Essay on Auditor ' s Report and Wallace Industries Audit

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ACCT 4150/6150
Guidance for Exam 2/Fall 2013
Exam 2 will have a total of 50 points. The exam will be divided into three sections, as described below.
PLEASE BRING A LARGE BLUE (OR GREEN) BOOK TO CLASS FOR THE EXAM.
This exam will primarily cover material since the first exam. However, you should be familiar with and be able to apply the ethical decision making models, including the AEDM, the 5-Question
Approach, the Traditional Moral Standards Approach, and Justice as Fairness (John Rawls).
Exam 2 will be divided into three sections:
Section 1: Objective questions—one point each (22 points)
Section 2: One short essay question (12 points)
Section 3: One longer essay question (16 points)
Reference Paper
You may bring one 8 ½ x 11 inch sheet of paper as a reference for the exam (use one side only), with a minimum font size of 9 points if it is word processed. Place your name on the top of the paper. You will hand in the reference paper with your exam.
Section 1: Objective Questions
Objective questions will be worth one point each. They may be related to any readings, videos, or class discussions, but will not be “picky.” That is, if you read (watched) the material, thought about it, listened in class and took good notes, and review the main items before the exam, you should be able to answer them correctly. They may be multiple choice and/or matching questions.
Section 2: Short Essay Question
I will prepare one specific question from one of the two items below. The question will be worth 12 points.
You should review each reading in depth and think about questions that could be asked.
• Integrity: Without It Nothing Works (MYLMU Connect)
• Justice Handouts and Inequality Video (http://www.youtube.com/watch?v=QPKKQnijnsM)
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For Section 3, I am providing to you the actual essay questions that will be on the exam (see below). I consider preparation for the answers to the longer essay questions to be part of the exam. Therefore, please do not discuss or share your ideas or outlines for the longer essays with anyone else.
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Section 3: Longer Essay Questions
I will select one question from the two questions below. The question will be worth 16 points. These questions require a more specific and detailed answer than the answer for the short essay question.
1. Jessica Huang is a senior audit manager for Gutierrez and Brown, CPAs. She is in charge of the
Wallace Industries, Inc. audit. Wallace Industries is the firm’s biggest audit client. Wallace Industries is a private company with a small number of shareholders. Wallace Industries also has a large loan with
Fifth National Bank. About 70 percent of the shares in the company are owned by top management of
Wallace Industries. The primary reason for the audit is for several shareholders who own the remaining outstanding shares and for Fifth National Bank, which has loaned Wallace Industries $30 million. Huang has a team of six other auditors that report to her, and she reports to the partner on the engagement, Denise Jackson. Huang has been on the audit since she started with the firm ten years ago. Over the years, she has become good friends with the Chief Financial Officer of Wallace
Industries, Caitlin McNerney. They often play tennis together and their families sometimes get

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together for social activities. Huang is eligible for partner this year and knows that her work on the
Wallace Industries audit has contributed to her success at the firm.
Unfortunately, some material errors have been found in the financial statements of Wallace Industries this year. If the errors are corrected, Wallace Industries will show a loss for the year rather than a profit. Huang went to discuss the errors with McNerney, the CFO. McNerney said that she and the rest of top management are aware of the errors,…