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CASE 5.1 CARDILLO TRAVEL SYSTEMS, INC. evidence, pre-conditi

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CASE 5.1 CARDILLO TRAVEL SYSTEMS, INC. (By Michael C. Knapp 8e)

2. Describe the procedures an auditor should perform during a review of a client's quarterly financial statements. In your opinion, did the Touche Ross auditors who discovered the $203,000 adjusting entry during their 1985 second quarter review take all appropriate steps to corroborate that entry? Should the auditors have immediately informed the audit partner, Helen Shepherd, of the entry?

3. In reviewing the United Airlines-Cardillo agreement, Shepherd collected evidence that supported the $203,000 adjusting entry as booked and evidence that suggested the entry was recorded improperly. Identify each of these items of evidence. What characteristics of audit evidence do the profession's technical standards suggest auditors should consider? Analyze the audit evidence that Shepherd collected regarding the disputed entry in terms of these characteristics.

4. What are the principal objectives of the SEC's rules that require 8-K statements to be filed when public companies change auditors? Did Shepherd violate the client confidentiality rule when she discussed the United Airlines-Cardillo transaction in the exhibit letter she filed with Cardillo's 8-K auditor change statement? In your opinion, did Shepherd have a responsibility to disclose to Cardillo executives the information she intended to include in the exhibit letter?

5. Do the profession's technical standards explicitly require auditors to evaluate the integrity of a prospective client's key executives? Identify the specific measures auditors can use to assess the integrity of a prospective client's executives.

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Your tutorial is 616 words and describes interim procedures and whether they were likely enough. The comments indicate the evidence quality, the reason for filing when auditors change and the pre-conditions for accepting an engagement.

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2. Describe the procedures an auditor should perform during a review of a client's quarterly financial statements. In your opinion, did the Touche Ross auditors who discovered the $203,000 adjusting entry during their 1985 second quarter review take all appropriate steps to corroborate that entry? Should the auditors have immediately informed the audit partner, Helen Shepherd, of the entry?

Interim financial statements are usually reviewed by asking management about the quarter (events that occurred, major changes to systems, policies or procedures) and doing an analytical review of balances (ratios and fluctuation analysis). Auditors also review board minutes for major decisions and events. (AU Section 722).

Hindsight is always 20-20. The auditors found the entry and questioned it. They accepted the explanation at the mid-year point (lower duty on unaudited financials) but then pressed harder and insisted on external evidence at year-end which led to the firing of the auditors. Yes, the audit team should have alerted the partner upon finding the entry and perhaps been a bit more skeptical at interim. This was significant to their financial results.

3. In reviewing the United Airlines-Cardillo agreement, Shepherd collected evidence that supported the $203,000 adjusting entry as booked and evidence that suggested the entry was recorded improperly. Identify each of these items of evidence. ...

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