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5-55 LO 2 Ray, the owner of a small company, asked Holmes, CPA, to conduct an audit of the company… 1 answer below » 5-55 LO 2 Ray, the owner of a small company, asked Holmes, CPA, to conduct an audit of the company’s records. Ray told Holmes that the audit must be completed in time to submit audited financial statements to a bank as part of a loan application. Holmes immedi- ately accepted the engagement and agreed to provide an auditor’s report within three weeks. Ray agreed to pay Holmes a fixed fee plus a bonus if the loan was granted. Holmes hired two accounting students to conduct the audit and spent several hours telling them exactly what to do. View complete question » 5-55 LO 2 Ray, the owner of a small company, asked Holmes, CPA, to conduct an audit of the company’s records. Ray told Holmes that the audit must be completed in time to submit audited financial statements to a bank as part of a loan application. Holmes immedi- ately accepted the engagement and agreed to provide an auditor’s report within three weeks. Ray agreed to pay Holmes a fixed fee plus a bonus if the loan was granted. Holmes hired two accounting students to conduct the audit and spent several hours telling them exactly what to do. Holmes told the students not to spend time reviewing the controls, but instead to con- centrate on proving the mathematical accuracy of the ledger accounts and to summarize the data in the accounting records that support Ray’s financial statements. The students followed Holmes’s instruc- tions and after two weeks gave Holmes the financial statements, which did not include footnotes because the company did not have any unusual transactions. Holmes reviewed the statements and pre- pared an unqualified auditor’s report. The report, however, did not refer to GAAP or to the year-to-year application of such principles. Briefly describe each of the ten standards and indicate how the action(s) of Holmes resulted in a failure to comply with each standard. View less » Nov 30 2015 05:08 PM
