Auditing Hw1

1-25 What is the objective of external auditing? Describe the role of external auditing in meeting society’s demands for unbiased financial and internal control information.

The objective of external auditing is to ensure that the financial statements of organization are correct and are in order.

Managements: for performance review and operational or strategic decisions.

Shareholders: need it for determine investments.

Financial institutions: evaluate loan decisions, considering interest rates, terms, and risk

Taxing Authorities: Determine taxable income and tax due

Labor unions: make collective bargaining decisions

Court system: Assess credit risk

Retired Employees: protect employees from surprises concerning pensions and other post-retirement benefits.

1-31 Refer to the Auditing in Practice feature “Why Is Owning Stock in an Audit Client Unacceptable?” and answer the following:

a. Describe the unethical actions of Susan Birkert.

b. Compare and contrast the ideas of independence in fact and 
independence in appearance in the context of this case.

c. Do you think that Susan’s punishments were appropriate? 
Defend your answer.

a. Susan Birket advised her friends that Comtech is a good investment and gave her friend’s money to purchase on behalf of her and under friend’s name.

b. The independent in fact does not exist, because from information provided in this case, she talked about the company’s performance. While in appearance, Susan was not acting in a biased manner towards the client, so it appears independent.

c. Susan’s punishment was appropriate, because she acted inappropriate as an external auditor. She violates the standard practices of the professions of auditors.

1-48

a. Because as auditors, it is their responsibility to find out the problem of companies and expose to the public. While in this case, the low quality audit helped Enron to get away with this initially.

b. Because Enron...