John Clinton, owner of Clinton Company, applied for a bank loan and was informed by the banker that...

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John Clinton, owner of Clinton Company, applied for a bank loan and was informed by the banker that audited financial statements of the business had to be submitted before the bank could consider the loan application. Clinton then retained Arthur Jones, CPA, to perform an audit. Clinton informed Jones that audited financial statements were required by the bank and that the audit must be completed within three weeks. Clinton also promised to pay Jones a fixed fee plus a bonus if the bank approved the loan. Jones agreed and accepted the engagement.The first step taken by Jones was to hire two accounting students to conduct the audit. He spent several hours telling them exactly what to do. Jones told the students not to spend time reviewing controls but instead to concentrate on proving the mathematical accuracy of the ledger accounts and summarizing the data in the accounting records that support Clinton Company’s financial statements. The students followed Jone’s instructions and after two weeks gave Jones the financial statements, which did not include any notes. Jones reviewed the statements and prepared an unqualified audit report. The report, however, did not refer to generally accepted accounting principles.Required:List on the left side of a sheet of paper the generally accepted auditing standards that were violated by Jones, and indicate how the actions of Jones resulted in a failure to comply with each standard. Organize your answers as follows:
	
Document Preview: Generally Accepted Auditing Standards Write under the generally accepted auditing standards column the specific standard that was violated and how the action of Jones resulted in a failure to comply with each standard. Organize your answer as shown below; specifically with a column for the standard that was violated and a column for the required action. The paper should be 2 pages. Problem:John Clinton, owner of Clinton Company, applied for a bank loan and was informed by the banker that audited financial statements of the business had to be submitted before the bank could consider the loan application. Clinton then retained Arthur Jones, CPA, to perform an audit. Clinton informed Jones that audited financial statements were required by the bank and that the audit must be completed within three weeks. Clinton also promised to pay Jones a fixed fee plus a bonus if the bank approved the loan. Jones agreed and accepted the engagement.The first step taken by Jones was to hire two accounting students to conduct the audit. He spent several hours telling them exactly what to do. Jones told the students not to spend time reviewing controls but instead to concentrate on proving the mathematical accuracy of the ledger accounts and summarizing the data in the accounting records that support Clinton Company’s financial statements. The students followed Jone’s instructions and after two weeks gave Jones the financial statements, which did not include any notes. Jones reviewed the statements and prepared an unqualified audit report. The report, however, did not refer to generally accepted accounting principles.Required:List on the left side of a sheet of paper the generally accepted auditing standards that were violated by Jones, and indicate how the actions of Jones resulted in a failure to comply with each standard. Organize your answers as follows:Generally Accepted Auditing StandardsActions by Jones Resulting in Failure to Comply with Generally Accepted Auditing...

David · Accepted Answer

Problem: 
Organize your answers as follows: 
Generally Accepted Auditing Standards Actions by Jones Resulting in Failure to 
Comply with Generally Accepted 
Auditing Standards 
General Standards   
(1) The auditor must have adequate technical 
training and proficiency to perform the audit. 
(1) It was inappropriate for Jones to hire the 
two students to conduct the audit. The audit 
must be conducted by person with proper 
education and experience in the field of 
auditing. Although  a junior assistant has not  
(2) The auditor cannot overlook the control system
(2) The auditor in this case Jones overlook 
the control system of the company. 
(3) Auditor cannot provide unqualified report 
without checking controls of the company. 
(3) Jones provided company unqualified 
report without checking the control. 
(4) Auditor cannot take any extra bonus if any 
material gain is achieved by client 
(4) Jones was promised with extra bonus if 
the loan is cleared by the bank.   
(5) Audit process not conducted properly (5) Only plain Instructions were passed top 
juniors to match the ledgers with reported 
financial statements. 
This is a pure case of audit process not conducted in a right manner and failure to do so have 
resulted in giving wrong opinion towards audit without checking. A typical audit program 
includes several phases: engagement scoping, risk assessment, deciding the audit agenda, 
establishing an audit project plan, fieldwork and reporting. Depending on the audit approach and 
number of auditors available, these phases are either repeated for each type of audit or covered 
fewer times in integrated audits. Audit planning can be consolidated for different types of audits. 
Recommendations 
Internal auditors:

John Clinton, owner of Clinton Company, applied for a bank loan and was informed by the banker that audited financial statements of the business had to be submitted before the bank could consider the...

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