write a draft of persuasive writing on "Would You Want to Be Home-Schooled?"
Your organization has determined that more resources are required to complete the project's risk
management process for the expansion into China or another country approved by your
instructor. Your team has been asked to perform a risk analysis, develop risk responses, and
determine how the project will monitor and con
(a) What are Sequential Move Games? (b) What is involved in "Game Tree": Rollback
Reasoning? (c) Identify the Structural Elements of a Game (Strategic Interaction)?
Design an inferior user interface design for its intended purpose. A. Retail and Shopping:
Walmart, Amazon Sample the action prompts below to perform on each of the websites provided
above: Find multiple items and add them to your cart in different quantities Remove/adjust
quantities Continue shopping Search for alte
Briefly discuss the Global Issue Policy on Nuclear Weapons by addressing the following criteria:
Policy issue and title (Global Issue Policy on Nuclear Weapons) Context and importance of the
issue Rationale and justification for your position Propose a course of action Argumentation and
evidence Closing remarks
Explain the asymmetric information theory of capital structure.

What are some of the challenges of practically practicing servant leadership?
The new CFO e-mails you, asking for your help this week analyzing some competitor's financial
statements. Knowing that there are over 20 different ratios that can be used to monitor and assess
the financial health of a company, he wants to know which 5 ratios you would start with, why,
what they mean, and to whom. Repl
How does a biblical, covenantal perspective inform our understanding of servant leadership?
What are the components of a firm's financial distress or bankruptcy? Explain each one.
How will group disagreements be resolved? Will the majority of votes "count" in the result of a
disagreement? How any potential conflicts will be resolved needs to be discussed immediately.
This eliminates potential confusion and/or frustration later on.
The trade-off theory provides several insights to financial managers concerning optimal capital
structure. Explain how an increase in the corporate tax rate would impact capital structure policy.
China's fast growing economic and trade ties with a range of countries in Latin America and the
Caribbean are increasingly intense and dynamic, as documented elsewhere. The pace of that
change, and the difficulty of monitoring it, have raised legitimate questions about what kind of
influence China has had on the region
Create a draft paper on Opposing Position on "Should abortion be banned".
What is the importance of the Trade Agreements Act of 1934? What are the ruling principles of
GATT?
Is the nation in Problem 6 better or worse off in 2010 as compared with 1980? Why? In Problem
6 Taking the index of export prices, import prices, volume of exports, and productivity in the
export sector in a developing nation to be all equal to 100 in 1980, in 2010.
Why can international trade not be expected to be an engine of growth for today's developing
nations? In what ways can international trade still play a very important supportive role for
development today?
What was the effect of the formation of the EU on trade in industrial and agricultural products
with the rest of the world?
What free trade agreements have been negotiated by the United States? What is NAFTA?
Under what conditions is the formation of a customs union more likely to lead to trade creation
and increased welfare?
What are the technical, administrative, and other nontariff barriers to trade? How do they restrict
trade? What is the importance of these nontariff trade barriers relative to tariff barriers?
Has globalization increased or reduced world poverty? What is the World Bank agenda for
reducing world poverty?
What is meant by trade creation? What static welfare effects will a tradeâ€creating customs
union have on member nations and on the rest of the world? How do these static welfare effects
arise? How are they measured?
What is the difference between Eurocurrencies on the one hand and Eurobonds and Euro notes
on the other?
Explain how the effects of a negotiated export quota of 30X, found in Problem 6, are similar to
and different from those of an equivalent import tariff or quota.
What is meant by the "current account being the bottom line in the national income statement of
the nation?"
What is meant by direct investments? By what organizations are they usually undertaken
internationally?
A U.S. resident imports $500 worth of goods from a U.K. firm and promises to pay in three
months. Indicate how the transactions indicated in Problems are entered into the U.S. balance of
payments:
What are the fallacious and questionable arguments for protection? Why are they fallacious and
questionable?
How were U.S. foreign direct investments in 2010 distributed among Europe, Canada, Latin
America, and elsewhere? How much of U.S. foreign direct investments in 2014 went into
manufacturing, finance, petroleum, and other activities? Answer the same questions for foreign
investments in the United States.
What are the four different levels of participants in foreign exchange markets? What are the
other functions of foreign exchange markets?

What is meant by the balance of payments? In what way is the balance of payments a summary
statement? What is meant by an international transaction? How is a resident of a nation defined?
In what way is the time element involved in measuring a nation's balance of payments?
Why do we need the Doha Round?
What reasons did Prebisch, Singer, and Myrdal give for their belief that the commodity terms of
trade of developing nations have a tendency to deteriorate over time?
What are international commodity agreements? Why do developing nations want them? What is
meant by buffer stocks, export controls, and purchasing agreements? Can you give an example of
each?
What are the other qualified arguments for protection? In what way must they be qualified?
What is meant by the consumption, production, trade, revenue, and redistribution effects of a
tariff?
What is interest arbitrage? Uncovered interest arbitrage? Covered interest arbitrage? How is
interest arbitrage covered in the forward market? Why does the net gain from covered interest
arbitrage tend to diminish as covered interest arbitrage continues?
What did the Uruguay Round accomplish?
How does the EFTA compare with the EU?
Using Figure 12.2, explain why organized labor in the United States opposes U.S. investments
abroad.
What is meant by the foreign currency being at covered interest arbitrage parity (CIAP)? What
are some of the forces that can prevent the achievement of CIAP?
What is the most important use of the statement of the international investment position of a
nation?
What are the outstanding trade problems facing the world today?
In what way was international trade an engine of growth for the regions of recent settlement
during the nineteenth century?
Update Table 12.4 for the most recent year for which data are available.

Using Figure 12.2, explain why labor in developing nations benefits from an inflow of foreign
investments.
When is partial equilibrium analysis of a tariff justified? How is this performed?
Which region of the world has the largest concentration of poorest countries? Why are these
countries so poor?
How was the statistical discrepancy of $150 billion arrived at in the U.S. balance of payments in
2014?
What is the magnitude of the static and dynamic benefits to members resulting from the
formation of the EU?
What is the tariff structure of developed nations? Why is this of special concern to developing
nations? What is the most serious shortcoming of the concept and measure of effective
protection?
Why do nations subsidize exports? To what problems do these subsidies give rise?
What are the major accomplishments of the Kennedy Round? Of the Tokyo Round? What do the
Trade Acts of 1984 and 1988 provide?
What are the motives for the international migration of workers? What is the effect of labor
migration on real wages, total output, and the relative share of national income going to labor in
the nation of emigration and the nation of immigration?
Why must the balance of payment as a whole always balance? What is doubleâ€entry
bookkeeping? Why does doubleâ€entry bookkeeping usually involve an entry called statistical
discrepancy? How does such a statistical discrepancy arise?
Compare your results of Problems 8 and 9. In Problem 8 & 9 Draw a straightâ€line demand
curve for a commodity crossing both axes and its corresponding marginal revenue curve (lying
everywhere halfway between the vertical axis and the demand curve). On the same graph, draw a
hypothetical supply curve for the commodit
What is the CMEA? What is required for economic restructuring and integrating the countries of
Eastern Europe and the former Soviet Union into the world economy?
What is the effect of foreign investments on the national income of the investing and host
nations? What is the effect on the relative share of national income going to capital and labor in
each nation?
How can twoâ€way international capital investments be explained? What is meant by risk
diversification? Horizontal integration? Vertical integration?
What dynamic benefits are the nations forming a customs union likely to receive? How do they
arise? How large are they?
What is the importance of multinational corporations today? What are the reasons for their
existence?
Suppose that from the free trade production point B, the nation of Figure 8.5 wants to produce
65X (point F). Indicate: (a) How the nation could do this with a tariff or with a subsidy. (b) Why
the subsidy would be better.
What is meant by voluntary export restraints? How has the United States used them?
How do developing countries propose to resolve the major problems that they face today? What
are the prospects of resolving them in the near future?
What is the relationship among the current account deficit, the budget deficit and private
investment and saving?
Why do developing nations want to industrialize? What is meant by import substitution? by

exportâ€oriented policies? What are the advantages and disadvantages of each as a method of
industrialization for developing nations?
What is the theory of the second best? In what way is the theory of customs unions an example
of the theory of the second best?
What is meant by trade diversion? What static welfare effects will a tradeâ€diverting customs
union have on member nations and on the rest of the world? How do these static welfare effects
arise? How are they measured?
What is the effect of foreign investments on the balance of payments of the investing and host
nations in the short run and in the long run? What problems do nations with high corporate tax
rates face?
What is meant by portfolio investments? Through what institutions do they usually take place?
What is Mercosur? Why have attempts at economic integration among developing nations
generally met with limited success or failure?
In what way did the implementation of the Uruguay Round help developing nations? In what
way did it not?
What is meant by the protection cost, or deadweight loss, of a tariff? How is this measured?
What is meant by the commodity, or net barter, terms of trade? The income terms of trade? The
single factoral terms of trade? The double factoral terms of trade? Which are the most significant
terms of trade for developing nations? Why?
Why did some economists regard traditional trade theory as irrelevant for developing nations and
the development process? How can this charge be answered?
In what sense are international flows of productive resources a substitute for international
commodity trade?
What are the most serious pitfalls to avoid in analyzing a nation's balance of payments or the
statement of international transactions?
What is meant by the exchange rate? How is the equilibrium exchange rate determined under a
flexible exchange rate system?
Using general equilibrium analysis, indicate the effect of an import tariff imposed by a small
nation on the relative commodity price of the importable commodity for individuals in the nation
and for the nation as a whole?
What effect is an improvement in the technology of primary production likely to have on the
terms of trade of a developing country? Why?
Update Table 12.6 for the most recent year for which data are available. How the ranking of the
world has the largest MNCs changed since 2014?
Update Table 12.2 for the most recent year for which data are available.
What is meant by economic integration? A preferential trade arrangement? A free trade area? A
customs union? A common market? An economic union? Give an example of each.
How have host countries attempted to limit the alleged harmful effects and increase the
beneficial effects of multinational corporations?
What conclusions can be reached on the basis of the many empirical studies conducted as to the
movement of the commodity and income terms of trade of developing nations over the past
century and especially since World War II?
(a) Are Eurocurrencies money? (b) Do Euro banks create money? (c) What are the most serious
problems created by the existence of Eurocurrencies?
What international transactions are included in the financial account? What is meant by the net
acquisition of financial assets? The net incurrence of liabilities? Net lending and net borrowing
from financialâ€account transactions?
What is the infantâ€industry argument for protection? How must this argument be qualified?
Did the U.S. financial account show a net lending or a net borrowing in 2014? What was its size?
What criticisms have been levied against the United Nations study that Prebisch and Singer
quoted in their work to confirm their belief?
What was the dollar value of U.S. direct investments abroad and U.S. private holdings of
longâ€term foreign securities in 1980 to 2014?
What were the cause and effect of the large U.S. trade imbalance during the postwar period?
What is meant by strategic and industrial trade policy? What is its relevance?
(a) What is a Eurocurrency? (b) Why would offshore deposits be a more appropriate term? (c)
Why is the spread between lending and borrowing rates lower on Eurocurrencies than on
commercial bank dollar deposits in the United States?
What is meant by the brain drain? Why is it a problem? How can it be overcome?
What are some of the problems created by multinational corporations in the home country? In
the host country?
What are international cartels? How do their operations restrict trade? Which was the most
successful international cartel during the 1970s? Why did its power decline sharply in the 1980s?
What are the major problems facing developing countries today? What are their causes?
What are the basic motives for international portfolio investments? What additional reasons are
required to explain direct foreign investments?
What are foreign exchange markets? What is their most important function? How is this function
performed?
What is the primary function of tariffs in industrial nations? In developing nations?
What is meant by a depreciation of the domestic currency? An appreciation? What is the cross
exchange rate? What is the effective exchange rate?
What is export instability? What are the alleged causes and effects of export instability on
economic development? What are the results of empirical studies on export instability and its
effects on economic development?
Explain why the 1988 U.S.â€Canada Free Trade Agreement created much less controversy in
the United States than NAFTA, which included Mexico.
What international transactions are included in the current account? What does the capital
account include? What are the credit and the debit transactions in the current and capital
accounts? What is meant by net lending and net borrowing in the current and capital accounts?
What are CEFTA and BAFTA? What was their ultimate aim?
What is meant by the international investment position of a nation, or its balance of international
indebtedness? What is its relationship to the nation's balance of payments?
What is meant by dumping? What are the different types of dumping? Why is dumping
undertaken? What conditions are required to make dumping possible? Why does dumping
usually lead to trade restrictions?
What are the benefits and risks of the United States being a large net debtor nation?
What is an import quota? How is it mostly used today? What are the partial equilibrium effects
of an import quota? How are they similar to and different from the effects of an equivalent
import tariff?
Did the U.S. current account show a net lending or a net borrowing in 2014? What was its size?
What has been the experience with import substitution during the past decades? What has this
experience led to?
What is the difference between a nominal tariff and an effective tariff? What is the usefulness of
the concept of effective protection? How is the rate of effective protection measured?
Why has the development of overnight loan markets made it more likely that banks will hold
fewer excess reserves?
The bank you own has the following balance sheet: If the bank suffers a deposit outflow of $50
million with a required reserve ratio on deposits of 10%, what actions must you take to keep your
bank fromfailing?
If casualty insurance companies provided fire insurance without any restrictions, what kind of
adverse selection and moral hazard problems might results?
If a bank is failing short of meeting its capital requirements by $1 million, what three things can
it do to rectify the situation?
What methods have inflation-targeting central banks used to increase communication with the
public and increase the transparency of monetary policymaking?
In nominal interest rates in America rise but real interest rates fall, predict what will happen to
the U.S. exchange rate.
If Mexicans go on a spending spree and buy twice as much French perfume, Japanese TVs,
English sweaters, Swiss watches, and Italian wine, what will happen to the value of the Mexican
peso?
Why have banks been losing cost advantages in acquiring funds in recent years?
Do you think that removing the impediment to a nationwide banking system will be beneficial to
the economy? Explain your answer.
What happens to reserves at the First National Bank if one person withdraws $1,000 of cash and
another person deposits $500 of cash? Use T-accounts to explain your answer.
Why is being nosy a desirable trait for a banker?
Why did the exchange-rate peg lead to difficulties for the countries in the ERM when German
reunification occurred?
Suppose that you are the manager of a bank that has $15 million of fixed-rate assets, $30 million
of rate-sensitive asset5s, $25 million of fixed-rate liabilities, and $20 million of rate-sensitive
liabilities. Conduct a gap analysis for the bank, and show what will happen to bank profits if
interest rates rise by 5 pe
The invention of the computer is the major factor behind the decline of the banking industry. Is
this statement true, false, or uncertain? Explain your answer.
If the Indian government unexpectedly announces that it will be imposing higher tariffs on
foreign goods one year from now, what will happen to the value of the Indian rupee today?
If the Fed has an interest rate target, why will an increase in money demand lead to a rise in the
money supply?
Why does the twin crises phenomenon of currency and banking crises occur in emerging market
countries?
The independence of the Fed has meant that it takes the long view and not the short view". Is this
statement true, false, or uncertain? Explain your answer.
If a bank finds that its ROE is too low because it has too much bank capital, what can it do to
raise is ROE?
If there is a strike in France, making it harder to buy French goods, what will happen to the value
of the euro?
The FIRREA legislation of 1989 is the most comprehensive banking legislation since the 1930s.
Describe its major features.
What might inflation targeting increase support for the independence of the central bank to
conduct monetary policy?
If the Fed buys $1 million of bonds from the First National Bank, but an additional 10% of any
deposit is held as excess reserves, what is the total increase in checkable deposits?
What are the advantages of monetary targeting as a strategy for the conduct of monetary policy?
In the 1960s and 1970s, the Federa1 Reserve system lost member banks at a rapid rate. How can
the theory of bureaucratic behavior explain the Fed's campaign for legislation to require all
commercial banks to become members? Was the Fed successful in this campaign?
Using T-accounts show what happens to checkable deposits in the banking system when the Fed
sells $2 million of bonds to the First National Bank.
What bank regulation is designed to reduce adverse selection problems for deposit insurance?
Will it always work?
Which regulatory agency has the primary responsibility for supervising the following categories
of commercial banks? a. National banks b. Bank holding companies c. Non-Federal Reserve
member state banks d. Federal Reserve member state banks
Why has there been such a dramatic increase in bank holding companies?
A central bank with a dual mandate will achieve lower unemployment in the long run than a
central bank with a hierarchical mandate in which price stability takes precedence. Is this
statement true, false, or uncertain?
A bank almost always insists that the firms it lends to keep compensating balances at the bank.
Why?
If inflation had not risen in the 1960s and 1970s, the banking industry might be healthier today.
Is this statement true, false, or uncertain? Explain you answer.
You often read in the newspaper that the Fed has just lowered the discount rate. Does this signal
that the Fed is moving to a more expansionary monetary policy? Why or why not?
How has the too-big-to-fail policy been limited in the FDICIA legislation? How might limiting
the too-big-to-fail policy help reduce the risk of a future banking crisis?
How can persistent U.S balance-of-payments deficits stimulate world inflation?
Some advocates of campaign reform believe that government funding of political campaigns and
restrictions on campaign spending might reduce the principal-agent problem in our political
system. Do you agree? Explain your answer.
How could higher deposit insurance premiums for banks with riskier assets benefit the economy?
Suppose that the Fed buys $1 million of bonds from the First National Bank. If the First National
Bank and all other banks use the resulting increase in reserves to purchase securities only and not
to make loans, what will happen to checkable deposits?
What are the costs and benefits of a too-big-to-fail policy?
The theory of bureaucratic behavior indicates that the Fed never operates in the public interest."
IS this statement true, false and uncertain? Explain your answer.
Why did new technology make it harder to enforce limitations on bank branching?
Classify each of the following as either an operating target or an intermediate target, and explain
why. a. The three-month Treasury bill rate. b. The monetary base. c. M2
How can the S&L crisis be blamed on the principal-agent problem?
Why can balance-of-payments deficits force some countries to implement a contractionary

monetary policy?
Why is regulatory forbearance a dangerous strategy for a deposit insurance agency?
If the Fed sells $1 million of bonds and banks reduce their borrowing form the Fed by $1
million, predict what will happen to the money supply.
Considering that raising reserve requirement to 100% makes complete control of the money
supply possible, Congress should authorize the Fed to raise reserve requirements to this level.â€
Discuss.
In what ways can the regional Federal Reserve Banks influence the conduct of monetary policy?
If reserve requirements were eliminated in the future, as some economists advocate, what effects
would this have on the size of money market mutual funds?
During the Great Depression years, 1930-1933, the currency ratio c rose dramatically. What do
you think happened to the money supply? Why?
The commercial banking industry in Canada is less competitive than the commercial banking
industry in the United Stated because in Canada only a few large banks dominate the industry,
while in the United Stated there are around 7,500 commercial banks. Is this statement true, false,
or uncertain? Explain your answer.
Because inflation targeting focuses on achieving the inflation target, it will lead to excessive
output fluctuations. Is this statement true, false, or uncertain? Explain your answer.
Hoe did a decline in housing prices help trigger the subprime financial crisis starting in 2007?
In the mind-to-late 1970s, the yen appreciated relative to the dollar even though Japanâ€™s
inflation rate was higher than Americas. How can this be explained by an improvement in the
productivity of Japanese industry relative to American industry?
If reserve requirements were eliminated, it would be harder to control interest rates. True, false,
or uncertain?
If a deposit outflow of $50 million occurs, which balance sheet would a bank rather have
initially, the balance sheet in Problem 5 or the following balance sheet?Why?
During Christmastime, when the publicâ€™s holdings of currency increase, what defensive open
market operations typically occur? Why?
What bank regulations are designed to reduce moral hazard problems created by deposit
insurance? Will they completely eliminate the moral hazard problem?
What incentives have regulatory agencies created to encourage international banking? Why have
they done this?
Because the public can see whether a central bank hits its monetary targets almost immediately,
whereas it takes time before the public can see whether an inflation target is achieved, monetary
targeting makes central banks more accountable than inflation targeting does. Is this statement
true, or uncertain? Explain yo
If there is a switch from deposits into currency, what happens to the federal funds rate? Use the
supply and demand analysis of the market for reserves to explain your answer.
Why did the S&L crisis not occur until the 1980s?
Using the T-accounts of the First National Bank and the Second National Bank, describe what
happens when Jane Brown writes a $50 check on her account at the First National Bank to pay
her friend Joe Green, who in turn deposits the check in his account at the Second National Bank.
Predict what will happen to the money supply if there is a sharp rise in the currency ratio.
How can the procyclical movement of interest rates (rising during business cycle expansion and
falling during business cycle contractions) lead to a procyclical movement in money supply as a
result of Fed discounting? Why might this movement of money supply be undesirable?
What are the key advantages and disadvantages of the monetary strategy used in the United
States under Alan Greenspan in which the nominal anchor is only implicit?
A country is always worse off when its currency is weak (falls in value). Is this statement true,
false, or uncertain? Explain your answer.

If the Fed sells $2 million of bonds to the First National Bank, What happens to reserves and the
monetary base? Use T-accounts to explain your answer.
Compare the use of open market operations, discounting, and changes in reserve requirements to
control money supply on the following criteria: flexibility, reversibility, effectiveness, and speed
of implementation.
Why might eliminating the Fed's independence lead to a more pronounced political business
cycle?
Compare the monetary base to M2 on the grounds of controllability and measurability. Which do
you prefer as an intermediate target? Why?
Suppose that you are the manager of a bank whose $100 billion of assets have an average
duration of four years and whose $90 billion of liabilities have an average duration of six years.
Conduct a duration analysis for the bank, and show what will happen to the net worth of the bank
if interest rates rise by 2 percenta
If the demand for a countryâ€™s exports falls at the same time that tariffs on imports are raised,
will the countryâ€™s currency tend to appreciated or depreciate in the long run?
The Fed promotes secrecy by not releasing FOMC directives to Congress or the public
immediately. Discuss the pros and cons of this policy.
Rank the following bank assets from most to least liquid: a. Commercial loans b. Securities c.
Reserves d. Physical capital
Inflation is not possible under the gold standard. Is this statement true, false, or uncertain?
Explain your answer.
How can bank behavior and the Fedâ€™s behavior cause money supply growth to be procyclical
(rising in booms and failing in recessions)?
Over time, which entities have gained power in the Federal Reserve System and which have lost
power? Why do you think this has happened?
If the bank you own has no excess reserves and a sound customer comes in asking for a loan,
should you automatically turn the customer down, explaining that you donâ€™t have any excess
reserves to lend out? Why or why not? What options are available for you to provide the funds
your customer needs?
Interest rates can be measured more accurately and more quickly than the money supply. Hence
an interest rate is preferred over the money supply as an intermediate target. Do you agree or
disagree? Explain your answer.
If the British central bank prints money to reduce unemployment, what will happen to the value
of the pound in the short run and the long run?
If the European central bank decides to contract the money supply to fight inflation, what will
happen to the value of the U.S dollar?
What procedures can the Fed use to control the three-month Treasury bill rate? Why does control
of this interest rate imply that the Fed will lose control of the money supply?
Do you think that the 14-year nonrenewable terms for governors effectively insulate the Board of
Governors from political pressure?
If the Fed reduces reserves by selling $9 million worth of bonds to the banks, what will the T-
account of the banking system look like when the banking system is in equilibrium? What will
have happened to the level of checkable deposits?
If American auto companies make a breakthrough in automobile technology and are able to
produce a car that gets 60 miles to the gallon, what will happen to the U.S exchange rate?
Because diversification is a desirable strategy for avoiding risk, it never makes sense for a bank
to specialize in making specific types of loans. Is this statement true, false, or uncertain? Explain
your answer.
If reserves in the banking system increase by $1 billion as a result of discount loans of $1 billion
and checkable deposits increase by $9 billion, why isn't the banking system in equilibrium? What
will continue to happen in the banking system until equilibrium is reached? Show the T-account
for the banking system in e
Why is there a higher percentage of banks with less than $25 million of assets among
commercial banks than among saving and loans and mutual saving banks?
If expected inflation drops in Europe so that interest rates fall there, predict what will happen to
the exchange rate for the U.S dollar.
The independence of the Fed leaves it completely unaccountable for its actions". Is this statement
true, false, or uncertain? Explain your answer.
Which entities in the Federal Reserve System control the discount rate? Reserve requirement?
Open market operations?
Why have banks been losing income advantages on their assets in recent years?
How can a deterioration in bank balance sheets lead to a currency crisis?
What steps were taken in the FDICIA of 1991 to improve the functioning of federal deposit
insurance?
The Federal Reserve System resembles the U.s Constitution in that it was designed with many
checks and balances. Discuss.
The president of the United States announces that he will reduce inflation with a new anti-
inflation program. If the public believes him, predict what will happen to the exchange rate for
the U.S. dollar.
Using the supply and demand analysis of the market for reserves, show what happens to the
federal funds rate, holding everything else constant, if the economy is surprisingly strong,
leading to an increase in the amount of checkable deposits.
If float decrease below its normal level, why might the manager of domestic operations consider
it more desirable to use repurchase agreement to affect the monetary base rather than an outright
purchase of bonds?
What incentives arise for a central bank to fall into the time-inconsistency trap of pursuing
overly expansionary monetary policy?
Discuss the importance of the control environment, or "setting the tone at the top," in
establishing a culture of honesty and integrity in a company.
Rank the following types of tests from most costly to least costly: analytical procedures, tests of
details of balances, risk assessment procedures, tests of controls and substantive tests of
transactions.
During audit planning, an auditor obtained the following information: 1. Management has a
strong interest in employing inappropriate means to minimize reported earnings for tax-
motivated reasons. 2. The company's board of directors includes a majority of directors who are
independent of management. 3. Assets and revenu
Following are evidence decisions for the three audits described in Figure. Audit Assurance from
Substantive Tests and Tests of Controls at Different Levels of Internal Control Effectiveness
Audit A Ineffective client internal controls Audit B Very effective client internal controls Audit
C Somewhat effective client i
Distinguish between random error resulting from manual processing and systematic error
resulting from IT processing and give an example of each category of error.
Kent, CPA, is the engagement partner on the financial statement audit of Super Computer
Services Co. (SCS) for the year ended April 30, 2011. On May 6, 2011, Smith, the senior auditor
assigned to the engagement, had the following conversation with Kent concerning the planning
phase of the audit:â€ Kent: Do you have al
What are the three categories of auditor responses to fraud risks?
In Parts I (pp. 245-247) and II (pp. 287-288) of this case you performed preliminary analytical
procedures and assessed acceptable audit risk and inherent risk for Pinnacle Manufacturing. In
Part III (pp. 332-333) of the case, you obtained an understanding of internal control and assessed
control risk for acquisition a
Describe the three main techniques used to manipulate revenue.
Explain what is meant by the test data approach. What are the major difficulties with using this
approach? Define parallel simulation with audit software and provide an example of how it can
be used to test a client's payroll system.
Identify risks for accounting systems that rely heavily on IT functions.
The Kowal Manufacturing Company employs about 50 production workers and has the
following payroll procedures. The factory foreman interviews applicants and on the basis of the
interview either hires or rejects them. When applicants are hired, they prepare a W-4 form
(Employee's Withholding Exemption Certificate) and gi
Multiple Choice Questions The following questions concern auditing complex IT systems.
Choose the best response. a. Which of the following client IT systems generally can be audited
without examining or directly testing the computer programs of the system? (1) A system that
performs relatively uncomplicated processes
Compare the risks associated with network systems to those associated with centralized IT
functions.
What is the purpose of risk assessment procedures and how do they differ from the four other
types of audit tests?
What are the five types of tests auditors use to determine whether financial statements are fairly
stated? Identify which tests are performed to reduce control risk and which tests are performed to
reduce planned detection risk. Also, identify which tests will be used when auditing internal
control over financial repor
Although the planning went well, the actual testing yielded some surprises. When conducting
tests of controls over acquisitions and additions to the perpetual inventory, the staff person
performing the tests found that the exception rates for several key controls were significantly
higher than expected. As a result, th
The following misstatements are included in the accounting records of the Joyce Manufacturing
Company: 1. A shipment to a customer was not billed because of the loss of the bill of lading. 2.
A sales invoice was miscalculated by $1,000 as a result of a key-entry mistake. 3. Cash paid on
accounts receivable that had bee
Gale Brewer, CPA, has been the partner in charge of the audit of Merkle Manufacturing
Company, a nonpublic company, for 13 years. Merkle has had excellent growth and profits in the
past decade, primarily as a result of the excellent leadership provided by Bill Merkle and other
competent executives. Brewer has always en
The information systems (IS) department at Jacobsons Inc. consists of eight employees,
including the IS Manager, Melinda Cullen. Melinda is responsible for the day-to-day oversight
of the IS function and reports to Jacobsons' chief operating officer (COO). The COO is a senior
vice president responsible for the overall
Multiple Choice Questions The following questions address fraud risks in specific audit areas
and accounts. a. Cash receipts from sales on account have been misappropriated. Which of the
following acts will conceal this embezzlement and be least likely to be detected by the auditor?
(1) Understating the sales journal.
Identify the typical duties within an IT function and describe how those duties should be
segregated among IT personnel.
Explain how the effectiveness of general controls affects the auditor's tests of automated
application controls, including the auditor's ability to rely on tests done in prior audits.
During your audit of Wilcoxon Sports, Inc., a retail chain of stores, you learn that a programmer
made an unauthorized change to the sales application program even though no work on that
application had been approved by IT management. In order for the sales application program to
work, the programmer had to make modifi
The following are audit procedures from different transaction cycles: 1. Use audit software to
foot and cross-foot the cash disbursements journal and trace the balance to the general ledger. 2.
Select a sample of entries in the acquisitions journal and trace each one to a related vendor's
invoice to determine whether o
Kim Bryan, a new staff auditor, is confused by the inconsistency of the three audit partners she
has been assigned to on her first three audit engagements. On the first engagement, she spent a
considerable amount of time in the audit of cash disbursements by examining cancelled checks,
electronic payments, and supporti
The following are parts of a typical audit for a company with a fiscal year-end of July 31. 1.
Confirm accounts payable. 2. Do tests of controls and substantive tests of transactions for the
acquisition and payment and payroll and personnel cycles. 3. Do other tests of details of balances
for accounts payable. 4. Do te
List the eight balance-related audit objectives in the verification of the ending balance in
inventory and provide one useful audit procedure for each of the objectives.
The following are independent internal controls commonly found in the acquisition and payment
cycle. Each control is to be considered independently. 1. At the end of each month, an
accounting clerk accounts for all prenumbered receiving reports (documents evidencing the
receipt of goods) issued during the month, and tr
What three auditor actions are required to address the potential for management override of
controls?
Appliances Repair and Service Company bills all customers rather than collecting in cash when
services are provided. All mail is opened by Tom Gyders, treasurer. Gyders, a CPA, is the most
qualified person in the company who is in the office daily. Therefore, he can solve problems and
respond to customers' needs quickl
In Figure, explain the difference among C3, C2, and C1. Explain the circumstances under which
it will be a good decision to obtain audit assurance from substantive tests at point C1. Do the
same for points C2 and C3. FIGURE Audit Assurance from Substantive Tests and Tests of
Controls at Different Levels of Internal Con
What should the audit team consider in its planning discussion about fraud risks?
The following internal controls for the acquisition and payment cycle were selected from a
standard internal control questionnaire. 1. Checks are mailed by the owner or manager or a
person under her supervision after signing. 2. All supporting documents are cancelled after
checks are signed or electronic funds transfer
Describe the purpose of corporate codes of conduct and identify three examples of items
addressed in a typical code of conduct.
Multiple Choice Questions The following questions concern types of audit tests. Choose the best
response. a. The auditor looks for an indication on duplicate sales invoices to see whether the
accuracy of invoices has been verified. This is an example of (1) A test of details of balances. (2)
A test of control. (3) A su
This problem requires the use of ACL software, which is included in the CD attached to the text.
Information about installing and using ACL and solving this problem can be found in Appendix,
pages 838-842. You should read all of the reference material preceding the instructions about
"Quick Sort" before locating the ap
Distinguish management's responsibility from the audit committee's responsibility for designing
and implementing antifraud programs and controls within a company.
Assessing the risk of fraud in a financial statement audit is a difficult audit judgment. Auditing
standards require the auditor to perform several audit procedures to accumulate information to
assess the risk of fraud. You are the in-charge auditor responsible for planning the financial
statement audit of Spencer, Inc
You go through the drive-through window of a fast food restaurant and notice a sign that reads
"your meal is free if we fail to give you a receipt." Why would the restaurant post this sign?
For each of the eight types of evidence discussed in Chapter 7, identify whether it is applicable
for risk assessment procedures, tests of controls, substantive tests of transactions, analytical
procedures, and tests of details of balances.
A considerable portion of the tests of controls and substantive tests of transactions are performed
simultaneously as a matter of audit convenience. But the substantive tests of transactions
procedures and sample size, in part, depend on the results of the tests of controls. How can the
auditor resolve this apparent in
Your client has outsourced the majority of the accounting information system to a third-party
data center. What impact would that have on your audit of the financial statements?
Multiple Choice Questions The following questions concern the characteristics of IT systems.
Choose the best response. a. Effective management of information technologies in an
organization embraces the viewpoint that (1) Most technologies reduce existing risk conditions.
(2) Technologies reduce some types of risks wh
Distinguish between a test of control and a substantive test of transactions. Give two examples of
each.
What sources are used by the auditor to gather information to assess fraud risks?
This problem requires the use of ACL software, which is included in the CD attached to the text.
Information about installing and using ACL and solving this problem can be found in Appendix,
pages 838-842. You should read all of the reference material preceding the instructions about
"Quick Sort" before locating the ap
Describe risks that are associated with purchasing software to be installed on desktop computer
hard drives. What precautions can clients take to reduce those risks?
State the four-step approach to designing tests of controls and substantive tests of transactions.
Parts for Wheels, Inc. has historically sold auto parts directly to consumers through its retail
stores. Due to competitive pressure, Parts for Wheels installed an Internet-based sales system
that allows customers to place orders through the company's Web site. The company hired an
outside Web site design consultant to
Based on a cost-benefit analysis, management at First Community Bank decided to contract with
Technology Solutions, a local data center operator, to host all of the bank's financial reporting
applications. To avoid the significant costs of developing and maintaining its own data center,
First Community contracts with T
In evaluating the audit approach for McClain for the current year's audit, Sessions believed that a
substantive approach was really only appropriate for the audits of small nonpublic companies. In
his judgment, McClain Plastics, with sales of $200 million and 146 employees, had reached the
size where it was not economi
The following are audit procedures from different transaction cycles: 1. Examine duplicate copy
of shipping documents for evidence that quantities were verified before shipment. 2. Select a
sample of payroll checks and agree hours to employee time records. 3. Use audit software to foot
and cross-foot the sales journal
Multiple Choice Questions The following questions concern the auditor's responses to the
possibility of fraud. a. When fraud risk factors are identified during an audit the auditor's
documentation should include b. If an independent audit leading to an opinion on financial
statements causes the auditor to believe th
Auditors are required to make inquiries of individuals in the company when gathering
information to assess fraud risk. Identify those with whom the auditor must make inquiries.
Explain what is meant by auditing around the computer and describe what must be present for
this approach to be effective when auditing clients who use IT to process accounting
information.
Multiple Choice Questions The following questions deal with tests of controls. Choose the best
response. a. Which of the following statements about tests of controls is most accurate? (1)
Auditing procedures cannot concurrently provide both evidence of the effectiveness of internal
control procedures and evidence requi
Each year near the balance sheet date, when the president of Bargon Construction, Inc. takes a 3-
week vacation to Hawaii, she signs several checks to pay major bills during the period she is
absent. Jack Morgan, head bookkeeper for the company, uses this practice to his advantage.
Morgan makes out a check to himself fo
Evaluate the following statement: "Tests of sales and cash receipts transactions are such an
essential part of every audit that I like to perform them as near the end of the audit as possible.
By that time I have a fairly good understanding of the client's business and its internal controls
because confirmations, cutof
Explain the relationship of tolerable misstatement, inherent risk, and control risk to planned tests
of details of balances.
Distinguish between substantive tests of transactions and tests of details of balances. Give one
example of each for the acquisition and payment cycle.
Explain how client internal controls can be improved through the proper installation of IT.
Following are 10 key internal controls in the payroll cycle for Gilman Stores, Inc. Key Controls
1. To input hours worked, payroll accounting personnel input the employee's Social Security
number. The system does not allow input of hours worked for invalid employee numbers. 2. The
payroll application is programmed so t
What is the purpose of tests of controls? Identify specific accounts on the financial statements
that are affected by performing tests of controls for the acquisition and payment cycle.
The auditor of Ferguson's Inc. identified two internal controls in the sales and collection cycle
for testing. In the first control, the computer verifies that a planned sale on account will not
exceed the customer's credit limit entered in the accounts receivable master file. In the second
control, the accounts receiv
Assume that the client's internal controls over the recording and classifying of fixed asset
additions are considered deficient because the individual responsible for recording new
acquisitions has inadequate technical training and limited experience in accounting. How will
this situation affect the evidence you should
The following are various potential frauds in the sales and collection cycle: 1. The company
engaged in channel stuffing by shipping goods to customers that had not been ordered. 2. The
allowance for doubtful accounts was understated because the company altered the aging of
accounts receivable to reduce the number of d
Identify the traditionally segregated duties in noncomplex IT systems and explain how increases
in the complexity of the IT function affect that separation.
A CPAâ€™s client, Boos & Baumkirchner, Inc., is a medium-size manufacturer of products for
the leisure-time activities market (camping equipment, scuba gear, bows and arrows, and so
forth). During the past year, a computer system was installed and inventory records of finished
goods and parts were converted to computer
Following are several decisions that the auditor must make in an audit of a nonpublic company.
Letters indicate alternative conclusions that could be made. Required a. Identify the sequence in
which the auditor should make decisions 1 to 4. b. For the audit of the sales and collection cycle
and accounts receivable, an
You are doing the audit of Phelps College, a private school with approximately 2,500 students.
With your firm's consultation, they have instituted an IT system that separates the responsibilities
of the computer operator, systems analyst, librarian, programmer, and data control group by
having a different person do eac
Your new audit client, Hardwood Lumber Company, has a computerized accounting system for
all financial statement cycles. During planning, you visited with the information systems vice
president and learned that personnel in information systems are assigned to one of four
departments: systems programming, applications p

The following are misstatements that can occur in the sales and collection cycle: 1. A customer
number on a sales invoice was transposed and, as a result, charged to the wrong customer. By the
time the error was found, the original customer was no longer in business. 2. A former computer
operator, who is now a programm
Define what is meant by an audit trail and explain how it can be affected by the client's
integration of IT.
Name the three categories of inquiry and describe the purpose of each when used by an auditor
to obtain additional information about a suspected fraud.
The following audit procedures are included in the audit program because of heightened risks of
material misstatements due to fraud. 1. Use audit software to search cash disbursement master
files for missing check numbers. 2. Search the accounts receivable master file for account
balances with missing or unusual custom
One of the firm's audit partners, Alice Goodwin, just had lunch with a good friend, Sara
Hitchcock, who is president of Granger Container Corporation. Granger Container Corp. is a
fast-growing company that has been in business for only a few years. During lunch, Sara asked
Alice for some advice and direction on how Gra
Distinguish between general controls and application controls and give two examples of each.
The proliferation of information technology (IT) has made governance of IT an important issue
for businesses of all sizes and types, as well as their auditors. The IT Governance Institute has
developed a wide range of resources for organizations, auditors, and educators to use in
addressing IT governance matters and si
Describe the nature of the following documents and records and explain their use in the sales and
collection cycle: bill of lading, sales invoice, credit memo, remittance advice, monthly statement
to customers.
Explain how the calculation and comparison to previous years of the gross margin percentage
and the ratio of accounts receivable to sales are related to the confirmation of accounts receivable
and other tests of the accuracy of accounts receivable.
Multiple Choice Questions The following questions address fraud risk factors and the assessment
of fraud risk. a. Because of the risk of material misstatements due to fraud (fraud risk), an audit
of financial statements in accordance with generally accepted auditing standards should be
performed with an attitude of (1

The following are three situations, all involving nonpublic companies, in which the auditor is
required to develop an audit strategy: 1. The client has inventory at approximately 50 locations in
a three-state region. The inventory is difficult to count and can be observed only by traveling by
automobile. The internal c
The Art Appreciation Society operates a museum for the benefit and enjoyment of the
community. When the museum is open to the public two clerks who are positioned at the
entrance collect a $5.00 admission fee from each nonmember patron. Members of the Art
Appreciation Society are permitted to enter free of charge upon
SAS No. 99 requires auditors to conduct a brainstorming session to discuss the potential for
fraud and how the auditor might respond to the risk of fraud. However, the standard provides
limited guidance on how this brainstorming session should take place. Read "A Primer for
Brainstorming Fraud Risks" by Mark Beasley an
Why is it desirable to design tests of details of balances before performing tests of controls and
substantive tests of transactions? State the assumptions that the auditor must make in doing so.
What does the auditor do if the assumptions are wrong?
You are conducting an audit of sales for the James Department Store, a retail chain store with a
computer-based sales system in which computer-based cash registers are integrated directly with
accounts receivable, sales, perpetual inventory records, and sales commission expense. At the
time of sale the salesclerkâ€™s k
Explain the relationship between application controls and transaction-related audit objectives.
The engagement partner agreed with Sessionsâ€™s recommended approach. In planning the
audit evidence for detailed inventory tests, the audit risk model was applied with the following
results: TDR = AAR/IR x CR x APR Where: TDR = test of details risk AAR = acceptable audit
risk IR = inherent risk CR = control risk APR =
State a test of control audit procedure to test the effectiveness of the following control: Approved
wage rates are used in calculating employees' earnings. State a substantive test of transactions
audit procedure to determine whether approved wage rates are actually used in calculating
employees' earnings.
Identify three verbal and three nonverbal cues that may be observed when making inquiries of an
individual who is being deceitful.
Beds and Spreads, Inc. specializes in bed and bath furnishings. Its inventory system is linked
through the Internet to key suppliers. The auditor identified the following internal controls in the
inventory cycle: 1. The computer initiates an order only when perpetual inventory levels fall
below prespecified inventory l
The following are 11 audit procedures taken from an audit program: 1. Foot the accounts payable
trial balance and compare the total with the general ledger. 2. Confirm accounts payable balances
directly with vendors. 3. Account for a sequence of checks in the cash disbursements journal to
determine whether any have bee
You have identified a suspected fraud involving the company's controller. What must you do in
response to this discovery? How might this discovery affect your report on internal control when
auditing a public company?
How does the use of a database management system affect risks?
Why do auditors often consider it desirable to perform audit tests throughout the year rather than
wait until year-end? List several examples of evidence that can be accumulated before year-end
The following comments summarize the beliefs of some practitioners about the Sarbanes-Oxley
Act and the PCAOB. The Sarbanes-Oxley Act is unnecessary regulation of the profession. The
costs of requirements such as reporting on the effectiveness of internal control over financial
reporting greatly exceed the benefits. T
Auditors develop overall audit plans to ensure that they obtain sufficient appropriate audit
evidence. The timing and extent of audit procedures auditors use is a matter of professional
judgment, which depends upon a number of factors. Decisions about the mix of audit procedures
and the timing of procedures significant
The following are activities that occurred at Franklin Manufacturing, a nonpublic company. 1.
Franklin's accountant did not record checks written in the last few days of the year until the next
accounting period to avoid a negative cash balance in the financial statements. 2. Franklin's
controller prepared and mailed a
An audit client is in the process of creating an online Web-based sales ordering system for
customers to purchase products using personal credit cards for payment. Identify three risks
related to an online sales system that management should consider. For each risk, identify an
internal control that could be implemente
The Meyers Pharmaceutical Company has the following system for billing and recording
accounts receivable: 1. An incoming customer's purchase order is received in the order
department by a clerk who prepares a prenumbered company sales order on which the pertinent
information, such as the customer's name and address, cu
Various types of "accounting changes" can affect the second reporting standard of the generally
accepted auditing standards. This standard reads, "The auditor must identify in the auditor's
report those circumstances in which such principles have not been consistently observed in the
current period in relation to the p
Identify and explain factors that should keep the quality of audits high even though advertising
and competitive bidding are allowed.
Following are 8 statements with missing terms involving auditor legal liability. 1. Under the
Ultramares Doctrine, an auditor is generally not liability for _____ to third parties lacking _____.
2. The auditor will use a defense of _____ in a suit brought under the 1933 Securities Act. 3.
After passage of the Private S
Each of the following situations involves a possible violation of the AICPA's Code of
Professional Conduct. For each situation, state the applicable section of the rules of conduct and
whether it is a violation. a. Emrich, CPA, provides tax services, management advisory services,
and bookkeeping services and conducts a
The auditor's audit files usually can be provided to someone else only with the permission of the
client. Give three exceptions to this general rule.
Explain why auditors' reports are important to users of financial statements and why it is
desirable to have standard wording.
Identify the three alternative opinions that may be appropriate when the client's financial
statements are not in accordance with GAAP. Under what circumstance is each appropriate?
Multiple Choice Questions The following questions concern independence and the Code of
Professional Conduct or GAAS. Choose the best response. a. What is the meaning of the
generally accepted auditing standard that requires the auditor be independent? (1) The auditor
must be without bias with respect to the client und
Groton, CPAs, were the auditors of Bank & Company, a brokerage firm and member of a
national stock exchange. Gordon & Groton audited and reported on the financial statements of
Bank, which were filed with the Securities and Exchange Commission. Several of Bank's
customers were swindled by a fraudulent scheme perpetrate
Frank Dorrance, a senior audit manager for Bright and Lorren, CPAs, has recently been informed
that the firm plans to promote him to partner within the next year or two if he continues to
perform at the same high-quality level as in the past. Frank excels at dealing effectively with all
people, including client personn

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