Question (Objective 6-1) State the objective of the audit of financial statements. In general terms, how do auditors meet that objective? (Objective 6-1) OBJECTIVE OF CONDUCTING AN AUDIT OF FINANCIAL STATEMENTS Auditing standards indicate Our primary focus is the section that emphasizes issuing an opinion on financial statements. For some public companies, the auditor also issues a report on internal control over financial reporting as required by Section 404 of the Sarbanes–Oxley Act. Auditors accumulate evidence in order to reach conclusions about whether the financial statements are fairly stated and to determine the effectiveness of internal control, after which they issue the appropriate audit report. If the auditor believes that the statements are not fairly presented or is unable to reach a conclusion because of insufficient evidence, the auditor has the responsi bility of notifying users through the auditor’s report. Subsequent to their issuance, if facts indicate that the statements were not fairly presented as in the ZZZZ Best case, the auditor will probably have to demonstrate to the courts or regulatory agencies that the audit was conducted in a proper manner and the auditor reached reasonable conclusions.  

Answer number 6, All parts CASE12.5 Murchison Technoloaies, lnc Evaluating an Attorney's Response and ldentifying the Proper Audit Report MARK S. BEASLEY FRANK A. BUCKLESS STEVEN M. GLOVER DOUGLAS F. PRAWITT LEARNING OBJECTIVES After completing and discussing this case you should be able to [11 Understand the role and timing o Go to page 9 3Evaluate proper accounting treatment for attorney responses to the auditor material uncertainties 2 Interpret information contained in an attorney's 4] Identify the correct audit report in light of response letter varying circumstances INTRODUCTION Murchison Technologies, Inc. recently developed a patient-billing software system that it markets to physicians and dentists. Jim Archer and Janice Johnson founded the company in Austin, Texas five years ago after working at IBM for more than 15 years. Jim worked as a software programmer and Janice worked as a sales representative, frequently calling on stand-alone medical practices. Together, they identified a need for software to help physician and dental offices track charges for patient services provided by doctors and their staff. With the initial backing of three local venture capitalists, they left IBM, created Murchison Technologies, and devoted their full-time efforts to the development of the billing system software. For more than three years, they worked on developing the software. After extensive pilot testing, the company shipped its firstproduct to customers in early 2012. Sales have been surprisingly strong for the product, which is marketed as MEDTECH Software. Feedback from physicians and dentists has been extremely positive. Most note that billing clerks and office staff find the system quite flexible in tracking numerous types of services for large numbers of patients. Most are pleased with the ability to customize system features for their unique practice needs. Another key to the product's success is the relative cost of the software and the minimal upgrades required of the office microcomputers and networks to operate the software. The company has gradually added employees to its staff. Currently, Murchison employs mers who continually update the software for emerging about 60 people, including software program technological developments. Janice serves as chief executive officer (CEO), and Jim serves as president. While both serve on the board of directors, they ultimately are accountable to the board, which also includes representatives from the three venture capitalists and two local bankers who financed company expansions through commercial loans issued three years ago. Murchison continues to be privately held. Section 12: Completing the Audit, Reporting to Management, and External Reporting Your firm, Custer&Custer, LLP, was first engaged by Murchison to perform a review of its December 31, 2011 financial statements. In the subsequent year, the company engaged your firm to conduct the audit of its December 31, 2012 financial statements to fulfill requirements of the loan agreements. Custer&Custer issued standard, unqualified reports on both the 2012 and 2013 annual financial statements. BACKGROUND Your firm is in the process of completing the audit of the December 31, 2014 financial statements. Currently it is February 17,2015 and most of the detailed audit testing is complete. As audit senior, you are wrapping up the review of staff audit files. The partner anticipates performing the review and signing off on audit files tomorrow. This should provide plenty of time for the audit team to complete the gathering and evaluation of audit evidence in the next day or two. In preparation for completion ofthe audit, you recentlyworked with the client to sendrequests to outside legal counsel asking them to provide the standard attorney letter response regarding material outstanding claims against the company. You sent requests for attorney confirmations to three law firms providing legal representation for the company Based on all the audit work performed, you do not expect any substantive issues related to outstanding litigation claims against Murchison. Your only concern relates to an alleged copyright infringement claim against Murchison that apparently was filed in October 2014. You learned about this case during your review of the November 2014 minutes of the board of directors' meeting. The minutes made reference to the case being filed; however, based on notations about the board's discussion it appeared to you that the probability of an unsuccessful outcome related to this case is extremely low. Apparently, another software development company, Physicians Software, Inc., claims that Murchison's MEDTECH software violates a copyright held by Physicians Software. They are suing Murchison for $420,000. Your subsequent inquiries of management about the case confirmed your expectation of a very low likelihood of unfavorable outcome. In addition, management believes the claim is immaterial relative to the December 31, 2014 financial statements. Those financial statements indicate that Murchison's total assets as of December 31, 2014 were $15.8 million, with revenues of $32.4 million and pretax income of $3.9 million for the year then ended. You received two of the attorney confirmation letters in the mail yesterday. Your review of the attorney responses produced no surprises. Most of the issues being handled by those attorneys relate to collection efforts on delinquent receivables. Those same firms also helped management develop contracts for special sales agreements with two new customers. One of your audit staff members just delivered mail from the office after running by the office during lunch to pick up a few supplies. You are pleased to see that today's mail includes the attorney confirmation from the third law firm. You quickly open the envelope to make sure everything is okay. You begin reading the letter, which is presented in the pages that follow You are a little surprised to read the attorney's assessment of the case, and some of the language referencing American Bar Association (ABA) policies puzzles you. You quickly link to professional standards stored on your laptop to review the relevant ABA policy statements. Arn excerpt ofthose statements, which are presented as an exhibit to the auditing standard that addresses inquiries of the client's lawyer, is presented in Exhibit 1 on the pages that follow You want to closely evaluate the information contained in the letter to prepare for a meeting with the partner regarding possible accounting treatments and audit reporting issues. It is also likely that the partner will want to discuss those issues with Murchison's management. In order to properly prepare, please complete the items noted on the next page. [6] In preparation for tomorrow's meeting with the partner and likely subsequent meeting with Murchison management, develop recommended responses to the following possible scenarios In developing your responses, assume that each scenario is independent of the others: [al If generally accepted accounting principles require disclosure of this contingency, how would you respond to management's decision against disclosure because they view the claim as immaterial to the December 31, 2014 financial statements? Do you believe the potential loss is material? Why or why not? Ibl Assume that even though you convince management that the claim is material, they refuse to provide any disclosure that might be required. Prepare a draft of the auditor's report that would be issued in that scenario. cl Assume that you determine, through subsequent discussions with the attorney, that a more likely estimate of the range ofloss falls between $50,000 and $75,000. What type of financial statement disclosure do you believe is required in that case? Prepare a draft of the auditor's report that you would issue in that scenario. [d] Assume that you determine, through subsequent discussions with the attorney, that a more likely estimate of the range of loss falls between $90,000 and $115,000. What type of financial statement disclosure do you believe is required in that case? Section 12: Completing the Audit, Reporting to Management, and External Reporting fel What if you learn that management has pertinent information available about the case (and the case is deemed material) but refuses to share that information with you? Prepare a draft of the auditor's report that you would issue in that scenario. lfl Assume that you convinced management to disclose the contingency in the footnotes to the December 31, 2014 financial statements and that your audit report on those financial statements was a standard, unqualified audit report. What would your responsibilities be if u learned two months after the issuance of the report that Murchison settled the case for $340,000? [gl Assume that the settlement of the litigation prohibits future sales of MEDTECH software. What implication would that have on the auditor's report on the December31,2014financial statements? [hl Assume that Custer & Custer was delayed a month in completing the collection of audit evidence. What actions would be appropriate relating to gathering evidence about potential contingencies?

Protiviti is a global business consulting and internal audit firm composed of experts specializing in risk, advisory, and organizational transformation, and human capital consultancy. Protiviti advises its clients in selecting the right talent for the right positions as part of its advisory services. In one such assignment, the client faced challenges in selecting the right candidate for a key leadership position. The client was a newly established insurance company base in Oman, and had aggressive growth plans. The client wanted to differentiate itself by harnessing technology in order to provide convenient services to its customers to carry out their transactions from the comfort of their home. Being in the nascent stage of evolution, it did not have a clearly laid out IT strategy to support this vision. The existing IT Department consisted of a fairly qualified team, some of whom had been with the organization since its inception 3 year ago; however, the team was driven largely by day-to-day operations, fire-fighting, query resolution, and gathering business requirements for system enhancements. There was a general perception that the IT function was not responsive enough to cater to the dynamic nature of the evolving insurance industry landscape and consumer needs. The teams were process oriented and felt that requests from customer facing departments were coming in an ad-hoc manner. In this context, the client now wanted to fill in a key leadership position—a Chief Information Officer (CIO)—and appointed Protiviti to assist them in evaluating and identifying the best fit candidate for the position; the bank then shortlisted four candidates. Protiviti studied the business context, identified the job specifications and conducted preliminary assessment covering technical and leadership skills. The following were the observations of the top two candidates: Candidate A is a very confident and assertive individual currently heading the IT Department of a very large, well established and old insurance company in the country. He led a team of more than 100 staff and was actively involved in the development of the IT strategy as a mandate from the Board; however, he had only 3 years of experience in the insurance industry while the other 12 years were in telecom and the Oil & Gas industries. He looked at the big picture and preferred to delegate a lot of tasks to the team. He expressed comfort in stakeholder management and confidence in resolving situations where there are disagreements. This candidate was very well read and followed the latest global trends in insurance, banking, technology, and related industries. Candidate B is an internal candidate leading one of the teams in the IT Department. He was a structured, planned and organized individual and has been with the company since its inception 3 years ago and has more than 14 years of experience in the insurance industry. He is well aware of the work environment, leadership expectations, growth plans, and operational aspects of IT in an insurance company and also the regulatory and compliance requirements. Being an internal candidate, he knew all the challenges the department is currently facing and had a clear, well laid out plan for the IT function if he were offered the CIO position. His communication skills were satisfactory and showed signs that he requires to polish his capabilities in managing stakeholder demands and expectations. What are some of the technical & leadership skills that you feel should be assessed at the recruitment stage and why? Which candidate do you think should be offered the position and why? What impact would candidate A have on the team if selected for the position? Please provide reasons. What impact would candidate B have on the team if selected for the position? Please provide reasons.

Question 4.2 (20 marks; 10 marks each) (a) Let F = [e->, e-Y, е-22], C: r = [2t, t2, t), calculate the integral ScF(r) · dr based on (x, y, z) starting from (0, 0, 0) to (4, 4, 2). (b) Let F = [x²y, -y3], C: r= [t, t"], (i) calculate these integrals ScF(r) · dr based on (x, y) from (0, 0) to (1, 1) in terms of n; (ii) work out the values of the above line integrals by setting n = 1, 2 and + (iii) based on result from (ii), state whether this line integral shows path independence property or not. ("yes" or "no")

Question 4.2 (20 marks; 10 marks each) (a) Let F = [e-*, e-V, e-22], C: r = [2t, t2, t), calculate the integral SF(r). dr based on (x, y, z) starting from (0, 0, 0) to (4,4,2). (b) Let F = [xạy, -y3], C: r= [t,t"], (i) calculate these integrals ScF(r)·dr based on (x, y) from (0, 0) to (1, 1) in terms of n; (ii) work out the values of the above line integrals by setting n = 1,2 and +00 (iii) based on result from (ii), state whether this line integral shows path independence property or not. ("yes" or "no")

Question 4.2 (20 marks; 10 marks each) (a) Let F = [e-*, e-9, e-22], C: r= [2t,t,t], calculate the integral ScF(r). dr based on (x, y, z) starting from (0, 0, 0) to (4, 4, 2). (b) Let F= [xạy, -y3], C: r= [t, tr], (i) calculate these integrals ScF(r). dr based on (x, y) from (0, 0) to (1, 1) in terms of n; (ii) work out the values of the above line integrals by setting n = 1,2 and + 0 (iii) based on result from (ii), state whether this line integral shows path independence property or not. (“yes” or “no”)

Question 4.2 (20 marks; 10 marks each) (a) Let F = [e-X, e-Y,e-22), C: r = [2t, t2, t), calculate the integral ScF(r) • dr based on (x, y, z) starting from (0, 0, 0) to (4, 4, 2). (b) Let F = [xạy, -y3], C: r = [t, t"], (i) calculate these integrals SF(r). dr based on (x, y) from (0, 0) to (1, 1) in terms of n; (ii) work out the values of the above line integrals by setting n = 1, 2 and + (iii) based on result from (ii), state whether this line integral shows path independence property or not. ("yes" or "no")