Solved by verified expert :1-17 (Objective
1-3)Busch Corporation
has an existing loan in the amount of $6 million with an annual interest rate
of 6.0%. The company provides an internal company- prepared financial statement
to the bank under the loan agreement. Two competing banks have offered to replace
Busch Corporation’s existing loan agreement with a new one. United National
Bank has offered to loan Busch $6 million at a rate of 5.0% but requires Busch
to provide financial statements that have been reviewed by a CPA firm. First
City Bank has offered to loan Busch $6 million at a rate of 4.0% but requires
Busch to provide financial statements that have been audited by a CPA firm.
Busch Corporation’s controller approached a CPA firm and was given an estimated
cost of $35,000 to perform a review and $60,000 to perform an audit.
why the interest rate for the loan that requires a review report is lower than
that for the loan that did not require a review. Explain why the interest rate
for the loan that requires an audit report is lower than the interest rate for
the other two loans.
Busch Corporation’s annual costs under each loan agreement, including interest
and costs for the CPA firm’s services. Indicate whether Busch should keep its
existing loan, accept the offer from United National Bank, or accept the offer
from First City Bank.
that United National Bank has offered the loan at a rate of 4.5% with a review,
and the cost of the audit has increased to $80,000 due to new auditing
standards requirements. Indicate whether Busch should keep its existing loan,
accept the offer from United National Bank, or accept the offer from First City
d. Discuss why Busch may desire to have
an audit, ignoring the potential reduction in interest costs.
e. Explain how a strategic understanding
of the client’s business may increase the value of the audit service.
1-19 (Objective 1-1)James
Burrow is the loan officer for the National Bank of Dallas. National has a loan
of $325,000 outstanding to Regional Delivery Service, a company specializing in
delivering products of all types on behalf of smaller companies. National’s
collateral on the loan consists of 25 small delivery trucks with an average
original cost of $24,000.
is concerned about the collectibility of the outstanding loan and whether the
trucks still exist. He therefore engages Samantha Altman, CPA, to count the
trucks, using registration information held by Burrow. She was engaged because
she spends most of her time auditing used automobile and truck dealerships and
has extensive specialized knowledge about used trucks. Burrow requests that
Altman issue a report stating the following:

of the 25 trucks is parked in Regional’s parking lot on the night of June
30, 2013.
all of the trucks are owned by Regional Delivery Service.
condition of each truck, using the guidelines of poor, good, and
fair market value of each truck, using the current “blue book” for trucks,

states the approximate wholesale prices
of all used truck models, and also using the poor, good, and excellent
condition guidelines.
For each of the following parts of the definition of auditing, state which part
of the preceding narrative fits the definition:
(1) Information
(2) Established criteria
Accumulating and evaluating evidence (4) Competent, independent person
(5) Reporting results
Identify the greatest difficulties Altman is likely to have doing this audit.

1-22 (Objectives 1-3, 1-5)Dave
Czarnecki is the managing partner of Czarnecki and Hogan, a medium-sized local
CPA firm located outside of Chicago. Over lunch, he is surprised when his
friend James Foley asks him, “Doesn’t it bother you that your clients don’t
look forward to seeing their auditors each year?” Dave responded, “Well,
auditing is only one of several services we provide. Most of our work for
clients does not involve financial statement audits, and our audit clients seem
to like interacting with us.”

ways in which a financial statement audit adds value for clients.
other services other than audits that Czarnecki and Hogan likely provides.

Czarnecki and Hogan has hired you as a consultant to identify ways in
which they can expand their practice. Identify at least one additional
service that you believe the firm should provide and explain why you
believe this represents a growth opportunity for CPA firms.

2-18 (Objective 2-6)Sarah
O’Hann enjoyed taking her first auditing course as part of her undergraduate
accounting program. While at home during her semester break, she and her father
discussed the class and it was clear that he didn’t really understand the
nature of the audit process as he asked the following questions:
What is the main objective of the audit of an entity’s financial statements?
b. The audit represents the CPA firm’s guarantee about the accuracy of the
financial statements, right?
D. Given
the CPA firm is auditing financial statements, why would they need to
understand anything about the client’s business?
E. Whatdoestheauditordoinanauditotherthanverifythemathematicalaccuracyof
the numbers in the financial statements?
you were Sarah, how would you respond to each question?

2-20 (Objectives 2-5, 2-6)You
have been asked to make a presentation in your Inter- national Business class
about how globalization is impacting the auditing profession. In preparation,
you met with your auditing professor and discussed these questions:
What organizations are responsible for establishing U.S. auditing standards
used by CPA firms when auditing financial statements prepared by organizations
based in the U.S.?
B. What
organization is responsible for establishing auditing standards
C. To
what extentareAICPAauditingstandardsandinternationalauditingstandardssimilar?

What is the process the AICPA
Auditing Standards Board (ASB) uses to develop AICPA auditing standards?
To what extent are PCAOB auditing
standards impacted by international standards?

outline key points that you would make in your presentation to address these

2-22 (Objective 2-5)For each
engagement described below, indicate whether the engage- ment is likely to be
conducted under international auditing standards, U.S. generally accepted
auditing standards, or PCAOB auditing standards.
An audit of a U.S. private company with no public equity or debt.
B. An audit of a German private company with public debt in Germany.
C. An audit of a U.S. public company.
D. An audit of a United Kingdom public company that is listed in the United
States and whose financial statements will be filed with the SEC.
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 that is a subsidiary of a Japanese company that will be
used for reporting by the parent company in Japan.
H. An audit of a U.S. private company that has publicly
traded debt.

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