Nama : Diza Andriyani

NIM : 023001701030
TUGAS MINGGUAN PEMERIKSAAN AKUNTANSI 1 / AUDIT 1

4B)
To expand its operation, DE Corp. raised $ 4 million by making a private interstate
offering of $ 2 million in common stock and negotiating a $ 2 million loan from Safe Bank.
The common stock’s was properly offered pursuant to the Security Act of 1933.
In convention with the financing Dark engaged G & Co to audit. Dark’s financial
statement. G know that the sole purpose on the audit was so that Dark would have audited
financial statements to provide to Safe and the purchases of the common stock. Although G
conducted the audit in conformity with its audit program. to G failed detect material acts of
embezzlement committed by D president. G did not detect the embezzlement because of its
inadvertent failure to exercise due care in designing its audit program for this engagement.
After completing the audit, G rendered an unqualified opinion on D financial
statements. The purchases of the common stock relied on the financial statements in deciding
in purchases the shares. In Addition, Safe approved the loan to D based on the audited
financial statements.
Within 60 days after the sale of the common stock and the making of the loan by S.D.
was involuntarily petitioned into bankruptcy. Because of the president’s embezzlement. D
became insolvent and defaulted on its loan to Safe. Its common stock became actually
worthless. Actions have been commenced against G by:
 The purchases of the common stock who have asserted that C is liable for damages
under Section 10 (b) of the Securities Exchange Act of 1934.
 Safe, based on G negligence.
Required:
 In separate paragraph, discuss the merits of the actions commercial against C,
indicating the likely outcomes and the reasons therefore.
Answer:

From the text we can conclude that G (The Auditor) is not careful to audit the
financial statement so G failed detect material acts of embezzlement committed by D
president. In either case, the auditor must obtain reasonable assurance about whether the
statements are free of material misstatements. The standards recognize that fraud is often
more difficult to detect. Still, the difficulty of detection does not change the auditor’s
responsibility to properly plan and perform the audit to detect material misstatements,
whether caused by error or fraud.

A disclaimer of opinion is issued when the auditor has been unable to satisfy himself
or herself that the overall financial statements are fairly presented. The disclaimer is
distinguished from an adverse opinion that it can be arise only from alack of knowledge by
the auditor, whereas to express an adverse opinion, the auditor must have knowledge that the
financial statements are not fairly stated. Both disclaimers and have opinions are used only
when the condition is highly material.

There are several factors related to fraudulent financial reporting and

misappropriation asset. It is difficult in concept and practice to separate fraud risk factors into
acceptable audit risk, inherent risk, or control risk. Similarly, several of other risk factors
influencing management characteristics are a part of the control environment.

The risk of fraud can be assessed for the entire audit or by cycle, account, and
objective. For both the risk of fraudulent financial reporting and the risk of misapproriation of
assets, auditors focus on spesific areas of increased fraud risk and designing audit procedures
or changing the overall conduct of the audit to respond to those risks. The spesific response to
an identified risk of fraud can include revising assesments of acceptable audit risk, and
control risk.
5B)
G & B formed a corporation called Financial Services Inc., each taking 50 percent of
the authorized common stock. G is a CPA and member of American Institute of CPAs.
Bradly is a Charter Property Casualty Underwriter (CPCU). The corporation performs
auditing and tax services under G’s direction and insurance services under B’s supervision.
The opening of the corporation’s office was announced by a three-inch, two column ad in the
local newspaper.
One of the corporation’s first audit client’s was the G Corporation. Grand time had
total assets of $600,000 and total liabilities of $270,000. In the course of the audit, G found
that G’s building with a book value of $240,000was pledged as security for a 10 year term
note in the amount of $ 200,000.
The client’s statement did not mention that the building was pledged as a security for
the note. However, as the failure to disclose the lien did not after either the value of the assets
or the amount of the liabilities and the audit was satisfactory in all other respects, G rendered
an unqualified opinion on Grand time’s financial statements.
About two months after the date of the opinion on G learned that an insurance
company was planning a loan to Grand time of $150,000 in the form of a first mortgage note
on the building. G had Bradly notify the insurance company of the fact that Grand time’s
building was pledged as security for the term note.
Shortly after the evens described above, G was changed with a violation of
professional ethics.
Required:
 Identify and discuss the ethical implication of those acts by G that were in violation of
the AICPA firm of C & G.
Answer:
G violated rule 102, in this case G lost his integrity and objectivity with his client by
violating 301 the confidential information rule. By telling the insurance company about the
lien G gave this information without permission.

By G issuing a unqualified opinion on Grand times financial states that did to state the
lien on the building, G violated rule 201. Of the general standards where it states “A
member's agreement to perform professional services implies that the member has the
necessary competence to complete those professional services according to professional
standards, applying his or her knowledge and skill with reasonable care and diligence, but the
member does not assume a responsibility for infallibility of knowledge or judgment”.

G violated rule 301 by having B notify the insurance company with the information
concerning the lien on the building. By having B do this G violated the client confidential
information rule. In this rule it states “Rule 301 [ ET section 301.01] prohibits a member in
public practice from disclosing any confidential client information without the specific
consent of the client. The rule provides that it shall not be construed to prohibit the review of
a member's professional practice under AICPA or state CPA society authorization.”

G must instill in himself the basic principles of the auditor so as to minimize breaking
the rules. There are five ethical principles that intended to apply to all members and not just
those in public practice. The five principles apply to auditors such as integrity, objectivity,
professional competence and due care, confidentially and professional behavior.

The code of ethics for professional accountants adopts a principles approach because
it is impossible to anticipate every situation that might generate an ethical problem for a
professional accountant. It therefore provides a framework for identifying, evaluating, and
resolving threats to the fundamental principles.
6B)
The auditor’s standard report contains standardized wording. Listed below are the sentences
in the standard report.
1. We conducted our audit in accordance with auditing standards generally accepted in
the U.S.A.
2. We below that our audit provides a reasonable basis for our opinion.
3. In our opinion, the financial statements referred to above present fairly, in all material
respect, the financial position of X Company as of December 31, 20x2 and 20x1, and
the results of its operations and its cash flows for the years them ended in conformity
with accounting principles generally accepted in the U.S.A.
4. We have audited the accompanying balance sheets of X Company as of December 31,
20x2 and 20x1, and the related statements of income, retained earning and cash flows
for the year then ended.
5. An audit includes examining, on test basis, evidence supporting the amounts and
discloses in the financial statements.
6. Our responsibility is to express an opinion on these financial statements based on out
audits.
7. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement.
8. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation.
9. These financial statements are the responsibility of the company’s management.
Required:
a. Indicate the paragraph in which each sentence appears. If there is more than one
sentence in the paragraph, indicate the sequence of the sentence in the paragraph.
b. State the primary purpose of each paragraph in the standard report.