CHAPTER 1: INTRODUCTION TO AUDITING

Name and positions of stakeholders:

1. Kam: Mid/Low management of Waterfall Inc.

2. Mike: Mid/Low management of Waterfall Inc.
3. Zhang: Kam’s aunt
4. Grand & Quatre (G&Q): Internal auditors at Waterfall Inc.
5. Nina: Mike’s sister; professional accountant working for a mid-size public accounting
firm
6. Georgina: Chief financial officer (CFO) at Waterfall

Assumptions:

1. Waterfall:
a. 10 billion parent company
b. Uses IFRS

2. StyreneTech:
a. 1 million subsidiary company of waterfall
b. Uses IFRS

Issue 2: Georgina wants to sell StyreneTech (as

Issue 1: Fraud
Criteria 1: Investigate the fraud
Recommendation 1: Hire a fraud investigator,
or forensic accountant
a management buyout); no external auditing
which means no validity
Criteria 2: information asymmetry exists
(biased internal audit); agency theory
Recommendation 2: perform an external audit

Issue 4: StyreneTech is not externally audited;

Issue 3: who should audit?
it has only been done by CRA (internally)
Criteria 3: different types of auditors
Criteria 4: materiality standard
Recommendation 3: hire an external CPA, LPA
Recommendation 4: audit not required
 CHAPTER 2: AUDITOR’S PROFESSIONAL ROLES AND RESPONSIBILITIES

Name and position of stakeholders:

1. Kam: Mid/Low management of Waterfall Inc.

2. Mike: Mid/Low management of Waterfall Inc.
3. Zhang: Kam’s aunt
4. Nina: Mike’s sister; professional accountant working for a mid-size public accounting
firm

Issue 1: the audit reports of StyreneTech and Issue 2: contingent liability in the notes of audit
Waterfall have the same wording. report

Criteria 1: auditors must follow Generally Criteria 2: contingency was not disclosed in
Accepted Auditing Standards (GAAS) unaudited financial reports

Recommendation 1: since auditors are subject Recommendation 2: warn the authors of

to inspections of quality of their audit work, so financial reports about truthfully disclosing all
one can except the same quality level of work the information.

Issue 3: audit StyreneTech’s pollution

emissions

Criteria 3: let the environmental auditors

perform the audit

Recommendation 3: Kam and Mike should

decide how much are they willing to pay for
this audit and then proceed further.
 CHAPTER 3: AUDITOR’S ETHICAL AND LEGAL RESPONSIBILITIES

Name and position of stakeholders:

1. Kam: Mid/Low management of Waterfall Inc.

2. Mike: Mid/Low management of Waterfall Inc.
3. Zhang: Kam’s aunt
4. Nina: Mike’s sister; professional accountant working for a mid-size public accounting
firm

Issue 1: environmental audit of EocPak Inc.;

Kam and Mike only want to audit the new
Issue 2: land contaminated due to chemical
biomass business, leaving out Styrene-foam
spill; negligence by G&Q in the audit.
business.
Criteria 2: Negligence; Privity.
Criteria 1: the plan to audit only one-half of the
business in misleading. Professional standards
Recommendation 2: hire a lawyer; discuss the
must be met to have a quality of work.
case on how Kam and Mike can sue G&Q for
the cost of cleanup
Recommendation 1: attract the investor by
convincing them that their money will have
expand and also shut down the styrene-foam
business.