Chapter 1 Tiffany Watt Assignment: A1 September 2, 2011 AC 405 E01

1-23. How do the capital markets and economy benefit as a result of all publicly-traded companies having an independent audit? The SEC suggests that one of the important motivators for requiring public companies to be audited is the need for orderly, functioning capital markets. If the investing public perceives audited financial statements to be more reliable than non-audited financial statements, then audits make a significant contribution by increasing investor confidence. Investors who have confidence in the information are more likely to participate in the capital markets either through personal investing or savings and retirement programs. This participation in the capital markets is an important driver of successful U.S. and global economies. 1-26. Why does having audited financial statements bring down a companys cost of capital? Having audited financial statements bring down a companys cost of capital because an integrated audit report that does not indicate problems enhances shareholders confidence in management. If investors are confident that a companys financial statements contain accurate data, then they would be more willing to invest in the company. When the risk of incorrect financial information is decreased, so is the cost of capital to companies. 1-30. (a) What kind of opinion did Young & Young give R&R for its 2009 year-end financial statements? Young & Young gave an unqualified or clean opinion for R&Rs 2009 year-end financial statements. (b) Under which set of financial reporting standards does R&R report? Which set of auditing standards does Young & Young use in its audit of R&R? R&R reports under U.S. GAAP. Young & Young used the COSO IC Framework criteria in its audit of R&R. (c) Under which financial reporting standards might R&R report if it were a corporation based in Germany?

Chapter 1 Tiffany Watt Assignment: A1 September 2, 2011 AC 405 E01

If R&R was a corporation based in Germany, then it would report under International Financial Reporting Standards.