Contemporary auditing : real issues and cases

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C ontemporary A uditingReal Issues and C ases

Tenth Edition

C ontemporary A uditingReal Issues and C ases

Tenth Edition

Michael c. KnappUniversity of Oklahoma

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Printed in the United States of America Print Number: 01 Print Year; 2014

DEDICATION

To Carol, Johnny. Lindsay, Jessi, and Emmie

BRIEF CONTENTS

P reface xxiii

SECTION 1 Comprehensive Cases 11.1 Enron Corporation 31.2 Lehm an Brothers Holdings, Inc. 231.3 Just for FEET, Inc. 391.4 Health M anagem ent, Inc. 531.5 T he Leslie Fay C om panies 711.6 NextCard, Inc. 831.7 Lincoln Savings and Loan A ssociation 931.8 Crazy Eddie, Inc. 1071.9 zzzz Best Company, Inc. 1171.10 DHB Industries, Inc. 1311.11 New Century Financial Corporation 1471.12 Madoff Securities 1651.13 AA Capital Partners, Inc. 1751.14 Navistar International Corporation 1851.15 Livent, Inc. 199

SECTION 2 Audits of High-Risk Accounts 2 1 32.1 Ja ck Greenberg, Inc. 2152.2 Golden B ear Golf, Inc. 2232.3 Take-Two Interactive Softw are, Inc. 2312.4 General Motors Com pany 2392.5 Lipper Holdings, LLC 2452.6 CBI Holding Company, Inc. 2532.7 G eo Securities, Inc. 2592.8 Belot Enterprises 2652.9 Powder River Petroleum International, Inc. 2712.10 LocatePlus Holdings Corporation 281

SECTION 3 Internal Control Issues 2 8 73.1 T he Trolley Dodgers 2893.2 Howard Street Jew elers, Inc. 2913.3 United Way of A m erica 2933.4 First Keystone Bank 2993.5 G oodner Brothers, Inc. 3033.6 Buranello's Ristorante 3113.7 Foam ex International, Inc. 317

B r ie f C o n t e n t s

3.8 The Boeing Company 3213.9 Walmart de Mexico 327

SECTION 4 Ethical Responsibilities of Accountants 3334.1 Creve Couer Pizza, Inc. 335

4.2 F&c International, Inc. 339

4.3 Suzette Washington, Accounting Major 343

4.4 Freescale Semiconductor, Inc. 345

4.5 Wiley Jackson, Accounting Major 349

4.6 Arvel Smart, Accounting Major 351

4.7 David Quinn. Tax Accountant 353

4.8 Dell, Inc. 357

4.9 Accuhealth, Inc. 361

4.10 Wichita Falls 367

SECTION 5 Ethical Responsibilities of Independent Auditors 3695.1 Cardillo Travel Systems, Inc. 371

5.2 American International Group, Inc. 377

5.3 The North Face, Inc. 381

5.4 IPOC International Growth Fund, Ltd. 389

5.5 Phillips Petroleum Company 395

5.6 Ryden Trucking, Inc. 399

5.7 Richard Grimes, Staff Accountant 403

SECTION 6 Professional Roles 4056.1 Leigh Ann Walker, Staff Accountant 407

6.2 Bill DeBurger, In-Charge Accountant 409

6.3 Hamilton Wong, In-Charge Accountant 413

6.4 Tommy O’Connell, Audit Senior 417

6.5 Avis Love, Staff Accountant 421

6.6 Charles Tollison, Audit Manager 425

SECTION 7 Professional Issues 4297.1 Ligand Pharmaceuticals 4317.2 Sarah Russell, Staff Accountant 437

7.3 Bud Carriker, Audit Senior 441

7.4 Hopkins Ư. Price Waterhouse 447

7.5 Fred Stern & Company, Inc.(Ultramares Corporation V. Touche et a/.) 455

7.6 First Securities Company of Chicago(Ernst <& Ernst V. Hochfelder et aP) 463

7.7 Elizabeth Wallace, Audit Senior 469