Question

apply the five steps conceputual framework for members in public practice to this dilemma

ER 2 Professionalism and Professional Responsibilities c. La indepe d. Can were is Problems AP2.4 (La ing, an aus of Professi conduct 1. The a 2. An u AP2.1 (LO 2, 3) Basic Framework for ethical decision making Assume that you are the audit partner on an engagement for a client that has had a string of operating losses. You know the CFO, who is a former audit manager of your firm. The company still has a positive net worth, but you are worried that the company might have to close down within the next year or so. When you tell the CFO that the company should make full disclosure in the notes concerning substantial doubt about the company's ability to continue as a going concern, your colleague says, "Hogwash! There's no substantial doubt. The probability of our having to close down is remote. We'll make no such disclosure. To do so would only make our customers and creditors nervous, possibly making such a disclosure a self-fulfilling prophecy. Our competitors are as bad off as we are, and their auditors aren't making them send out a distress signal." You agree that the determination of "substantial doubt" is a judgment call Required Apply the five-step Conceptual Framework for Members in Public Practice to this dilemma. APILO 5) Moderate Independence The attribute of Independence has been traditionally asso- ciated with the CPA's function of auditing and expressing opinions on financial statements. Required a. What is meant by "independence" as applied to the CPA's function of auditing and expressing opin- Tons on financial statements Discuss b. The Wallydrug Company is indebted to a CPA for unpaid fees and has offered to issue to the CPA unsecured interest-bearing notes. Would acceptance of these notes have any bearing on the CPA's independence with respect to Wallydrug Company? Discuss. c. The Rocky Hill Corporation was formed on October 1, 2021, and its fiscal year will end on September 30, 2022. You audited the corporation's opening balance sheet and rendered an unqualified opinion on il A month after rendering your report, you are offered the position of secretary of the board of directors because of the need for a complete set of officers and for convenience in signing various documents. You will have no financial interest in the company through stock ownership or other wise, will receive no salary, will not keep the books, and will not have any influence on its financial matters other than occasional advice on income tax matters and similar advice normally given a client by a CPA 1. Assume that you accept the offer but plan to resign the position prior to conducting your annual audit, with the intention of again assuming the office after rendering an opinion on the state. ments. Can you render an independent opinion on the financial statements? Discuss. 2. Assume that you accept the offer on a temporary basis until the corporation has gotten under way and can find a replacement for secretary of the board of directors. In any event, you would perma- nently resign the position before conducting your annual audit. Can you render an independent opinion on the financial statements? Discuss. formi 3. Anal 4. The a 5. Ana for th: 6. Anar 7. The amou 8. The cipal 9. The the 10. The 11. The 12. An pros 13. An tee 14. An that 15. An Requir a. Ide Cav b. Inc (3) AP2.3 (LOS) Challenging Public Company Research Independence Jones and Jones, CPA, has a manufacturing client, Widt Technologies, Inc. (WTI), that is a small, owner-managed busi- ness with annual revenues of approximately $8 million. WTI employs a bookkeeper but is not large enough to employ a CPA in-house. WTI regularly asks Margaret Jones, the partner on the engagement, for advice on accounting issues, and Jones and Jones drafts the financial statements for the company. The client reviews the financial statements before they are printed by Jones and Jones with an audit opinion attached During the current year, WTI asked Jones and Jones to assist the company by rendering a business valuation service. WTI is asking Jones and Jones to (1) estimate the value of WTI and (2) consult with WT1 in the form of making recommendations on steps that we can take that will grow the value of the business AP2.5 tion cal and as Under ances three.it of 60 buildir $200.0 Required Howe thelia Since Jones and Jones is preparing the financial statements for WTI, is Jones and Jones independent with respect to WTI What conditions, it must Jones and lones moet in order to be independent with respect to WTI? Would Jones and Jones be independent WTI were a public company subject to SEC rules and regulations? Explain your reasoning on the Gilber

Answer 1

FASB Released a proposed ASU ,disclosure of uncertainties about an entity's going concern presumption.The proposal seeks to clarify managements responsibilities about evaluating and disclosing going concern uncertainties.The proposed ASU calls on the company's management to make regular assessments about whether the company's future is shaky and disclose information in the footnotes of their financial statements depending on the severity of their financial outlook.Under the proposal managers would evaluate every reporting period whether the company has an uncertain future.The business would start providing footnote disclosure when it is either more likely than not that it will not be able to meet its obligations within a yea without taking actions outside the ordinary course of business.or if it is known or probable that the business will jot be able to meet its obligations within 2 years.If. a business meets these conditions.it would have to provide details in its footnote disclosures about the conditions and events could have on the business management evaluation of the significance of the ever mitigating conditions and managements plans to address its problems.When there us substantial doubt about the entity's ability to continue as a going concern the notes to the financial statement would disclose:

1. A statement indicating that there is substantial doubt about the entity's ability to continue as going concern.

2. The principal conditions and events giving rise to substantial doubt

3. Managements evaluation of the significance of those conditions and events.

4.Any mitigating conditions and events including managements plans.

Disclosures would apply to both public entities and non public entities.