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Solution Manual For Auditing A Risk Based Approach To Conducting A Quality Audit 9th Edition Johnstone Gramling Rittenberg 1133939155 9781133939153
Solution Manual For Auditing A Risk Based Approach To Conducting A Quality Audit 9th Edition Johnstone Gramling Rittenberg 1133939155 9781133939153
True/False Questions
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The objective of external auditing is to provide opinions on the reliability of the financial statements
and, as part of an integrated audit, provide opinions on internal control effectiveness. The value of
the external auditing profession is affirmed when the public has confidence in its objectivity and the
accuracy of its opinions. The capital markets depend on accurate, reliable, and objective (neutral)
data that portray the economic nature of an entity’s business and in turn provide a base to judge
current progress toward long-term objectives. If the market does not receive reliable data, investors
lose confidence in the system, make poor decisions, and may lose
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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a great deal of money; ultimately, the system may fail. By providing an independent audit
opinion, the capital markets can be assured that the financial data that they are basing
their decisions upon are accurate.
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The special function performed by the external auditing profession is the attestation to the
fairness of the financial statements of clients. The special function helps ensure the reliability
and integrity of the financial reporting system. The auditing profession exists to serve the
users of an organization's financial statements. These include lenders, investors, management,
government, and (indirectly) all individuals who are ultimately affected by the integrity of the
financial reporting process. Auditors need to remember that they are serving the public interest
and not the interests of client management.
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The audit enhances the quality of financial statements because the user has the assurance that an
independent, qualified professional has examined the financial statements and has rendered an
opinion on their fairness. The independence and expertise of the auditor serve as a quality control
function to overcome the potential bias of management in presenting the financial statements in a
manner that most flatters an assessment of their performance. The audit is designed to add
credibility to the financial statements.
An audit does not necessarily guarantee a fair presentation of a company's financial statements,
although it does dramatically increase the likelihood that there are no material misstatements in
the company's financial statements. The audit provides reasonable, not absolute, assurance
about the accuracy of the financial statements. The caveats about fairness exist for two reasons:
Fairness is judged within a framework of GAAP. Some question whether GAAP results
in the fairest possible presentations when there are significant changes in market values of
investments or assets. For example, the SEC has encouraged financial institutions to move
from using historical cost required by GAAP to market values for all investments in
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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securities because it believes that market value presents a better picture of economic
reality than does historical cost.
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Independence means objectivity and freedom from bias. The auditor can favor neither the client
nor the third party in evaluating the fairness of the financial statements. The auditor must be
independent in fact and in appearance. Independence in fact means the auditor is unbiased and
objective. An auditor could be independent in fact if he or she owned a few shares of common
stock in an audit client, but might not appear independent to a third party. Independence in
appearance means that a third party with knowledge of the auditor’s relationship with the client
would consider the auditor to be independent. If users don’t perceive auditors to be
independent then the value of the audit is lacking.
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a. An organization’s financial statements should reflect a true and fair view of the
organization’s financial results. The statements should not favor one user over another. However,
the interests of the various users can conflict. By having rules that encourage auditor
independence (e.g., not owning stock in the client company, not performing consulting services
for a publicly traded audit client), the profession encourages auditor independence.
b.
Management Review performance, make operational decisions, report results to
capital markets
Stockholders Buy or sell stock
Bondholders Buy or sell bonds
Financial Institutions Evaluate loan decisions, considering interest rates, terms, and risk
Taxing Authorities Determine taxable income and tax due
Regulatory Agencies Develop regulations and monitor compliance
Labor Unions Make collective bargaining decisions
Court System Assess the financial position of a company in litigation
Vendors Assess credit risk
Retired Employees Protect employees from surprises concerning pensions and other post-
retirement benefits
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© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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a. Susan Birkert had a friend purchase $5,000 of stock in the company that she was
auditing. She lied to KPMG when responding to the firm’s yearly written requirements to
comply with the firm’s independence policies.
b. Independence in fact means that while Susan might have actually not behaved in a
biased manner on the engagement because of the stock she owned, external users may perceive
an independence conflict, thus causing the auditor to not be independent in appearance.
c. The answer to this question will vary by student.
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The auditor's testing and evaluations of controls may provide insights into areas in which
improvements could be made.
The threat, as well as the performance, of an audit may act to deter potential fraud on
the part of employees.
The auditor's expertise may lead to improved financial presentations because of the
application of accounting principles or improved financial statement disclosure.
b. Some of the points that might be discussed by management in determining the nature of the
audit firm to engage to conduct the audit:
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Another document from Scribd.com that is
random and unrelated content:
were present in all the eighteen cases, but the presence of tophi was only
established in three. Now, as McClure and McCarty rightly contend,
“since the tophus is the only universally accepted pathognomonic sign of
gout, for studies of that disease only those patients should be chosen in
whom tophi are found, and sodium urate crystals from them
microscopically demonstrated.” No one can, I think, gainsay the
legitimacy of this stipulation.
In accordance with their contention, McClure and McCarty record
their radiographic findings in a series of cases all of which exhibited
tophi, and from which sodium urate crystals were isolated. Now, in all
these cases the focal areas of diminished density, generally held to be
peculiar to gout, were present; but they add that “similar changes were
present in two other cases which were clinically gout, but in which no
tophi were demonstrated.” Also “in another case without tophi, but
which was clinically gout, the focal areas of decreased bony density were
not found.”
In addition, they examined the skiagrams of 100 cases of chronic
arthritis which “had not been diagnosed clinically as gout.” In thirteen of
the examples “the focal areas of decreased density, the so-called gouty
bony changes, were found, and were fully as well defined as in the cases
of true gout.”
Judging from the skiagraphic appearances, there seemed no reason to
suppose that the factors responsible for the production of these rarefied
areas were in any way different from those at work in true gout. Now,
most authorities have claimed that the bony changes were due to uratic
deposits in the bones; but it is at least possible that their origin may be
otherwise explained.
Thus Nichols and Richardson have shown that, given focal absorption
of lime salts, changes apparently identical with those currently attributed
to the presence of tophi may result. These same, though they may not be
demonstrable either macroscopically or microscopically, are detectable
by X-rays.
Such foci of absorption, viz., areas of decreased density, frequently are
located in regions subjected to pressure. Thus they may occur at the
inner surfaces of the heads of the first metatarsal bones, or they may
form underneath large tophaceous deposits in the soft tissues.
Now, Strangeways has shown that it is impossible by radiography to
detect tophi in bones. Accordingly we have at present no means of
deciding in any given case whether the localised transparent areas in the
bones are due to tophi or to focal absorption of lime salts. If we are to
cling to the conception that they are due to tophi, then it is clear that
tophi in the bones are more common than is currently suspected, and
that, ergo, the frequency of gouty arthritis is underestimated. For these
transparent foci in bones, according to McClure and McCarty, occur in
from 10 to 12 per cent. of cases of chronic arthritis “which clinically are
not gout.”
Yet these authorities hold that, despite the fact that they occur in cases
of non-gouty arthritides, they have some diagnostic significance. For,
taking the work of other observers in conjunction with their own
observations, they come to the following conclusions:—
D D
R G
O I M
But, to resume, this much at any rate may be affirmed, viz., that there
is no proof that visceral disturbances or cutaneous disorders are due to
uric acid. On the other hand, in view of my contention that the inherent
morbid potentialities of the “gouty” demand for their fruition the
intervention of an infection, the reader may rightly ask whether the same
agent may not be capable of evoking the visceral or cutaneous, as
opposed to the arthritic, manifestations of gout.
Trousseau, a whole-hearted advocate of irregular gout, drew an
analogy between gout and syphilis. Somewhat contemptuously he
observes: “To those physicians in whose eyes localisation constitutes the
particular disease the differences in appearances are so many different
diseases, while to those who consider that the disease consists much
more in the aggregate of the general phenomena, in their evolution, in
their progress (and that, thank Heaven! is the direction in which sound
observation leads), these affections, differing in appearance, are only
multiplied expressions of the same species of morbid action. To the real
physician exostosis, alopecia, psoriasis, roseola, bubo, and chancre are
always syphilis—syphilis in different garbs.” In the same way he held
that the infinitely varied manifestations of irregular gout were all
affiliable to one and the same morbid agent. He claimed, too, that
visceral gout was “the result of a sort of imperfect inflammation
analogous to that which manifests itself in the joints.”
Unfortunately for the cogency of the argument, there is no proof that
such visceral inflammations as do occur in the “gouty” are of gouty
origin. Unfortunately, too, the microbic agent that we postulate as
responsible for “gouty” arthritis is as yet unisolated. If this disability be
removed, it might be found that the said organism was capable of
originating, not only the arthritic, but the alleged visceral, forms of gout.
But pending such discovery I am of opinion that the term “visceral” gout
should be abandoned, in other words that we should cease to talk of, e.g.,
bronchitis, dyspepsia, etc., as “gouty,” and should talk of them as
bronchitis or dyspepsia occurring in the gouty. In this way we may
escape, or, better, render uncalled for, the scathing criticism of Pye
Smith:—“It has become common to ascribe bronchitis, dyspepsia,
gastralgia, iritis, gravel, cystitis, and even psoriasis to the ‘gouty’
diathesis; but the evidence is very slight, and the ‘gout’ to which such
evidence as there is applies is the distillation of morbid humours which
belong to a bygone pathology.... There is no reason to believe that gout
ever flies to the stomach, but over-indulgence at the table may produce
acute dyspepsia as well as inflammation of the great toe. Elderly people
are liable to gravel, gout and cough; and while lead and drink may lead
to gout and chronic Bright’s disease, cirrhotic kidneys favour an attack of
gout.”
I G
While subjects of gout have told me that they had had an attack in
their teens, I have never myself seen an instance. Still less can I claim to
have seen what I felt justified in calling “gout” in children. On the other
hand, if, as one authority states, “tonsillitis (quinsy), enlarged tonsils,
granular states of the pharynx, and catarrhal conditions of the throat and
respiratory mucous membranes are not infrequent expressions of gouty
inheritance in children,” then, of course, all of us must be quite familiar
with “infantile gout.”
But even this formidable list of legacies from gouty parents is eclipsed
by a more recent writer, J. Comby (1902), who, discussing “infantile
arthritism,” divides children coming of gouty stock into two types: the
“lymphatic” and “nervous.” The children of the former class suffer from
fleeting swelling of the lymphatic glands, rhino-pharyngitis, tonsillitis,
and, if they be girls, from chlorosis. Also they are given markedly to
tachycardia, bradycardia, and vasomotor ataxia. They are also especially
liable to asthma and the crises of dyspnœa, and pulmonary congestion
may alternate with urticarial and eczematous eruptions. Truly, their lot is
hard, for they fall a ready prey to colic, constipation, all varieties of
dyspepsia, not to mention nocturnal and diurnal enuresis!
Comby also claims that these gouty children are especially liable to
recurrent or cyclical vomiting. In this matter he is confirmed by J.
Thomson, who noted that these children not infrequently give a history
of having had asthma, urticaria, eczema, stammering, and other nervous
complaints, also that in many instances uric acid crystals or a copious
deposit of urates have been noted in their urine.
As to the “nervous” type, they labour with insomnia, night terrors,
convulsions, and when older with migraine. To these liabilities must be
added undue proneness to acne, seborrhœa, psoriasis, chilblains, angio-
neurotic œdema, urticaria, etc., not to mention muscular and joint aches
and pains.
Whether this medley of distempers can with any pretensions to
scientific reason be affiliated to a gouty heritage, or whether they can be
regarded as expressions of a budding “gouty diathesis,” is, I submit, of
the nature of pure speculation. That the child who suffers with cyclical
vomiting may show uric acid crystals or urates in his urine is certainly no
proof that he has inherited gout, much less that he is actually “gouty.” In
uro-lithiasis the uric acid is precipitated in the urinary passages, viz.,
strictly speaking, outside the body, whereas in gout the pathological error
originates within the organism. More apposite is Uffenheimer’s
observation, previously noted, that children of this type suffer the same
disturbances of purin metabolism as are met with in adult gouty subjects.
If the fact is confirmed that the output of exogenous purin in such
children is diminished or retarded, it would certainly be a most
interesting finding, possibly with a now unguessed-at significance. But
we should recall that even in the subjects of regular gout such is not
invariable, and, moreover, occurs in diseases other than gout. Pending
further exact investigations I think it would be wiser not to indulge in
such vast generalisations, mindful of the sentiments expressed by the
illustrious Sydenham in his letter to Dr. Gould:—
“I have bin very careful to write nothing but what was the
product of careful observation. So when the scandall of my
person shall be layd aside in my grave it will appear that I neither
suffered myselfe to be deceived by indulging in idle speculations
nor have deceived others by obtruding anything to them but
downright matter of fact.”
CHAPTER XXV
OCULAR DISEASE IN THE GOUTY
B W. M. B
With the passing of Jonathan Hutchinson disappeared the premier
British exponent of l’arthritisme, that generic term so attractive to our
French confrères. Whether gout and rheumatism are branches of one
common stem need not detain us, for it is an abstraction more suitable to
the philosophic age of medicine before pathology emerged as an exact
science. Be this as it may, there has been in the past, and there still
remains in the present, as a bond of union, a universal belief that both are
subtle causes of disease of the eye. But the age of hypothesis is giving
place to the era of facts, and we find in recent writings a more cautious
expression of individual opinion, a less dogmatic positivism regarding
the relationship of gout and rheumatism to ocular disease.
In referring to modern text-books we find Parsons[44] describes gout as
one of the “alleged causes” of iritis. In rheumatic iritis he states that the
patients “are often gouty.” The gouty nature of iritis is indicated by the
similarity of onset of some cases of iritis with that of gout. “Iritis in an
elderly patient is likely to be gouty, often starting suddenly in the night
and sometimes ushering in an attack of gouty arthritis.” In episcleritis
“rheumatism and gout are commonly indicated as the chief causes.”
Werner[45] includes gout in a list of disorders of metabolism which
produce iritis “by means of toxins of a chemical nature.”
Sim[46] considers that iritis occurs in gout “as the result of some toxic
influence”; and in addition he says, “Iritis is to be met with in gout.”
These authors express accurately, I think, the present views with
regard to gout as it affects the eye; with each there is a tone of restraint
and suggestion rather than of boldness and assertion, and the contrast to
Hutchinson’s emphasis is noteworthy: “I believe,” he tells us, “that iritis
due to the arthritic diathesis is a common malady.”
Among the many and indiscriminate diseases of the eye which have
been considered to be due to gout are included blepharitis, conjunctivitis,
episcleritis, scleritis, orbital cellulitis, neuro-retinitis, retro-bulbar
neuritis, optic neuritis, optic atrophy, iritis, cyclitis, choroiditis, glaucoma
and retinal hæmorrhage. Truly an all-embracing rather than an eclectic
list, a medley of diseases without any melody.
Evidence of Gout in the Eye.—When we inquire what is the evidence
which justifies the belief that gout causes ocular disease we find little
more than a traditional hypothesis inherited in a long line of succession
from the Fathers of Medicine. Nevertheless the opinion that there is a
connection is widespread, not only in Europe, but also in America.
In considering this relationship we cannot overlook the effects of the
diathesis on other viscera. How in these is a diagnosis of gouty origin
arrived at? It would appear that the assumption of an irregular form of
gout is based upon the following observations:—
Tuberculous arthritis;
Syphilitic arthritis;
Gonococcal arthritis;
Certain forms of specific arthritis: malarial, dysenteric, etc.;
Infective arthritis of undifferentiated type, as yet unaffiliated to
specific germs.