Question

e. An audit of a U.S. not-for-profit organization. f. An audit of a U.S. private company to be used for a loan from a publicly traded bank. g. An audit of a U.S. public company. h. An audit of a U.S. public company that is a subsidiary of a Japanese company that will be used for reporting by the parent company in Japan. 2-20 (OBJECTIVE 2-7) Ray, the owner of a small company, asked Holmes, a CPA, to conduct an audit of the company's records. Ray told Holmes that an 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 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 internal controls but instead to concentrate on proving the mathematical accuracy of the ledger accounts and summarizing the data in the accounting records that supported Ray's financial statements. The students followed Holmes's instructions and after two weeks gave Holmes the financial statements, which did not include footnotes. Holmes reviewed the statements and prepared an unmodified auditor's report. The report did not refer to generally accepted accounting principles or to the consistent application of such principles Briefly describe each of the principles underlying AICPA auditing standards and indicat how the action(s) of Holmes resulted in a failure to comply with each principle. Organize your answer as follows:* Holmes' Actions Resulting in Failure to Comply with the Principle Brief Description of Principle lud on Auditing (ISAs) are issued by the Internation yeh site to learn m

Answer 1

Refer the below images for the above asked questions, in a detailed way of explanation.
Answer: Holmes Actions Resulting in Failure Brief description of principle to comply with prinüple. Responsibilities Principles : The auditor must possess the it was inappropriate for Holmes competency G capabilities to to hire the two students to conduct perform the audit. the audit. The audit most be Conducted by persons with proper education and experience in the field of Auditing. Although a junior assistant has not completed his formal education, he may help in the conduct of the audit as long as there is proper supervision is review of The auditor most comply with To Satisty the second generat Standard ethical requirements, which Holmes most be without bias with include maintaining independent resact to chant under audit Holmes in mental attitude in all matters relating to the audit has an obligation for fairness to the owners, management, and a who may rely on the report Because of the financial interest in whether the bank loan is granted to pay, Idnes is Independent in neither faci nor appearance with respect to the assignment undertaken. The auditor most maintain This standard requires homes to perform professional Skepticusm and the audit with due care, which imposes. exerase professional judgment on Holmes 6 every one in Holmes organization in the performance of the a responsibility to observe the standards at audit Exercise of and field work doc the and preparation reporting care requires critical review at every of the report level of supervision of work done and the judgements exercised by those assisting in the audit Holmes did not review the work cord the judgements of the assistants 4 clearly failed to adhere to this standard.

Failore Homes Actions To comply with Resulting an principle. Brief Description of prinuple. performance prinople : The auditor must adequately plan the work is most properly Supervise any assistants .. This Standard recognizes that early appointment of the auditor hal advantages for the auditor the client. Holmes accepted the engagement without considering the availability of competent statt In addition, Holmes failed to Supervise the assistants. The Loore performed was not adequately planned. The auditor most identity & assess the risks of material misstatements based on a sufficient onderstanding of the entity & its environment in cloding its internal control to design the nature, timing & extent of forther audit procedures Holmes did not obtain an understanding of the entity or its internal control, nor did the assic tanis obtain Suche an understanding. There appears to have been not audit at all. The word performed was more an accounting Service that it was an auditing Service The goditor most obtain officrent Holmes acquired no evidence that would appropriate audit evidence by I Support the financal Statements. Holmes performing audit procedures tol merely checked the mathematical accuracy. afford a reasonable basis for 1 of the records & Sommarized the an opinion regarding the I accounts Standard audit procedores finanual Statements under audit & the techniques were not performed .. Reporting principles : The auditor most express an opinion in a written report about whether the financal Statements are pretented in accordance with the applecable financial reporting framework Holmes report made no reference to generally accepted accounting prineples. Because Holmes did not conduct a proper audit, the report should state that no opinion can be expressed as to the fair presentation of the financial statements in accordance with generally accepted accounting principles

The auditor mort either express an opinion regarding the financial Statements, taken as a whole, or state that an opinion cannot be expressed an overall opinion, the auditor Should state the reasons therefor in the auditors report. In all cases where an. auditor's name is associated with financial Statements, the auditor should clearly indicate the Characta of the auditor work, if any, and the degree of responsibility the auditor is taking dis. the auditor's report Although the Holmes report contains an expression of opinion, such opinion us not based on the results of a proper audit. Holmes should disclaim as opinion because he failed to conduct an audit in accordance with generally accepted auditing principles The auditor most assess whether Holmes report made no reference the financial Statements are to generally accepted presented accounting an accordance with principles. the Because Holmes did financial reporting frame work. not conduct a proper audit, the report should state that no opinion can be expreessed as to the fair presentation of the financial Statements in accordance with generally accepted accounting principley.