Question

Ray, the owner of a small entity, asked Holmes, CPA, to conduct an audit for the entity's record. Ray told Holmes that the audit was to be completed in time to submit audited financial statements to a bank as part of a loan application. Holmes immediately accepted the engagement and agreed to provide an auditors' report within three weeks. Ray agreed to pay Holmes a fixed fee plus a bonus if the loan was granted.

Holmes hired to 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 to concentrate on proving controls but instead to concentrate on proving the mathematical accuracy of the ledger accounts and on summarizing the data in the accounting records that support Ray's financial statements, the students followed Holmes' instructions and, after two weeks, gave Holmes the financial statements, which did not include footnotes. Holmes studied the statements and prepared an unmodified auditors' report. The report, however, did not refer to generally accepted accounting principles or to the fact that Ray had changed to the accounting standard for capitalizing interest.

Requirement: use two columns with the first column showing the standards which are right below and the second column indicating if the standard has been violated.

General Standards

Technical Training

Independence

Due to professional care

Standards of Field Work

Proper Supervision

Understand Internal Controls

Get Enough Evidence

Standards Reporting

Report on Whole financial statement

Accordance with GAAP

Note consistency exception

Informative disclosure

Answer 1

General Standards
Technical Training	Yes, the standard has been violated.	Technical training does not merely involve the accuracy of numbers, but it also involves knowing about the accounting policies and standards. Arithmetical correctness would not be a sufficient way to conduct the audit.
Independence	Yes, the standard has been violated.	Before commencement of any audit, one needs to carry out certain independence procedures and one should take confirmation from the team members that they are not associated with the prospective client.
Due to Professional Care	Yes, the standard has been violated.	Accepting fees on the basis of certain percentage results in the violation of independence principles. In this case, Holmes accepted fees on some contingency, which amounts to independence conflicts.

Standards of Field Work
Proper Supervision	Yes, the standard has been violated.	Reviewing the work done by your subordinates is of utmost priority while carrying out the audit. It is not a one day exercise but needs to be carried on a regular basis. Holmes gave the instructions to the students at the commencement of the audit and absolved from this duty as a reviewer.
Understand Internal Controls	Yes, the standard has been violated.	To opine on the financial statements, understanding the risk in the business is very significant. And this understanding gets completed when one is aware of the internal controls that are operating in the entity. Without getting knowledge of the internal controls, starting the audit is a violation of this standard.
Get Enough Evidence	Yes, the standard has been violated.	The only evidence that Holmes required was to check the mathematical accuracy of the ledger accounts. This is the part of the whole process of audit and merely on this basis, we cannot derive this conclusion.

Standards Reporting
Report on Whole financial statement	Yes, the standard has been violated.	Report on the whole financial statements means that the figures appearing are true and fair. But the proper procedure of the audit is not being followed, which resulted in the breach of this standard.
Accordance with GAAP	Yes, the standard has been violated.	It is one of the important things to be disclosed while opining on the financial statements that the books are as per generally accepted accounting principles. In this case, Holmes evaded of this responsibility imposed by the law and would be liable for the penal actions as prescribed.
Note consistency exception	Yes, the standard has been violated.	Auditor has to make a discloser that the standards have been properly followed while preparing the accounts and there has been no deviation. If there is one, then it needs to be disclosed upfront.
Informative Disclosure	Yes, the standard has been violated.	Footnotes are the critical part of the financial statements, and not furnishing the same amounts to a breach of the standards.