Resources: Ch. 4 & 5 of Modern AuditingWrite answers to thefollowing problems:Learning Check 4-15 & 4-17in Ch. 4Comprehensive Questions 5-34& 5-35 in Ch. 54-15Identify five other ways in whichthe Private Securities Reform Act of 1995 will potentially change auditors’legal liability. Explain how each is of potential benefit to the auditor.-350words4-17a. Identify howthe Sarbanes-Oxley Act of 2002 changed the audit environment for auditors.b. Identify andexplain new liabilities for managements of public companies created by theSarbanes-Oxley Act of 2002.350 words5-34(Risk of material misstatement) Your client, a manufacturer of computer components,has experienced slowing demand for its product. Recently, it cut back fromthree shifts a day to two shifts a day, and the company has eliminated thebacklog of orders that existed in prior years by providing financing tocustomers. Newspaper reports indicate that competition has taken significantbusiness away from the client because a large investment in R&D has notresulted in improved products. Furthermore, a small handful of your client’scustomers are experiencing financial difficulties because of slowing demandfor your client’s products.Requireda. Consider theimplications of the above information for revenues. What assertions, if any,are likely to be misstated? As a result, what accounts are likely to beoverstated or understated? Explain your reasoning.b. Consider theimplications of the above information for inventory. What assertions, if any,are likely to be misstated? As a result, what accounts are likely to beoverstated or understated? Explain your reasoning.350 words5-35(Developing responses to assessedrisks) Your client, GeneralTelevision, Inc. manufactures televisions and during the current yearacquired Micro Engineering, Inc., which manufactured flat panel plasmascreens for computers so that it could compete in the market for flat paneltelevisions. Following is a list of several risks that have been identifiedin the audit of this television manufacturer.General Television has strong internal controls overthe existence of inventory. It has a good perpetual inventory system andregularly compares inventory on hand with the perpetual records.Prices have been changing rapidly in GeneralTelevision’s marketplace. Although the marketplace is relatively stablefor traditional televisions, the prices on flat panel televisions havebecome much more competitive.General Television had to pay a premium to acquireMicro Engineering. General Television had independent appraisals of thefair value of assets and has determined that about 35 percent of thepurchase price should be allocated to goodwill.RequiredAnswer the following questions for the risks described in1, 2, and 3 above.a. Identify therelevant assertion.b. Does thisassertion represent a significant inherent risk? Explain.c. How might yourespond to this risk in terms of staffing decisions?d. How might yourespond to this risk in terms of the nature of audit tests?e. How might yourespond to this risk in terms of the timing of audit tests?f. How might yourespond to this risk in terms of the extent of audit tests?350 words
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