DO NOT COPY OR REDISTRIBUTE

DO NOT COPY OR REDISTRIBUTE

Auditing Cases

SIXTH EDITION

Instructor Resource Manual Mark S. Beasley Frank A. Buckless Steven M. Glover Douglas F. Prawitt Boston ·  Columbus ·  Indianapolis ·  New York ·  San Francisco ·  Upper Saddle River Amsterdam ·  Cape Town ·  Dubai ·  London ·  Madrid ·  Milan ·  Munich ·  Paris ·  Montreal ·  Toronto Delhi ·  Mexico City ·  Sao Paulo ·  Sydney ·  Hong Kong ·  Seoul ·  Singapore ·  Taipei ·  Tokyo Auditing Cases An Interactive Learning Approach 6th Edition Beasley Solutions Manual Visit TestBankDeal.com to get complete for all chapters

TABLE OF CONTENTS

i INSTRUCTOR RESOURCE MANUAL — DO NOT COPY OR REDISTRIBUTECopyright © 2016 by Pearson Education, Inc.

CASES INCLUDED IN THIS SECTION

Client Acceptance

SECTION

1 1.1 Ocean Manufacturing, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 The New Client Acceptance Decision

CASES INCLUDED IN THIS SECTION

Understanding the Client’s Business and Assessing Risk

SECTION

2 2.1 Your1040Return.com . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Evaluating eBusiness Revenue Recognition, Information Privacy, and Electronic Evidence Issues 2.2 Apple Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Evaluation of Client Business Risk 2.3 Flash Technologies, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Risk Analysis 2.4 Asher Farms Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Understanding of Client’s Business Environment

CASES INCLUDED IN THIS SECTION

Professional and Ethical Issues

SECTION

3 3.1 A Day in the Life of Brent Dorsey . . . . . . . . . . . . . . . . . . . . . . . 67 Staff Auditor Professional Pressures 3.2 Nathan Johnson’s Rental Car Reimbursement . . . . . . . . . . . . . . . . 71 Should He Pocket the Cash?

3.3 The Anonymous Caller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Recognizing It’s a Fraud and Evaluating What to Do 3.4 WorldCom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 The Story of a Whistleblower 3.5 Hollinger International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Realities of Audit-Related Litigation INTRODUCTIONProfessional Judgment . . . . . . . . . . . . . . . . 1

TABLE OF CONTENTS

ii INSTRUCTOR RESOURCE MANUAL — DO NOT COPY OR REDISTRIBUTECopyright © 2016 by Pearson Education, Inc.

CASES INCLUDED IN THIS SECTION

Accounting Fraud and Auditor Legal Liability

SECTION

4 4.1 Enron Corporation and Andersen, LLP . . . . . . . . . . . . . . . . . . .103 Analyzing the Fall of Two Giants 4.2 Comptronix Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 Identifying Inherent Risk and Control Risk Factors 4.3 Cendant Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127 Assessing the Control Environment and Evaluating Risk of Financial Statement Fraud 4.4 Waste Management, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .135 Manipulating Accounting Estimates 4.5 Xerox Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145 Evaluating Risk of Financial Statement Fraud 4.6 Phar-Mor, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .159 Accounting Fraud, Litigation, and Auditor Liability 4.7 Satyam Computer Services Limited . . . . . . . . . . . . . . . . . . . . . 175 Controlling the Confirmation Process

CASES INCLUDED IN THIS SECTION

Internal Control over Financial Reporting

SECTION

5 5.1 Simply Steam, Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .185 Evaluation of Internal Control Environment 5.2 Easy Clean, Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185 Evaluation of Internal Control Environment 5.3 Red Bluff Inn & Café . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 Establishing Effective Internal Control in a Small Business 5.4 St. James Clothiers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 Evaluation of Manual and IT-Based Sales Accounting System Risks 5.5 Collins Harp Enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . 209 Recommending IT Systems Development Controls 5.6 Sarbox Scooter, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .219 Scoping and Evaluation Judgments in the Audit of Internal Control over Financial Reporting 5.7 Société Générale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 How a Low-Risk Trading Area Caused a $7.2 Billion Loss