SEATWORK

PAGE 173 – Case # 2

A. If Gonzales wants to provide the presentation and CPA's report for general use by
prospective customers, identify any available standards that provide guidance for such a
service and the type or types of services that your firm could provide.
Companies provide their financial statements, along with the CPA’s report to the lenders,
investors, suppliers and customers. As such, informed users of the report will gain some degree
of confidence about the report being provided. Hence, a CPA can provide different level of
services as of the case of Gonzales, Inc. which is an industrial supply company.
Our firm will provide Independent Financial Statement Audit or External Audit - it is an
assurance engagement that provide a high level of assurance that the financial statements are free
from material misstatement. To obtain reasonable assurance, items are tested, observed,
confirmed or compared based on the auditor’s judgment of materiality and risk. It ensures that
the reported information is perform in all material respect in accordance with the identified
financial reporting framework. Additionally, as an auditor of Gonzales, Inc. I will undergo
auditing procedures which is beneficial upon knowing some deficiencies in internal control or
weaknesses in the organization’s system. Thus, with the information that I have gathered I can
suggest opinion for Gonzales, Inc. improvement. My opinion or the auditor’s opinion enhances
the credibility of the financial statements. Hence, in recognizing circumstances, professional
skepticism be observed throughout the engagement process to reduce the risk of faulty
assumptions especially when drawing conclusions. I must obtain sufficient appropriate audit that
will support the conclusions drawn.
B. Describe the factors that you should consider in determining whether the criteria is
suitable.
Suitable criteria are required for reasonably consistent evaluation or measurement of a
subject matter within the context of professional judgement. Thus when determining suitable
criteria all of the following characteristics must be present.
i. Relevance
ii. Completeness
iii. Reliability
iv. Neutrality
v. Understandability
These factors or characteristics are essential upon providing a relevant and reliable
information to the intended users.
C. Assuming that you conclude that the criteria are suitable, draft your firm’s report
assuming that you perform an examination of the subject matter.
The independent accountant’s report is given as follows:
INDEPENDENT ACCOUNTANT’S REPORT
We have all examined the associated Schedule of Customer Satisfaction Measures for the last
three years ended December 31, 2020. This schedule is the responsibility of management of
Gonzales, Inc. management. Our responsibility is to give an opinion on this list based on our
examination.
Our examination was directed in conformity with attestation standards recognized by the AICPA
(American Institute of Certified Public Accountants) and, therefore, included, on a test basis
examination, evidence support the given schedule and executing further procedures as we
measure essential in the situations. We consider that our examination delivers a sensible basis for
our opinion.
In our opinion, the Schedule of Customer Satisfaction Measures mentioned to above presents
properly, in all material respects, the levels of client satisfaction for last three years ended
December 31, 2020, In accordance with the disclosure and measurement criteria stated in Note 1.
Santos & Lopez, LLP
March 1, 2021

PAGE 197 – Case # 1

A. Would Ramos be justified in complying with Red’s request for an auditor’s opinion?
Explain.
No, despite the fact that Joe Ramos is a CPA, he would not be justified in complying with
Red's request for an auditor's opinion because of his involvement with the company, where there
is an independence of mental attitude and a sense of bias if he did the audit of the financial
statements and it is not in accordance with Generally Accepted Auditing Standards if he did the
audit of the financial statements.
B. If you think Ramos should issue the audit report, do you think he should first perform an
audit of the company despite his detailed knowledge of the company’s affair? Explain
Yes, Ramos should first perform an audit of the company despite of his detailed
knowledge of the company’s affair because before expressing an opinion, an auditor must first
perform an audit.
C. If Red had request requested an audit by the national CPA firm for which Ramos worked,
would it have been reasonable for that firm to accept and to assign Ramos to perform the
audit? Explain.
No, it would not be fair for the firm to accept and assign Ramos to undertake the audit
since, having created the financial statements himself, he would be in the position of attempting
to independently analyze and his mental independence would be called into question.

PAGE 253 – Case # 4

A. Discuss the sources of information and the types of inquiries you and the firm’s partners
can make in connection with accepting Funtech as a new client.
Before accepting Funtech as a new client, the firm can get information from the
following sources and inquiries:
 Financial statements
 Statements from financial institutions – banks.
 Current or prior Legal Counsel
 Prior or current auditors
 Annual reports on SEC Form 10-K
 Current vendors and clients, and creditors
B. Suppose Mr. Sello has also told you that 10 years ago his closely held hamburger franchise
business went bankrupt, and upon investigation you learn from its former auditors (your own
firm) that Sello played “fast and loose” with franchise-fee income recognition rules and
presented such difficulties that your office in another city. Do you think the partner in charge
of the audit practice should accept Funtech as a new client?
If presented with this information, I would say the partner in charge should not accept
Funtech as a new client since it has shown a lack of credibility by engaging in fraudulent
activities. This will protect the audit firm from any potential conflicts or misstatements due to
wrong or fraudulent actions.

PAGE 277 – Case # 1

A. For each of the four circumstances, indicate the fraud risk that the auditors should
consider.
These is an increased risk that management may be fraudulently overstating income at
one or more of the stores.
B. For each of the four circumstances, indicate a possible appropriate response by the
auditors.
The auditors would most likely respond by conducting more revenue and inventory
testing at the stores. The results of the analytical techniques could be used by auditors to identify
stores that are more likely to have fraudulently reported results (those with unusually high profit
margins). The auditors are also prohibited from disclosing the places where they intend to
conduct inventory inspections.