Question

the wa house. Aitors were socedures, und ed company. The sic hat they hadica 4. On a recent audit engagement, the client firm neglected to informi a significant percentage of inventory was stored at an outside warel the auditors did not observe the physical inventory count for that is represented 20 percent of the client's inventory balance. The auditor isfy themselves that the inventory existed through alternative proced an unmodified opinion on the financial statements as a whole. 5. Melissa Louis is the lead engagement partner on a publicly traded com pany's CEO recently approached Melissa and informed her that they h a material misstatement in the prior year's financial statements, which dited by Melissa's firm and submitted to the SEC. The CEO suggested the misstatement by recording a journal entry in the current year for half of of the misstatement, and in the following year for the remaining half. Meli to this plan to avoid a public announcement of a restatement and a potential since the amount of the journal entries recorded in the current and subsean would be considered immaterial to the financial statements. ed they come or half of the sind Required for each of the scenarios listed above, discuss whether the auditor's behavior will considered nonnegligence, ordinary negligence, gross negligence, constructive fraud, or criminal behavior. 6-19) OBJECTIVES 5-2, 5-3) The following are five independent situations. 1. Joanie Brogan is a partner in an audit firm that operates as a limited liabili nership (LLP). The firm has been sued for an alleged audit failure related to engagement handled by a different partner in the firm. While Brogan had n ment in the engagement, she is concerned that the plaintiff may successfu seeking restitution from her personal assets. 2. A lawsuit has been filed against Carter Hockaday, CPA, charging him wit

Answer 1

The above situation will be considered to be a NON-NEGLIGENCE BEHAVIOR on the part of the auditor.

The reason is that:

• She was not involved in the audit engagement.
• So, her actions in the firm are not related to the suit filed by the plaintiff.
• As a partner, she is simply concerned about safety of her interest in the firm, as if they lose the suit, she might be liable to pay a big sum of money.