Question 1

It is a requirement by AICPA for professional accountants to always act responsibly when dealing with accounting services and making reviews of sensitive financial information. There is the need for accountants to exercise moral judgment and it is important to present an accurate assessment of the financials of the relevant company. AU Section 312A requires the consideration of the “closest reasonable estimate” while determining misstatements to be aggregated. The estimate must be the best compared to the others. Rule 102 on integrity and objectivity requires individuals offering professional services to act with objectivity and integrity, and they should be free of conflict of interest while ensuring that facts are not misrepresented.

Based on this, I think that David Robinson’s suggested compromise is not appropriate since there was a violation of rule 102. Robinson wanted to increase bad debts allowances and inventory obsolesces. Robinson was not free of conflict of interest since he knew he was being considered for a future partner position by Hansen. As a result, his suggested compromise was not objective.

Question 2

I do not believe that Zachariah Crabtree is a person of integrity. Given that he was a general accounting manager, he did not follow the relevant GAAP financial accounting standard framework. He failed to apply moral judgment and principals of personal conduct under AICPA in his accounting services. He desired to save Belot and the methods used were unhealthy and likely to harm the company’s financial statements. He failed to remain objective and was swayed by the conflict of interest.

Robinson was not a person of integrity too. He violated the objectivity standard as he accepted “precise point estimates” that result in material misstatements. He also violated AU Section 230 that requires due professional care as he did not exercise professional skepticism in the “precise point estimates” as they create room for manipulation of financial statements.

Crabtree and Robinson were close friends. Given the case, this relationship was inappropriate since it could easily affect Robinson’s independence.

Question 3

The primary audit objectives for a client’s year-end discretionary expense accruals have been outlined in AU section 342. It is stated that the auditor ought to be responsible for the evaluation of the reasonableness of the accounting estimates that have been made by the management in regards to financial statements viewed as a whole. The main objective involving the evaluation of the accounting estimates is to ensure there is the provision of appropriate and sufficient evidence to provide assurance that:

1. All material accounting estimates have been developed.
2. The accounting estimates conform to the prescribed principles.

3. The accounting estimates are reasonable given the circumstances.

It is permissible for companies to overstate the accruals so long as the estimates are reasonable. Auditors ought to use their judgment in gathering evidence used to evaluate the reasonableness of the estimates.

Question 4

While reviewing a client’s quarterly financial statements, an auditor is tasked with the responsibility of confirming that the financial statements are thorough and accurate. This is usually attained by way of conducting relevant tests. The auditor will test aspects such as the business’s controls. This helps in ensuring that financial data is recorded accurately and the information involved is complete. The evidence is tasked with the responsibility of gathering evidence that works to show that the assertions made are true. The evidence that can be regarded as sufficient is dependent on the risk involved.

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