Case Study: Boeing Corporation

Case Study: Boeing Corporation Boeing Corporation is one of the largest aircraft companies in the world that supplies its products to customers globally. It supplies top of the line commercial aircraft as well as high technology military aeroplanes to various organisations. The products are the passenger, cargo and military aircraft which have strict safety and performance regulations binding them. The operations of the company are complex and at a huge scale which make management planning an absolute necessity for the company to carry out business in an efficient manner. Management planning comes into play at every level in the companys hierarchy and has a pivotal role in the success that the company has attained. Management Planning is the procedure of earmarking goals and objectives for an organisation to accomplish over a specified period of time. All actions and tasks requiring completion in order to attain the final goal are encompassed in a plan. Plans must have enough flexibility to cater for account variables and unexpected events and avoid the confusion that may arise in a case of unforeseen challenges or troubles. The Boeing Corporation has a number of departments; mechanical department, engineering department, quality checking department and sales department being the major ones. The aspect of planning is of paramount importance in all these departments. In each of these departments, efficiency is achieved by setting goals and outlining the methods to be followed to achieve the set goal. This includes explaining the steps that need to be followed by addressing issues of resources, management etc., finally aimed at achieving the best levels of efficiency The process of management planning undergoes five basic steps. Initially, a situational analysis is carried out. This involves deciding on the various factors and the manner in which they are likely to affect goal attainment and the manner in which these factors will affect the attainment of the goal. This assists the management to understand which steps are vital for goal accomplishment. In the next step alternative goals and plans for it are thought of. Formulation of multiple plans and then comparing them against one another is extremely beneficial, giving the management an insight into the pros and cons of each plan. Subsequently, all alternative plans and goals will be amalgamated into a single plan. The third step involves evaluation of the goals and plans created, and arrive at the benefits and drawbacks of each goal in the overall plan. Simultaneously, the most important steps in the plan can be prioritised, and roles assigned to the staff who the manager thinks are best suited for the job. In the fourth step, on the basis of the input of the first three steps, the management is required to shortlist the final plan to be used. This calls for acute judgment and analysis on the part of the manager to finally decide which plan is to be implemented. The actual implementation of the final plan by the manager is the last step. The manager has an important role in explaining the salient aspects of the plan to all staff involved in its execution, to ensure that all members are aware of the overall plan, and success is assured. In Boeing Corporation, since a large number of departments are involved, the plan of each department needs to be coordinated and synchronised with other departments. In this manner, the entire company is able to function as a well coordinated and oiled machine. Legal issues assume great importance in Boeing Corporation as the products can get the company involved in legal tangles, as human lives and safety aspects are involved. The company, therefore, has to ensure that all legislations and regulations are adhered to in the process of aircraft manufacture. For example, for every aircraft manufactured, an operating manual has to be created for both mechanics and pilots, so that safety aspects are taken care of. The requirement of the manuals has to be kept in mind during planning so that plans are made for dealing with any malfunction or repair issues that may arise in the future (Pritchard MacPherson, 2004). The management planning is influenced by many ethical issues also. When the company is bidding products to the United States Army, the company has the largest ethical issue concern, because they follow the guidelines (Pritchard MacPherson, 2004). The laws have been formulated and followed rigorously to avert the company authorities from unlawfully beguiling the concerned armed forces personnel with pecuniary offerings. So the responsibility lies with the sales and accounts department to consider theses factors while making their bidding plans and sales plans for the company. An individual or an organisations actions that benefit the society more than oneself or the organisation is known as social responsibility. As a corporation, Boeing is also concerned about its corporate social responsibility. As an airlines company, one of the major social responsibility that the company carries out is Research and Development to increase costumers choices and to be able to provide safe and effective service for its costumers. This can be seen in the high safety standards that the company has been maintained by constant research and improvement. Another example of corporate social responsibility was shown by Boeing when a national effort was made to raise finances for funding medical research to find cures for leukaemia affecting children under the leadership of the CEO of Boeing (Besser, 2002). Though this was under the overall stewardship of the CEO, the initiative of a member of the organisation does reflect on the entire organisation itself. Boeing being a large corporation is more focused on its strategic planning, which results in establishing the objectives broad enough for the operation of the company. The strategic planning devised by the company is used while doing business with the Airlines Industry, Community and the Military. An airline manufacturer is always concerned about the reliability and performance of his products (Prichard 2004). So when a company formulates its strategic planning, it helps him to look at the wider range of objects resulting in his production of products which are high in reliability as well as give peak performance. In recent years even the customers have started to demand more environment-friendly products, which could be because of the environment changes, one of the reasons being Globalization. For a large corporation as the Boeing, the main broad objective set by the organisation is the strategic planning. This is the tactical move; the company makes use of while doing business with the Airline Industry, Community or the Military. According to Prichard 2004, for an airline manufacturer, two aspects are the most important; they are the Reliability and the Performance. So to create products of high reliability and to achieve peak performance from it, the most helpful device is the strategic planning. This helps the company to have a broader vision of the environment while helping to formulate strategies. Recently, the customers are more inclined towards the products which are environment-friendly, which may be due to the changes affecting them due to Globalization. So the company had to rework on its strategic plans to satisfy the growing needs of its customers (Gonzalez 2007). Not only this, the company uses tactical planning in each of its departments. Through tactical planning, the company is able to achieve the highest order of efficiency in all its departments. For example, the manufacturing department formulates tactical planning of producing assembly stations within the plant, which facilitates the workers to assemble the aircraft parts efficiently and swiftly. The tactical planning is similar to the operational planning but only differs in dealing with managers at the lowest end of the hierarchical chain. These managers ensure that the non-managerial staff is performing their duties properly. These managers are also concerned with the quality control of the physical operations being done by the company.

Solution to Auditing and Assurance Service: 1,12,B, 3

SOLUTIONS FOR REVIEW CHECKPOINTS 1. 1Business risk is the collective risk faced by a company that engages in business. It encompasses all threats to and organization’s goals and objectives. It includes the chance that customers will buy from competitors, that product lines will become obsolete, that taxes will increase, that government contracts will be lost, or that employees will go on strike. 1. 2The conditions of complexity, remoteness, time-sensitivity, and consequences increase demands by outside users for relevant, reliable (useful) information. They cannot produce the information for themselves because of these conditions. Company managers and accountants produce the information. 1. 3Information risk, in contrast to business risk, is the risk (probability) that the information (mainly financial) disseminated by a company will be materially false or misleading. This risk creates the demand for objective outsiders to provide assurance to decision makers. 1. 4Students can refer to the AAA and AICPA definitions in Chapter 1. Some instructors may want to extend the consideration of definitions to include the internal and governmental definitions (located in Module D). In response to â€Å"What do auditors do? ,† students can refer to Exhibit 1. 2 and respond in terms of: (1) obtaining and evaluating evidence about assertions management makes about economic actions and events, (2) ascertaining the degree of correspondence between the assertions and the appropriate reporting framework, and (3) providing an audit report (opinion). Students can also respond more generally in terms of â€Å"lending credibility† to financial statements presented by management (attestation). 1. An attest engagement is: â€Å"An engagement in which a practitioner is engaged to issue or does issue a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party. † To attest means to lend credibility or to vouch for the truth or accuracy of the statements that one party makes to another. The attest function is a term often applied to the activities of independent CPAs when actin g as auditors of financial statements. 1. Assurance engagements are independent professional services that improve the quality of information, or its context, for decision makers. Since information (financial statements) are prepared by managers of an entity who have authority and responsibility for financial success or failure, an outsider may be skeptical that the information is objective, free from bias, fully informative, and free from material error, intentional or inadvertent. The services of an independent-CPA auditor helps resolve those doubts because the auditor’s success depends upon his independent, objective, and competent assessment of the information (e. . , the conformity of the financial statements with the appropriate reporting framework). The CPA’s role is to lend credibility to the information; hence the outsider will likely seek his independent opinion. 1. 7CPAs serve as independent intermediaries who lend credibility to information. Hence, assuranc e services are natural extensions of the well-regarded audit and attest services. CPAs can use their expertise in internal control and measurement methods. Assurance services are natural extensions of attestation services, which earlier evolved from financial statement audit services. Attestation and audit services are highly structured and intended to be useful for large groups of decision makers (e. g. , investors, lenders). On the other hand, assurance services are more customized and intended to be useful to smaller, targeted groups of decision makers. In this sense, assurance services bear resemblance to consulting services. 1. 8There are four major elements of the broad definition of assurance services: Independence. CPAs want to preserve their attestation and audit reputations and competitive advantages by preserving integrity and objectivity when performing assurance services. Professional Services. Virtually all work performed by CPAs is defined as â€Å"professional services† as long as it involves some element of judgment based in education and experience. Improving the Quality of Information or its Context. The emphasis is on â€Å"information†Ã¢â‚¬â€œ CPAs’ traditional stock in trade. CPAs can enhance quality by assuring users about the reliability and relevance of information, and these two features are closely related to the familiar credibility-lending products of attestation and audit services. â€Å"Context† is relevance in a different light. For assurance services, improving the context of information refers to improving its usefulness when targeted to particular decision makers in the surroundings of particular decision problems. For Decision Makers. They are the â€Å"consumers† for assurance services, and they personify the consumer focus of new and different professional work. They may or may not be the â€Å"client† that pays the fee, and they may or may not be one of the parties to an assertion or other information. The decision makers are the beneficiaries of the assurance services. 1. Accountants record, classify, and summarize (report) a company’s assets, liabilities, capital, revenue, and expense in financial statements. Auditors gather evidence related to the assertions management makes in financial statements and render a report. Accountants produce the financial statements; auditors audit them. 1. 10There are three major classifications of ASB assertions with several assertions in each c lassification: Transaction Assertions: Occurrence assertion: The objective is to establish with evidence that transactions giving rise to assets, liabilities, sales and expenses actually occurred. Key questions include â€Å"Did the recorded sales transactions really occur? † Completeness and cutoff assertion: The objective is to establish with evidence that all transactions of the period are in the financial statements and all transactions that properly belong in the preceding or following accounting periods are excluded. Completeness also refers to proper inclusion in financial statements of all assets, liabilities, revenue, expense and related disclosures. Key questions related to completeness include: â€Å"Are the financial statements (including footnotes) complete? and â€Å"Were all the transactions recorded in the right period? † Accuracy assertion: The objective is to establish with evidence that transactions have been recorded at the correct amount. Key questions relate to â€Å"where the expenses recorded at the proper dollar amount? † Classification assertion: The objective is to establish with evidence that transactions were posted to the cor rect accounts. Key questions relate to â€Å"was this expense recorded in the appropriate account/† Balance Assertions: Existence assertion: The objective is to establish with evidence that balance represents assets, liabilities, sales, and expenses that are real and in existence at the balance sheet date. Key questions relate to â€Å"does this number truly represent assets that existed at the balance sheet date? † Rights and obligations assertion: The objectives related to rights and obligations are to establish with evidence that assets are owned (or rights such as capitalized leases are shown) and liabilities are owed. Key questions related to this assertion include: â€Å"Does the company really own the assets? nd â€Å"Are related legal responsibilities identified? † Completeness assertion: The objective is to establish with evidence that all balances of the period are in the financial statements. Key questions related to completeness include: â€Å"Are the financial statements (including footnotes) complete? † Valuation assertion: The objective is to establish with evidenc e that balances have been valued correctly. Key questions include â€Å"Are the accounts valued correctly? † and â€Å"Are expenses allocated to the period(s) benefited? † Presentation and Disclosure assertion: Occurrence assertion: The objective is to establish with evidence that transactions giving rise to assets, liabilities, sales and expenses actually occurred. Key questions include â€Å"are we properly presenting and disclosing transactions that occurred during this period. Rights and obligations assertion: The objectives related to establishing with evidence the proper presentation of assets, liabilities, revenues and expenses to which the company has a legal right or a legal obligation Key questions related to this assertion include: â€Å"Has the company properly presented the assets in its possession? nd â€Å"Are related legal responsibilities identified and properly disclosed? † Completeness assertion: The objective is to establish with evidence that all balances of the period are presented and/or disclosed in the financial statements. Key questions related to completeness include: â€Å"Are the financial statements (including footnotes) complete? † Accuracy and valuation assertion: The objectives are to establish with evidence that balances presented and disclosed in the financial statements have been recorded accurately and have been valued correctly. Key questions include â€Å"Are the accounts valued correctly? † and â€Å"Are expenses allocated to the period(s) benefited? † Classification and understandability assertion: The objective is to establish with evidence that presentation and disclosures are properly classified on the financial statements and that financial statements including footnotes are understandable to the financial statement users. Key questions relate to â€Å"Is this account properly presented in the correct financial statement category† and â€Å"are the footnote disclosures presented to promote an understanding of the nature of the account† . 11The ASB’s assertions are important to auditors because they are the focal points for audit procedures. Furthermore, audit procedures are the means to answer the key questions posed by management’s assertions. The ASB assertions are in more detail than the PCAOB assertions and are categorized into transaction assertions, bala nce assertions, and presentation and disclosure assertions. They include the following additional assertions: cutoff, accuracy, valuation, classification, and understandability. Exhibit 1. 4 explains the difference between ASB and PCAOB assertions. . 12Holding a belief that a potential conflict of interests always exists causes auditors to perform procedures to search for errors or frauds that would have a material effect on financial statements. This tends to make audits more extensive for the auditor and more expensive for the client. The situation is not a desirable one in the vast majority of audits where no errors or frauds exist. However, errors and financial reporting frauds have happened too often. Users of financial statements and audit reports expect auditors to detect material misstatements. . 13Some examples of assurance engagements include: †¢ Internet Website certification (CPA WebTrust) †¢ Accounts receivable review and cash enhancement †¢ Third-party r eimbursement maximization †¢ Rental property operations review †¢ Customer satisfaction surveys †¢ Benchmarking/best practices †¢ Evaluation of investment management policies †¢ Fraud and illegal acts prevention and deterrence †¢ Information systems security reviews (SysTrust) †¢ Internal audit strategic review . 14Major areas of public accounting services: †¢ Assurance services (including audit services and other attestation engagements) †¢ Tax consulting services †¢ Consulting services 1. 15Operational auditing is the study of business operations for the purpose of making recommendations about the economic and efficient use of resources, effective achievement of business objectives, and compliance with company policies. The AICPA views operational auditing as a type of management advisory service offered by public accounting firms. 1. 6The elements of expanded-scope auditing include: (1) financial and compliance audits, (2) economy and efficiency audits, and (3) program results audits. 1. 17Compliance auditing involves a study of an organization’s policies, procedures, and performance in following laws, rules, and regulations. An example is a school’s policies, procedures, and performance in determining eligibility for a free meal program. 1. 18Other kinds of auditors include IRS agents/auditors, state and federal bank examiners, state insurance department auditors, and fraud auditors. 1. 9The purpose of continuing education is to ensure that CPAs in practice maintain their expertise at a sufficiently high level in light of evolving business conditions and new regulations. For CPAs in public practice, 120 hours of continuing education is required every three years, with no less than 20 hours in any one year. For CPAs not in public practice, the general requirement is 120 or fewer (90 in some states) every three years. 1. 20Everything cannot be learned in the classroom, and some on-the-job experi ence is helpful before a person is foisted off on the public as a licensed professional. Also, the experience weeds out some persons who do not want to take the trouble to be involved in accounting work. 1. 21State boards administer the state accountancy laws. State boards make physical arrangements to give the CPA examination, collect the examinations, receive the grades from the AICPA grading activity, and notify candidates whether they passed or failed. After satisfying state requirements for education and experience, successful candidates are awarded the CPA certificate by a state board. At the same time, new CPAs must pay a fee to obtain a state license to practice. Thereafter, state boards of accountancy regulate the behavior of CPAs under their jurisdiction (enforcing state rules of conduct) and supervise the continuing education requirements. 1. 22After becoming a CPA licensed in one state, a person can obtain a CPA certificate and license in another state. The process is known as reciprocity. CPAs can file the proper application with another state board of accountancy, meet the state’s requirements, and obtain another CPA certificate. Many CPAs hold certificates and licenses in several states. From a global perspective, individuals must be licensed in each country. Similar to CPAs in the United States, â€Å"Chartered Accountants† (CAs) practice in Australia, Canada, Great Britain, and India. Efforts are currently underway through NASBA to streamline the reciprocity process so that CPAs can practice across state lines without having to have 50 different licenses. SOLUTIONS FOR MULTIPLE CHOICE-QUESTIONS 1. 23a. IncorrectThis is an attestation to the prize promoter’s claims. b. IncorrectThis is an audit engagement to give an opinion on financial statements. c. IncorrectThis is an assurance engagement on newspaper’s circulation data. . IncorrectThis is an assurance engagement on the performance of golf balls. e. CorrectSince attestation and audit engagements are subsets of assurance engagements, all are assurance engagements. 1. 24a. CorrectThis statement characterizes professional skepticism. b. Incorrectâ€Å"Exclusively an auditor† is not an idea that seems to speak of â€Å"skepticism. † c. IncorrectProfessio nal obligations† is not an idea that seems to speak of â€Å"skepticism. † d. IncorrectThis is more an assumption of necessity than of skepticism. 1. 25a. Incorrect While work on a forecast is covered by the attestation standards, the auditors should give assurance or a disclaimer. b. Correct This is the basic definition of attestation–giving a report on reliability of an assertion one party makes to another. c. Incorrect Tax work is not an attestation service. d. Incorrect Litigation and expert witness services are not attestation services. 1. 26a. IncorrectThe objective of environmental auditing is to help achieve and maintain compliance with environmental laws and regulations and to help identify and correct unregulated environmental hazards b. IncorrectThe objective of financial auditing is to obtain assurance on the conformity of financial statements with generally accepted accounting principles. c. Incorrect The objective of compliance auditing is the entity’s compliance with laws and regulations. d. CorrectOperational auditing refers to the study of business operations for the purpose of making recommendations about the economic and efficient use of resources, effective achievement of business objectives, and compliance with company policies. 1. 27a. IncorrectWhile not the primary objective of an operational audit, auditors should still be concerned about compliance with financial accounting standards. b. CorrectThis statement is part of the basic definition of operational auditing. c. IncorrectAn operational audit does not focus on the financial statements. d. IncorrectAnalytical tools and skills are an important part of financial auditing. 1. 28a. CorrectThe proper reference is to the appropriate reporting framework. b. IncorrectThe AICPA does not refer only to the FASB for the appropriate reporting framework. c. IncorrectThe reference to the SEC is wrong. d. IncorrectThis is an abstract of the AAA definition. 1. 29d. CorrectWhile â€Å"complexity,† â€Å"remoteness,† and â€Å"consequences† are good answers, â€Å"skepticism,† or potential conflict of interest, generally drives the demand for audited financial statements. 1. 30d. CorrectSarbanes-Oxley prohibits the provision of all of the services listed in answers a, b, and c, therefore, d (all of the above) is the best response. 1. 31a. IncorrectAuditors do not reduce business risk. b. CorrectAuditors give some assurance that the information risk is low. c. IncorrectComplexity creates demand for accounting services, but is not an audit objective. d. IncorrectAuditors only indirectly control the timeliness of financial statements. 1. 32d. CorrectAnswers a, b, and c refer to a financial statement audit, an internal controls attestation engagement, and an operational audit, respectively. Compliance refers to following laws, rules, regulations, and policies. 1. 33d. CorrectWhile answers a, b, and c are true, experience, education, and successful completion of the Uniform CPA are all necessary to be licensed as a CPA. 1. 34d. CorrectThe mission of the U. S. Government Accountability Office is to ensure that public officials are using public funds efficiently, effectively, and economically. 1. 35b,d CorrectThe two categories of performance audits are economy and efficiency audit and program audits. 1. 36c. CorrectReview of credit ratings of customers gives indirect evidence of the collectibility (valuation) of accounts receivable. 1. 37a. IncorrectRhonda’s representations are not sufficient evidence to support assertions made in the financial statements. b. IncorrectDespite Rhonda’s representations, Jones must gather additional evidence to corroborate Rhonda’s assertions. . IncorrectRhonda’s representations are a form of evidence (albeit weak) that should neither be disregarded, nor blindly regarded without professional skepticism. d. CorrectRhonda’s assertions need corroboration. 1. 38a. IncorrectAlthough there is a high level of risk associated with client acceptance, this phrase was created by the au thors. b. CorrectInformation risk is the probability that the information circulated by a company will be false or misleading. c. IncorrectMoral hazard is the risk that the existence of a contract will change the behavior of one or both parties to the contract. d. IncorrectBusiness risk is the probability an entity will fail to meet its objectives and, ultimately, fail. 1. 39a. CorrectCompleteness includes cutoff which refers to accounting for revenue, expense, and other transactions in the proper period (neither postponing some recordings to the next period nor accelerating next-period transactions into the current-year accounts). 1. 40d. CorrectThe objective related to rights and obligations is to establish with evidence that amounts reported as assets of the company represent its property rights and that the amounts reported as liabilities represent its obligations. . 41b. CorrectManagement’s existence assertion states that reported assets, liabilities, and equities actually exist. 1. 42a. IncorrectUnder Sarbanes-Oxley, professional service firms are prevented from acting in a managerial decision making role for an audit client. b. IncorrectUnder Sarbanes-Oxley, professional service firms are prevented from auditing the firm’s own work on an audit client. c. IncorrectUnder Sarbanes-Oxley, professional service firms may only provide tax consulting service to an audit client with the audit committee’s approval. d. CorrectSarbanes-Oxley prevents professional service firms from engaging in any of the above listed capacities. 1. 43 d. CorrectReciprocity refers to the process through which CPAs licensed in one state can obtain a CPA certificate and license in another state. 1. 44a. CorrectAuditing is a subset of attestation engagements that focuses on the certification of financial statements. b. IncorrectAuditing is a subset of attestation that provides higher assurance than that provided by an attestation engagement. c. IncorrectConsulting engagements focus on providing clients with advice and decision support. d. IncorrectAssurance engagements are designed to improve the quality of information, or its context, for decision makers. 1. 45d. CorrectAlthough auditing is a subset of attestation, and attestation is a subset of assurance, the focus of the engagements tends to be very specific. 1. 46d. CorrectCredibility, advancement, and monetary rewards are all reasons to become certified. SOLUTIONS FOR EXERCISES AND PROBLEMS 47. Audit, Attestation, and Assurance Services Students may encounter some difficulty with this matching because the Special Committee on Assurance Services listed many things that heretofore ave been considered â€Å"attestation services† (long before assurance services were invented). Maybe this is a good vehicle for discussing the considerable overlap between attestation services (attestation standards) and assurance services. †¢ Real estate demand studies — Assurance service (listed by SCAS but not in the textbook chapter) †¢ Ballot for awards show — Assurance service (listed by SCAS but not in the textbook chapter) [But PwC attested to the Academy Awards ballot results long before assurance services were invented] Utility rate applications — Attestation service (or maybe a consulting service; I’m somewhat surprised the SCAS did not list it as an assurance service. ) †¢ Newspaper circulation audits –Assurance service (listed by SCAS but not in the textbook chapter) [But this work has appeared in prior years in examples of attestation services] †¢ Third-party reimbursement maximization — Assurance service (listed by SCAS and listed in the textbook chapter) †¢ Annual financial report to stockholders — Audit service Rental property operations review — Assurance service (listed by SCAS and listed in the textbook chapter) †¢ Examination of financial forecasts and projections — Attestation service (but also listed by SCAS as an assurance service) †¢ Cus tomer satisfaction surveys– Assurance service (listed by SCAS and listed in the textbook chapter) †¢ Compliance with contractual requirements — Attestation service (but also listed by SCAS as an assurance service) †¢ Benchmarking/best practices — Assurance service (listed by SCAS and listed in the textbook chapter) Evaluation of investment management policies — Assurance service (listed by SCAS and listed in the textbook chapter) †¢ Information systems security reviews — Assurance service (listed by SCAS and listed in the textbook chapter) †¢ Productivity statistics — Attestation service (but also listed by SCAS as an assurance service under various descriptions) †¢ Internal audit strategic review — Assurance service (listed by SCAS and listed in the textbook chapter) †¢ Financial statements submitted to a bank loan officer — Audit service 1. 49 ASB Assertions PCAOB Assertion |Corresponding ASB ass ertion |Nature of assertion | |Existence or Occurrence |Existence |Balance | | |Occurrence |Transactions | | | |Disclosures | |Rights and Obligations |Rights and Obligations |Balances | | | |Disclosures | |Completeness |Completeness |Transactions | | | |Balances | | | |Disclosures | | |Cutoff Transactions | |Valuation and Allocation |Accuracy |Transactions | | | |Disclosures | | |Valuation |Balances | | | |Disclosures | |Presentation and Disclosure |Classification |Transactions | | | |Disclosures | | |Understandability |Disclosures | 1. 52Identification of Audits and Auditors The responses to this matching type of question are ambiguous. The engagement examples are real examples of external, internal and governmental audit situations. You might point out to students that the distinctions among compliance, economy and efficiency and program results audits are not always clear. The â€Å"solution† is shown below in matrix form, showing some engagement numbers in two or t hree cells. The required schedule follows. |Type of Audit | | |Financial Statement | |Economy, Efficiency |Program | |Auditor | |Compliance | |Results | |Independent CPA |2, 10 | | | | |Internal Auditor | |6, 8 |4, 8 | | |Governmental (GAO) | | |1, 3 |1, 3, 9 | |IRS Auditor | |5 | | | |Bank Examiner | |7 | | | |Proprietary school’s training expenses |Economy and Efficiency Program Results |Governmental (GAO) | |Advertising agency financial statements |Financial statement |Independent CPAs | |Dept. f Defense launch vehicle |Economy and Efficiency or Program Results |Governmental (GAO) | |Municipal services |Economy and Efficiency |Internal auditors | |Tax shelters |Compliance |IRS auditors | |Test pilot reporting |Compliance |Internal auditors | |Bank solvency |Compliance |Bank examiners | |Materials inspection by manufacturer |Compliance or Economy and Efficiency |Internal auditors | |States’ reporting chemical use data |Program goal |Governmental (GAO) | |Sports compl ex forecast |Financial statement |Independent CPAs | SOLUTIONS FOR REVIEW CHECKPOINTS 2. 1For independent (external) auditors of financial statements, practice standards are issued by the AICPA Auditing Standards Board (in the form of Statements on Auditing Standards) and the Public Company Accounting Oversight Board (in the form of Auditing Standards). Statements on Auditing Standards are appropriate for the audits of nonpublic entities, while Auditing Standards are appropriate for the audits of public entities. For governmental auditors, the Government Accountability Office issues Government Auditing Standards (also known as the â€Å"Yellow Book†). For internal auditors, the Institute of Internal Auditors issues Statements of Internal Auditing Standards (also known as the â€Å"Red Book†). For fraud auditors, the Association of Certified Fraud Examiners issues Professional Standards and Practices for Certified Fraud Examiners. For auditors in other countries, the IFAC International Auditing and Assurance Standards Board issues International Standards on Auditing and Assurance. 2. 2Generally accepted auditing standards are standards that identify necessary qualifications and characteristics of auditors and guide the conduct of the audit examination. Generally accepted accounting principles represent the requirements for the preparation and presentation of financial statements and accompanying footnote disclosures. These two types of standards are related to one another because a primary objective of a GAAS audit is to allow auditors to conclude whether an entity’s financial statements are prepared and presented in conformity with GAAP. 2. 3The three fundamental principles are: 1. Responsibilities, which involves having appropriate competence and capabilities, complying with relevant ethical requirements, maintaining professional skepticism and exercising professional judgment. 2. Performance, which requires auditors to obtain reasonable assurance about whether the financial statements as a whole are free of material misstatement by: (1) planning the work and properly supervising assistants; (2) determining and applying appropriate material levels; (3) identifying and assessing the risk of material misstatement; and, (4) obtaining sufficient appropriate audit evidence. 3. Reporting, which requires the auditor to express an opinion as to whether the financial statements are prepared in accordance with the applicable financial reporting framework. Auditing procedures relate to acts to be performed during the engagement. Auditing standards deal with measures of the quality of performance of those acts and the objectives to be attained. Auditing standards are less subject to change and provide the criteria for rejecting, accepting, or modifying auditing procedures in a given circumstance. An example of the relative stability of standards and procedures is found in the change from non-computerized information systems to computerized information systems. New auditing procedures were required to evaluate computerized information systems, but auditing standards remained unchanged and were the criteria for determining the adequacy of the new auditing procedures. 2. 4Independence in fact represents auditors’ mental attitudes (do auditors truly act in an unbiased and impartial fashion with respect to the client and fairness of its financial statements? ). Independence in appearance relates to financial statement users’ perceptions of auditors’ independence. Auditors can be independent in fact but not perceived to be independent. For example, ownership of a small interest in a public client would probably not influence auditors’ behavior with respect to the client. However, it is likely that third-party users would not perceive auditors to be independent. 2. Due care reflects a level of performance that would be exercised by reasonable auditors in similar circumstances. Auditors are expected to have the skills a nd knowledge of others in their profession (known as that of a prudent auditor) and are not expected to be infallible. 2. 6Professional skepticism is a state of mind that is characterized by appropriate questioning and a critical assessment of audit evidence. Professional judgment is the auditors’ application of relevant training, knowledge, and experience in making informed decisions about appropriate courses of action during the audit engagement. Auditors are required to demonstrate professional skepticism and professional judgment throughout the entire audit process. 2. Reasonable assurance recognizes that a GAAS audit may not detect all material misstatements and auditors are not â€Å"insurers† or â€Å"guarantors† regarding the fairness of the company’s financial statements. The following characteristics of an audit do not permit auditors to provide absolute assurance: †¢ Mistakes and misinterpretations may occur †¢ Management judgments an d estimates affect financial reporting †¢ Audit procedures cannot always be relied upon to detect misstatements †¢ Audit engagements must be conducted within a reasonable period of time and so as to achieve a balance between benefit and cost. 2. 8Three elements of planning and supervision considered essential in audit practice are: †¢ A written audit plan. †¢ An understanding of the client’s (auditee’s) business. Policies to allow an audit team member to document disagreements with accounting or auditing conclusions and disassociate him or herself from the matter. 2. 9The timing of the auditors’ appointment is important because auditors need time to properly plan the audit and perform the necessary work without undue pressure from tight deadlines. 2. 10Materiality is the dollar amount that would influence the lending or investing decisions of users; this concept recognizes that auditors should focus on matters that are important to financial statement users. Materiality should be considered in planning the audit, performing the audit, and evaluating the effect of misstatements on the entity’s financial statements. 2. 1Auditors obtain an understanding of a client, including its internal control, as a part of the control risk assessment process primarily in order to plan the nature, timing and extent of substantive audit procedures. A secondary purpose is because of auditors’ responsibilities for reporting on client’s internal controls under Auditing Standard No. 5. 2. 12As the client’s internal control is more effective (a lower level of control risk), auditors may use less effective substantive procedures (a higher level of detection risk). Conversely, when the client’s internal control is less effective (a higher level of control risk), auditors must use more effective substantive procedures (a lower level of detection risk). 2. 13Audit evidence is defined as the information used by a uditors in arriving at the conclusion on which the audit opinion is based. 2. 4External documentary evidence is audit evidence obtained from another party to an arm’s-length transaction or from outside independent agencies. External evidence is received directly by auditors and is not processed through the client’s information processing system. External-internal documentary evidence is documentary material that originates outside the bounds of the client’s information processing system but which has been received and processed by the client. Internal documentary evidence consists of documentary material that is produced, circulates, and is finally stored within the client’s information processing system. Such evidence is either not circulated to outside parties at all or is several steps removed from third-party attention. 2. 5In general, evidence that is completely external in nature is most reliable, because the client has not influenced its processing . In contrast, evidence that is completely internal in nature is least reliable, as it may represent a fictitious transaction created or modified by client personnel to enhance perceptions of the client’s financial statements. 2. 16As auditors need to achieve lower levels of detection risk, more appropriate evidence needs to be obtained. Thus, auditors should gather higher quality evidence (more reliable evidence). For example, auditors may choose to obtain evidence from external sources rather than internal sources. In addition, for lower levels of detection risk, auditors need to gather more sufficient evidence. Because sufficiency relates to the quantity of evidence, a greater number of transactions or components of an account balance should be examined. 2. 17A financial reporting framework is a set of criteria used to determine the measurement, recognition, presentation, and disclosure of material items in the financial statements. The financial reporting framework is related to auditors’ reporting responsibilities because this framework serves as the basis against which the financial statements are evaluated and the auditors’ opinion on the financial statements is expressed. 2. 18Four types of opinions and their conclusions: Type | |Conclusion | |Unqualified opinion | |Financial statements are presented in conformity with GAAP. | |Adverse opinion | |Financial statements are not presented in conformity with GAAP. | |Qualified opinion | |Financial statements are presented in conf ormity with GAAP, except for one or | | | |more departures or issues of concern. | |Disclaimer of opinion | |An opinion cannot be issued on the financial statements. | 2. 19The auditors’ report is dated at the point when all significant procedures have been completed by auditors and auditors have gathered sufficient appropriate evidence. This date is referred to as the audit completion date. 2. 20Public accountants should issue a report when they are associated with financial statements because users may mistakenly assume that an audit has been conducted and that the entity’s financial statements are fairly presented according to GAAP. 2. 21The purpose served by the attestation standards is to guide work in attestation areas and engagements other than audits of financial statements. 2. 22The major differences between attestation standards and generally accepted auditing standards (GAAS) lie in the areas of practitioner competence, materiality and the risk of material misstatement, and reporting. GAAS presume knowledge of accounting and require competence and capabilities as auditors (meaning auditors of financial statements). The attestation standards are more general, requiring training and proficiency in the â€Å"attest function† and knowledge of the â€Å"subject matter of the assertions. † The attestation standards have no specific requirement for determining materiality levels or obtaining and understanding of the entity and its environment to assess the risk of material misstatement. Because attestation engagements may cover information not confined to accounting and financial assertions, these activities may not be appropriate for all attest engagements. Reporting is different because attestations on nonfinancial information do not depend upon generally accepted accounting principles. In addition, GAAS do not address two reporting issues (stating significant reservations about the engagement and indicating that the report is only intended for specified parties) that are important reporting aspects for attestation engagements. 2. 23A system of quality control provides firms with reasonable assurance that the firm and its personnel (1) comply with professional standards and applicable regulatory and legal requirements and (2) issue reports that are appropriate in the circumstances. The six elements of a system of quality control are: . Leadership responsibilities for quality within the firm (â€Å"tone at the top†) 2. Relevant ethical requirements 3. Acceptance and continuance of clients 4. Human resources 5. Engagement performance 6. Monitoring 24. In deciding whether to accept or continue an engagement with a client, firms sho uld consider: †¢ The integrity of the client and the identity and business reputation of its owners, key management, related parties, and those charged with governance. †¢ Whether the firm possesses the competency, capability, and resources to perform the engagement. †¢ Whether the firm can comply with the necessary legal and ethical requirements. If firms decide to withdraw from an engagement, the firm should document significant issues, consultations, conclusions, and the basis for any conclusions related to the decision to withdraw. 25. Typically, firms that audit nonpublic companies have peer reviews conducted through the AICPA’s Center for Public Company Audit Firms Peer Review Program. While firms that are subject to PCAOB review requirements can elect to have peer reviews conducted under this program, most choose not to do so. 2. 26The PCAOB’s monitoring role for firms providing auditing services to public entities includes registering public accounting firms and conducting inspections of registered public accounting firms (similar to peer reviews). 2. 7The frequency of PCAOB inspections depends upon the number of audits conducted by member firms. For firms performing audits for more than 100 public companies, inspections are required on an annual basis. For those performing audits for fewer than 100 publi c companies, inspections are conducted every three years. SOLUTIONS FOR MULTIPLE-CHOICE QUESTIONS 2. 28a. CorrectGathering audit evidence is a component of the performance principle. b. IncorrectWhile reasonable assurance is related to gathering audit evidence, this is not one of the categories of principles c. IncorrectThe reporting principle relates to the contents of the auditors’ report d. IncorrectThe responsibilities principle relates to the personal integrity and professional qualifications of auditors. 2. 29a. IncorrectThis practice relates to accountants’ competence and capabilities, not due care. b. IncorrectThis practice relates to the reporting principle. c. IncorrectSufficiency of evidence relates to the performance principle and not due care. d. CorrectThese practices are a part of due care. 2. 30a. IncorrectGAAS relates to the conduct of audit engagements and not overall professional services. b. CorrectStandards within a system of quality control are firm- (rather than auditor-) related. c. IncorrectGAAP relates to accounting and financial reporting, rather than auditing practices. d. IncorrectInternational auditing standards govern the conduct of audits conducted across international borders. 2. 31a. IncorrectRelying more extensively on external evidence is related to the appropriateness (or quality) of evidence. b. IncorrectFocusing on items with more significant financial effects on the financial statements is related to materiality. c. CorrectProfessional skepticism is characterized by appropriate questioning and a critical assessment of audit evidence. d. IncorrectFinancial interests are most closely related to auditors’ independence. 2. 32a. CorrectAuditors study internal control to determine the nature, timing, and extent of substantive tests. b. IncorrectConsulting suggestions are secondary objectives in an audit. c. IncorrectInformation about the entity’s internal control is, at best, indirect evidence about assertions in the financial statements. d. IncorrectInformation about the entity’s internal control provides auditors with little opportunity to learn about changes in accounting principles. 2. 33a. IncorrectExternal evidence is considered to be relatively reliable. b. CorrectManagement representations should least affect auditors’ conclusions, as they have not been validated or corroborated by external parties. c. IncorrectAuditor-prepared evidence is considered to be the most reliable form of evidence. d. IncorrectAlthough a representation of a client employee, inquiry of the entity’s legal counsel is considered more reliable than that of entity management. 2. 34a. IncorrectInquiry of management should least affect auditors’ conclusions. b. IncorrectAlthough very persuasive, auditors’ personal knowledge (choice d) provides the most persuasive evidence c. IncorrectObservation of a client’s procedures provides evidence on the effectiveness of the client’s internal control, but not the existence assertion for newly-acquired computer equipment. d. CorrectAuditors’ personal knowledge provides the most persuasive evidence. 2. 35a. IncorrectInquires of client personnel are the least reliable form of evidence. b. IncorrectWhile more reliable than inquiries (choice a), inspection of internal documents is relatively low in terms of reliability. c. IncorrectWhile sales invoices are documents created by external parties, the fact that these documents were received from client personnel decreases their reliability. d. CorrectBecause the statements were received directly from outside parties, this is a more reliable form of evidence than choice (c). 2. 36a. IncorrectDocumentation of this nature would not be related to independence. b. IncorrectWhile the quality of the documentation and the conclusions included in the documentation might provide information about competence and capabilities, choice (c) is more appropriate. c. Correct Initials of the preparer and reviewer provide evidence that the documentation was reviewed, which relates to planning and supervision. d. IncorrectWhile the quality of the documentation and the conclusions included in the documentation might provide information about sufficient appropriate evidence, choice (c) is more appropriate 2. 37NOTE TO INSTRUCTOR: Since this question asks students to identify the requirement that is not included in attestation standards, the response labeled â€Å"correct† is not included in attestation standards and those labeled â€Å"incorrect† are included in attestation standards. a. IncorrectAttestation standards require adequate knowledge of the subject matter. b. CorrectAn understanding of the client’s environment (including internal control) is not required under attestation standards, because internal control may not always be relevant to the subject matter of the attestation. c. IncorrectAttestation standards require sufficient evidence to be gathered. d. IncorrectAttestation standards require independence in mental attitude. 2. 38NOTE TO INSTRUCTOR: Since this question asks students to identify the concept that is least related to due care, the response labeled â€Å"correct† is least related to due care and those labeled â€Å"incorrect† are more related to due care. a. IncorrectDue care requires the level of skills and knowledge of others in the auditors’ profession, which would require independence in fact. b. IncorrectSee choice (a) above. c. IncorrectDue care refers to the performance of a â€Å"prudent† auditor. d. CorrectDue care recognizes that mistakes and misinterpretations may occur during the audit. 2. 39a. IncorrectInternal documents are a relatively low quality of evidence. b. IncorrectManagement representations (and the related verbal inquiries) are the lowest quality of evidence. c. IncorrectWhile direct, external evidence is of reasonable quality, it is of lower quality than direct personal knowledge of the auditor (choice d). d. CorrectDirect, personal knowledge of auditors is the most appropriate form of evidence. 2. 40a. IncorrectWhile it may increase auditors’ knowledge about the client, obtaining an understanding of a client’s internal control does not directly influence auditors’ competence and capabilities. b. IncorrectObtaining an understanding of a client’s internal control does not directly influence auditors’ independence. c. IncorrectObtaining an understanding of a client’s internal control does not directly help satisfy the quality control standard about audit staff professional development. d. CorrectThe primary purpose of obtaining an understanding of a client’s internal control is to plan the nature, timing, and extent of substantive audit procedures on an engagement. 2. 41d. CorrectIndependence confirmations would ensure that all firm personnel are independent with respect to that firm’s clients, which is related to the â€Å"Relevant Ethical Requirements† element of a system of quality control. It would not relate to acceptance and continuance of clients (a), engagement performance (b), or monitoring (c). 2. 42b. CorrectGovernment auditing standards are issued by the Government Accountability Office (GAO). Governmental accounting standards are issued by the Governmental Accounting Standards Board. 2. 43a. CorrectConsultation with a specialist demonstrates due care if auditors do not have expertise in the area in question. b. IncorrectAuditors are experts in financial matters, not areas of art (and other collectibles) valuation. c. IncorrectGAAS applies to all audit engagements, including audit engagements for not-for-profit organizations. d. IncorrectSince (a) is correct, (d) cannot be correct. 2. 4NOTE TO INSTRUCTOR: Since this question asks students to identify the topic that is not been addressed in the auditors’ report, the response labeled â€Å"correct† is not addressed in the auditors’ report and those labeled â€Å"incorrect† are addresse d in the auditors’ report. a. IncorrectThe responsibilities of the auditor and management are provided in the introductory paragraph. b. CorrectAuditors provide reasonable (but not absolute) assurance in an audit engagement (this is noted in the scope paragraph of the auditors’ report). c. IncorrectA description of the audit engagement is provided in the scope paragraph of the auditors’ report. d. IncorrectThe auditors’ opinion on internal control over financial reporting is provided in the internal control paragraph of the auditors’ report. 2. 45a. CorrectAttestation standards differ from generally accepted auditing standards in that they apply to engagements other than those on historical audited financial statements. b. IncorrectAttestation standards require that the practitioner be independent. c. IncorrectAttestation standards may apply to prospective â€Å"what if† financial statements. d. IncorrectAttestation standards include requirements related to evidence. SOLUTIONS FOR EXERCISES AND PROBLEMS 2. 47Performance Principle The important elements of the performance principle and their relation to the C. Reis Company audit are: 1. Auditors must plan the work and appropriately supervise any assistants. Fulfilling this element would include the preparation of an audit plan for accounts receivable and reviewing it with the assistant prior to beginning the examination. These tasks were not done. Also, the completed audit documentation should have been reviewed to determine whether an adequate examination was performed. The illustration states that this procedure was followed. 2. Auditors must determine and apply appropriate materiality levels throughout the audit. This scenario did not address the process through which materiality levels were determined, so potential strengths and weaknesses related to materiality cannot be assessed. 3. Auditors must identify and assess risks of material misstatement. This element requires auditors to obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures. The case presented did not reference any work on the internal control. Complete reliance upon prior-year audit documentation in lieu of an evaluation of the existing internal control is improper, because changes may have been implemented to the system and controls by the client. 4. Auditors must obtain sufficient appropriate audit evidence. The assistant’s preparation of audit documentation, confirmation requests, and other procedures seem to fulfill the requirements of this standard if the audit work is properly performed and is of sufficient scope. 2. 48Time of Appointment and Planning From a theoretical viewpoint (and, in fact, from a practical viewpoint as well) such short notice of a request for an audit causes difficulties with planning the audit work, establishing staffing requirements, and reviewing the work; all of these features are important elements in the exercise of due care. The December 26 – January 20 period is a serious time constraint for an initial audit engagement. The greatest difficulties involve due care as well as the ability to appropriately perform the engagement (planning and supervision, determining materiality levels, identifying and assessing risks of material misstatement, and obtaining sufficient appropriate evidence). In view of the short notice and the time constraint, there may be some question as to whether an audit could be adequately completed by January 20. 2. 55Principles Case Study | | | | |Responsibilities | | | | | | | |1. Auditors are responsible for appropriate competence and | |1. It was inappropriate for Holmes to hire the two students to | |capabilities to perform the audit. | |conduct the audit. The examination must be conducted by persons | | | |with proper education and experience in the field of auditing. | | | |Inexperienced persons can assist, if they are supervised. | |2. Auditors are responsible for complying with relevant ethical | |2. To satisfy the independence requirement, Holmes must be | |requirements. |without bias with respect to the client under audit. Because of | | | |the financial interest in the bank loan, Holmes is neither | | | |independent in fact nor appearance with respect to the assignment | | | |undertaken. In addition, because of a number of actions (hiring | | | |unqualified individuals, failure to supervise those individuals, | | | |etc. ), Holmes did not appear to exhibit due care. | | | | | | | | | | |3. The fact that Holmes merely accepted the financial statements | | | |without questioning any evidence demonstrates lack of professional| |3. Auditors are responsible for maintaining professional | |skepticism (as well as a lack of good professional judgment). | |skepticism and exercising professional judgment throughout the | | | |planning and performance of the audit. | | | | | | |Performance | | | | | | | |1. The auditor must adequately plan the work and must properly | |1. This element recognizes that early appointment of auditors has | |supervise any assistants. |advantages for auditors and the client. Holmes accepted the | | | |engagement without considering the availability of staff. In | | | |addition, Holmes failed to supervise the assistants. The work | | | |performed was not adequately planned. | | | | | |2. The auditor must determine and apply appropriate materiality | |2. There was no discussion that appropriate materiality levels | |level or levels. | |were determined or applied for the audit by either Holmes or the | | | |two accounting students. Thus, compliance with this element is | | | |difficult to assess. | |3. The auditor must assess the risk of material misstatement based| |3. Holmes did not study the client’s internal control nor did the | |on the entity and its environment. | |assistants. There appears to have been no audit examination at | | | |all. The work performed was more an accounting service than it was| | | |an auditing service. | | | | | |4. The auditor must obtain sufficient appropriate audit evidence | |4. No evidence was obtained to support the financial statements. | |about whether material misstatements exist. | |The auditors merely checked the mathematical accuracy of the | | | |records and summarized the accounts. Standard audit procedures and| | | |techniques were not performed. | | | | |Reporting | | | | | | | |1. Based on evaluation of the evidence obtained, the auditor | |1. Because a proper examination was not conducted, the report | |expresses an opinion in accordance with the auditor’s findings, or | |should indicate that no opinion can be expressed as to the fair | |states that an opinion cannot be expressed, in the form of a written | |presentation of the financial statements in accordance with | |report. The opinion states whether the financial statements are | |generally accepted account ing principles. |prepared, in all material respects, in accordance with the | | | |appropriate financial reporting framework. | | | | | | | 2. 57System of Quality Control a. Leadership responsibilities for quality within the firm b. Engagement performance c. Human resources d. Monitoring e. Human resources f. Relevant ethical requirements g. Acceptance and continuance of clients h. Leadership responsibilities for quality within the firm i. Engagement performance SOLUTIONS FOR REVIEW CHECKPOINTS 12. Management prepares a report on the effectiveness of internal control over financial reporting. The auditors prepare reports on (1) the entity’s financial statement and other disclosures and (2) the effectiveness of the entity’s internal control over financial reporting. These can be presented as two separate reports or a combined report. 2. Management’s report on internal control over financial reporting consists of the following major components: †¢ A statem ent indicating that management is responsible for establishing and maintaining adequate internal control over financial reporting. †¢ A statement identifying the framework used by management to assess the effectiveness of the entity’s internal control. Management’s opinion on the effectiveness of the entity’s internal control, including an explicit statement as to whether the internal control over financial reporting is effective. †¢ A statement that the registered accounting firm auditing the financial statements (auditor) has issued an attestation report on the entity’s internal control over financial reporting. 12. 3The auditors’ report serves to communicate to users three specific statements with respect to the financial statements, the conduct of the audit, and the entity in general. First, the report indicates whether the financial statements are presented in conformity with GAAP. Second, auditors use their report to indicate any un usual aspects of the audit examination. Third, even if the financial statements are fairly presented and no problems were noted in the conduct of the audit, the auditors can use the report to communicate information useful to decision makers that may not appear on the face of the financial statements. 12. 4Nine important elements of the auditors’ standard report are: 1. Title. The title should contain the word independent, as in â€Å"Independent Registered Public Accounting Firm† or â€Å"Independent Auditors†. 2. Address. The report shall be addressed to the client, which occasionally may be different from the auditee. 3. Notice of Audit. A sentence should identify the financial statements and indicate that they were audited. This appears in the introductory paragraph. 4. Responsibilities. The report should state management’s responsibility for the financial statements and the auditors’ responsibility for the report. These statements are also in the introductory paragraph. 5. Description of the Audit. The second paragraph (scope paragraph) should declare that the audit was conducted in accordance with the standards of the Public Company Accounting Oversight Board (PCAOB) and describe the principal characteristics of an audit, including a statement of belief that the audit provided a reasonable basis for the opinion. 6. Opinion. The report shall express an opinion (opinion paragraph) regarding conformity of the financial statements with accounting principles generally accepted in the United States of America. 7. Internal Control. The report should reference the auditors’ examination, report, and opinion on the client’s internal control over financial reporting. 8. Signature. The auditors (partner of the audit team) shall sign the report, manually or otherwise. 9. Date. The report shall be dated using the date

Political Representation Essay

Today, in countries which choose representative democracy as a form of state, ordinary citizens have the right to one man-one vote and thus they, in regular elections, vote for a political candidate or a political party which they want to be their own representative. This form of state is called ‘representative democracy’ or ‘modern constitutional representative government’ or political representation in general. Nowadays, the legitimacy and authority of the representative government is regarded as resulting from its being an expression of the will of the people. However, this expression as the source of the legitimate authorization for public acts is indirect: citizens transfer it to their representatives as intermediaries. The representatives as intermediaries are those who make the people’s will present on its behalf. Thus, political representation has its theoretical scheme two political actors: the citizens or the people and the representative. This scheme of political representation which looks simple actually has many political implications for political actors and processes. My final paper is concerned with exploring what the modern terminology of political representation means and what implications it involves. As Hanna F. Pitkin, Allen P. Griffiths show, the conceptual analysis of the idea of representation, or the distinction between the several senses of representation, is very helpful for avoiding equivocations in the word ‘representation’. Griffiths posits four senses of representation. The first is descriptive representation, in which one person represents another by being sufficiently like him or her. The second is symbolic representation, in which persons can represent or embody traditions and spirits of things without having any particular personal qualities: so the flag represents the state, even though the flag itself does not connote the character of the state. Third, ascriptive representation, like the relation between the member of parliament and his or her constituents, means to represent in the sense that what the representative does or decides commits those he or she represents. Fourth, members of parliament may always concern themselves with the interests of their own electors against any other interests. This is representation of interests (Griffiths, pp. 188-190). The distinctions between these four senses of representation provide us with a starting point for understanding what representation means. There is a certain idea common to the various senses of the term representation: a reflection of something in the place of that thing. The common idea of representation applies within the political sphere in the sense that the basic scheme of political representation is the notion of one person standing in place of another for the performance of public acts. The eighteenth and the nineteenth century European thinkers, Edmund Burke and Jeremy Bentham, contributed to the establishment of the theorization of political representation as a dominant political practice. They, albeit with different emphases and arguments, were interested in how it is appropriate or possible for the people to pursue their interests in a society, and how representative government must work to be a government for the well-being of all people. To address these issues, they investigated who was to be the representative, who was to be the represented and how their relationship was to be established and maintained. I will start with Burke’s view of politics or government, a starting point from which to approach his conception of political representation. According to Burke, politics or government is basically a matter of trust. The essence of this trust lies in the exercise of power being for the ultimate benefit of those over whom it is exercise, and hence in being in the end accountable to them. When the exercise of political power is contrary to this initial purpose, it loses its legitimacy: That all political power which is set over men, and that all privilege claimed or exercised in exclusion of them, being wholly artificial, and for so much a derogation from the natural equality of mankind at large, ought to be some way or other exercised ultimately for their benefit†¦. If it is true with regard to every species of political dominion†¦. then such rights, or privileges, or whatever you choose to call them, are all in the strictest sense a trust; and it is of the very essence of every trust to be rendered accountable; even totally to cease, when it substantially varies from the purposes for which it alone could have a lawful existence. (Burke, 1783) As viewed in this passage, for Burke all political power is exercised by someone to the exclusion of someone else. However, the exclusive exercise of power is not for the specific group which has the power but for the benefit of those who entrust that power to it. This act of trust is a result of the voluntary will of the people. According to Burke politics, and in particular the constitution of the state and the due distribution of its power, requires a deep knowledge of human nature, human necessities and various elements necessary for the operation of the mechanism of civil institutions. Politics is a matter of the most delicate and complicated skill, not to be taught a priori (Burke, p. 124). Due to this inherently professional character of politics, Burke thought that only people with reason and judgment had the capacity to engage in politics to control the state for the benefit for all people. He believed that this was the way to guarantee the true interests of people. To this end, in Burke’s view the representative must be created to act on their behalf. Burke’s representatives, who are distinguished from men in general above all by being equipped to participate in public functions, have two main tasks to perform for their constituents: one is to act on behalf of men in general because of the latter’s incapability, the other is to act on behalf of the public in order to defend the interests of both. Together with Burke’s acceptance of the contrasting social roles of men and the public and their essentially conventional basis, this definition of the representatives’ task lays him open to the criticism that those definitions of the roles and the tasks in practice simply strengthen the predominant class in society (Bart, 1972: p. 360). From Burke’s own point of view, however, the individual may all too often be foolish but the species is wise and acts rightly. Therefore, for Burke the species itself to which men and the public each belong both deserves and needs to be protected by the creation of the representatives. This is why he insists that a representative or parliament is necessary to act as a guardian of a privilege. To defend individual interests within a civil society, a representative must not only be committed to their defense, but also he must be able to judge accurately what their interests really are. For Burke, a member of parliament is not a simple delegate for the electors, but a representative authorized by his or her constituents to exercise his independent judgment to their behalf. Thus, for Burke the judgment of interests of the individual and society is made not by the electors, but by the representative who has knowledge, reason, moral insight and commitment which is not reducible to anyone’s particular interests. In analyzing political representation, even if Burke insists on the need for the creation of the representative by the reason of the ordinary man’s lack of knowledge and practical ability for politics, he does not deny that the whole people is supreme author of political power. In making representatives the members of a state must aim to secure their interests according to their portions in a society, which is, in Burke’s view, simply a requirement of justice. At this point, Burke is concerned with the modern understanding of political representation: the scheme of political representation aims to strive for the public good. But Burke, unlike most other more recent major interpreters of political representation, is far from accepting the full equality of the represented when he sets out what is involved in the selection of the representative. Burke’s conception of political representation is developed in different ways by various thinkers after him. I will now explore how J. Bentham addresses these issues. Bentham’s idea of political representation emanated directly from his general philosophical position. That is, just as Bentham’s philosophy, politics and sociology are based on the greatest happiness principle, so we can trace his idea of political representation to be same fundamental source (Bentham, 1983: p. 2). For Bentham a society is the total assemblage of self-interested individuals, and the public interest in a society is nothing other than the sum of the interests of the individuals. Bentham’s distinctive view of society is, unlike Burke’s, is founded on the assumption that an individual is the best judge concerning what his or her interest is (Bentham, p. 12). Therefore, when they pursue their interest respectively without relying on exterior criteria such as the judgments of the more capable men, society’s general interest can and will be obtained. Bentham’s view, which interprets individuals as the best judge of their own interests, extends to the standing of the individual in the sphere of politics. According to Bentham, sovereignty in a state is exercised by the constitutive authority (Ibid, p. 25). The constitutive authority, to which all other authorities of the state are subordinate, resides in the whole body of electors. Thus, Bentham sees that when public decisions are the expression of the thoughts and feelings of the public, the general interest in a state is not separated from the particular interest of its individual citizens. The general interest cannot be established without direct reference to individual interest. In the process, Bentham notices the occasional conflicts between the general interest and the individual interest. With his belief in the people, Bentham maintains that the success or failure of representative government depends not on the people but on the representative, because while the people have the moral and political capability to sustain their polity, the representatives tend to have ‘sinister interests’ which are harmful to representative democracy (Bentham, p. 70). To the end of the successful working of the representative system, Bentham emphasizes the power and importance of public opinion as follows: Public opinion may be considered as a system of law, emanating from the body of the people†¦. To the pernicious exercise of the power of government it is the only check; to the beneficial, an indispensable supplement. Able rulers lead it; prudent rulers lead or follow it; foolish rulers disregard it (Bentham, p. 36). For Bentham, public opinions are formed by aggregate of the opinions of the members of society, and are not a mere echo of government or professional politicians. Public opinion made in this way is not corruptible. Bentham’s trust in public opinion as the determinant factor in bringing matters to a conclusion is specifically shown in the proposal of the public opinion tribunal. Believing that the people’s voice, not the capability of the representative, is the social force behind the successful operation of representative government, Bentham argues that the settlement of conflicts and disputes in a society can be done through continuous attention to what the people think and what they want. Bentham thinks that the problems and tensions in making the representative government work lie more with the rulers whose interests could not be always assumed to be identical with the interests of the people. Hence, he established many institutional devices to enable the representative to perform their roles properly in the interest of the whole people. For example, Bentham’s conception of secret suffrage as a method of voting aims to make it a safeguard against the abuse of power (Bentham, p. 186). In addition, such devices include the ‘temporary non-relocability system’ of the legislature, the ‘p.o. t. ’ and the ‘legislation penal judicatory’ (Bentham, pp. 72-91). Through these devices, Bentham tried to make the representatives accountable to the represented. By doing so, he sought to ensure that the represented the people remained as the political actor qualified to decide the matters in a state even after setting up representatives. For him, the importance of the representative system does not only lie in it being a great security for good government, but also in its placing sovereign power in the hands of the people continuously. This is the central point of his case for political representation as machinery for good government for the greatest numbers of individuals in a state. Conclusion Believing that representative government would enable the people to pursue their public interests effectively and representative democracy would thus be a desirable form of state, Burke and Bentham tried to address the theoretical justifications or representative government and its practical problems in eighteenth and nineteenth centuries. Burke’s conception of political representation was essentially based on a conception of a trusteeship. Although Burke mentions the prevalence of the people in the ultimate resolutions in major conflicts, his conception of a healthy viable practice of political representation commits him to a politics of trust on which the people is compelled to depend. Bentham’s validation of the idea of political representation is developed very differently from Burke’s. By presuming every person’s entitlement to power in a state, Bentham maintains that the people have the knowledge and ability to judge public affairs for themselves. Nevertheless, the people employ a representative to act on its behalf as a matter of convenience. Bentham does not believe that the representative can run the government better than the people, because the representative does not process moral and political capabilities superior to the people. Accordingly, for Bentham, the representative is a delegate to express the public opinion, wishes and feeling, which is a way to promote the general interest in a state. I suggest that political representation must be understood not so much in the terms of a particular relationship based on the theoretical justification for viewing the people and the representative as the main political actors, but through a broader and more comprehensive conception of the political process. Today discussion of more fundamental elements in political representation seen as a scheme for public action is almost non-existent. The problem is not only that we have not posed the questions seriously, but also that we are quite unable to answer them convincingly. The theory of political representation is at present in a very feeble condition. Despite intense interest in practical issues of political representation, the term political representation itself has been poorly and inadequately understood. Without a fuller understanding of political representation than we at present have, the main emphasis of political representation narrows to technical issues of the rational pursuit and advancing of particular interests and of elections as a means of allotting of power. I do not deny that in contemporary politics we need to analyze how interests are distributed among groups if we are to grasp what is actually happening. But in order to assess how and how far representative government can reasonably be expected to produce good government, we must recognize that there is more to political representation than the instrumental and fundamental pursuit of material interests. Otherwise, as is demonstrated by the way in which our contemporary discussions about political representation have in practice been carried on, representative democracy works less as a substitute for popular self-rule than as a mechanism through which a given population of a society can in practice pursue their interests effectively. This means that we must learn to understand political representation not in narrow terms of the responsiveness of the particular relationship between two political actors, but more through a comprehensive conception of the political process as a whole. Bibliography Bentham, J. ‘Constitutional Code’ in The Collected Works of Jeremy Bentham, ed. F. Rosen and J. H. Burns (Oxford: Clarendon Press, 1983) Burke, E. Writings and Speeches, ed. L. G. Mitchell, Vol. 8 (Oxford: Clarendon Press, 1997) Burke, E. The Works of the Right Honorable Edmund Burke, ed. W. King and F. Laurence (London: Rivington, 1826-7) Griffiths, A. P. (1960) â€Å"How Can One Person Represent Another? † Aristotelian Society, Supplementary.

The Security Of An Organization s Computer Networks

The security of an organization’s computer networks play a critical role in modern computer systems. In order to have high protection levels against malicious attacks, a number of software tools have been developed. Intrusion Detection Systems have recently become an important research topic due to its capability of detecting and preventing attacks from malicious network users. Security incidents are increasing at an incredible rate every year. As the complexity of the threats increase, so do the security measures that are required to protect the organization’s networks. Data center operators, network administrators, and other data center professionals need to comprehend the basics of security in order to safely, effectively, and†¦show more content†¦Network Security Policies protect assets from users, whether malicious or not. Most people act responsibly at work. Although there are occasionally users with bad intentions who seek to destroy or abuse company pr operty, a large percentage of people strive to do their job in the most efficient, effective, and easiest way possible. Policies help protect a company’s assets from all these types of people. Liberty Beverage’s Network Security Policy Network Security Policy Free Use Disclaimer: This policy was created by or for the Liberty Beverage Corporation for the Internet community. All or parts of this policy can be freely used for your organization. There is no prior approval required. If you would like to contribute a new policy or updated version of this policy, please send email to policies@LBC.com. Things to Consider: Please consult the Things to Consider FAQ for additional guidelines and suggestions for personalizing the Liberty Beverages Corporation policies for your organization. Last Update Status: Updated July 2015 Overview See Purpose. Purpose This standard specifies the technical requirements that wireless infrastructure devices must satisfy to connect to a Liberty Beverage’s network. Only those wireless infrastructure devices that meet the requirements specified in this standard or are granted an exception by the InfoSec Team are approved for connectivity to a Liberty Beverage’s