Auditing and Accounting Cases Investigating Issues of Fraud and Professional Ethics 4th Edition Thibodeau Solutions Manual 1
Auditing and Accounting Cases Investigating Issues of Fraud and Professional Ethics 4th Edition Thibodeau Solutions Manual 1
To maximize a student’s knowledge acquisition of this material, this book has been designed to
be read in conjunction with the post–Sarbanes-Oxley technical audit guidance. All of the
PCAOB Auditing Standards that are referenced in this book are available for free at
http://pcaobus.org/STANDARDS/Pages/default.aspx. In addition, a summary of the provisions
of the Sarbanes-Oxley Act of 2002 is available for free on the book’s website at
www.mhhe.com/thibodeau4e or at http://www.aicpa.org/Pages/Default.aspx.
Section 204
Section 301
Paragraph #17-23
Paragraph #4-8
This case provides students with the opportunity to understand what is meant by an audit
firm exercising due care in completing the audit and the consequences associated with a failure
to do so. It is important to emphasize to students that the consequences attach to both the firm
1
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Education.
Case 2.5 - Sunbeam: Due Care
and the individual auditor. In addition, the case provides a context to discuss what is meant by
an adjusting journal entry proposed by an auditor and the issues associated with an auditor’s
decision about whether to require that such entries be recorded. Finally, the case provides an
opportunity for instructors to discuss the role of the audit committee in helping to prevent these
types of situations. To meet these objectives, this case illuminates a number of relevant
accounting issues that surfaced during the audits of Sunbeam and the client’s refusal to record
We believe it is essential for students to carefully read over the recommended technical
knowledge, along with this case reading. The educational psychology literature suggests that the
acquisition of technical/factual type knowledge increases dramatically when such knowledge can
be applied in a realistic context. Thus, we urge instructors to use this case as a mechanism to
This case assignment will work best if it is scheduled to coincide with the auditors'
professional responsibilities topic in the auditing course. Alternatively, the case can be used in
connection with a discussion of quality control at an audit firm. Or, this case could be used when
discussing the completion of the audit topic as a way to illustrate the issues involved when asking
We recommend that instructors spend time explaining the nature of adjusting journal
entries proposed by auditors. Depending on the point of the semester where this case is used,
students may need to gain an understanding of what is meant by an auditor’s proposed adjusting
journal entry. This can be accomplished quite effectively while going over questions number one
and two. Interestingly, Sunbeam’s first year improprieties were designed to decrease net income,
while Sunbeam’s second year improprieties were designed to increase net income. The case
2
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Education.
Case 2.5 - Sunbeam: Due Care
provides a mechanism to explain the different motivations of managers in each of these different
years.
We also recommend that instructors spend time discussing the nature of the quality control
process at an audit firm. This discussion can be accomplished quite effectively while going over
the response to question number three in the case. That is, it is useful to ask students how they
think Harlow was able to justify his decision to the concurring review partner. This may provide
an opportunity to discuss materiality and the subjectivity associated with estimating materiality.
Finally, question four provides instructors with an opportunity to discuss the increased role of the
audit committee in the post-Sarbanes environment and whether that would have made a difference
1. Consult Paragraphs 4-8 of PCAOB Auditing Standard No. 15. Next, consider the alleged
accounting improprieties related to increased expenses from the 1996 audit. If you were
auditing Sunbeam, what type of evidence would you like to review to determine whether
Sunbeam had recorded the litigation reserve amount and the cooperative advertising
amount in accordance with GAAP?
According to paragraph #4 of PCAOB Auditing Standard No. 15, “The auditor must plan and
perform audit procedures to obtain sufficient appropriate audit evidence to provide a reasonable
basis for his or her opinion.” Next, according to paragraph #6 of PCAOB Auditing Standard No.
15, “To be appropriate, audit evidence must be both relevant and reliable in providing support for
the conclusions on which the auditor's opinion is based.” The relevance of audit evidence
specifically relates to whether the evidence gathered actually relates to the financial statement
assertion being tested. That is, will the evidence allow the auditor to reach conclusions related to
3
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Education.
Case 2.5 - Sunbeam: Due Care
The reliability of the evidence specifically relates to whether the evidence gathered can truly
be relied upon as providing a true indication about the financial statement assertion being tested.
There are a number of factors that should influence an auditor’s conclusions about reliability, the
most important of which is the source (e.g., is it from a third party?) of the audit evidence. Finally,
according to paragraph #5 of PCAOB Auditing Standard No. 15, “sufficiency is the measure of
the quantity of audit evidence.” All things being equal, the greater the risk of material misstatement
related to the financial statement assertion, the more audit evidence will be gathered by the auditor.
In 1996, Sunbeam failed to comply with GAAP by recording a $12 million reserve for a
lawsuit that alleged Sunbeam’s potential obligation to cover a portion of the cleanup costs for a
hazardous waste site. Sunbeam’s management did not take appropriate steps to determine
whether the amount should be recorded in accordance with FASB Statement #5. Had they done
so, the reserve would not have passed either of the criteria.
According to FASB statement #5, an accrual and related expense needs to be recorded if the
loss is probable and the amount of the loss is able to be reasonably estimated. Thus, the auditor
would need to determine whether each of these criteria had been met for the $12 Million
litigation reserve. Thus, among other factors, the auditor would want to be sure that the cleanup
costs for the hazardous waste represented a reasonable estimate of the cleanup costs. In order to
be assured of this, the auditor must obtain sufficient and competent evidential matter. According
to the generally accepted auditing standards of field work number three, “Sufficient, competent
to afford a reasonable basis for an opinion regarding the financial statements under audit.”
Andersen did not obtain sufficient, competent evidential matter regarding the hazardous waste
contingency. This could be accomplished in part by reviewing documents such as the following:
4
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Education.
Case 2.5 - Sunbeam: Due Care
Statements made by Sunbeam’s lawyers about the range of estimated liability, including
the most likely amount. One of the primary substantive tests to obtain comfort over the
valuation of an estimated liability is to obtain written, third party confirmation from the
independent estimate has not been obtained by management, it may be appropriate for the
Review copies of all correspondence with pertinent regulatory agencies regarding the
hazardous waste sight. The auditor should confirm the correspondence with pertinent
Review any board of director meeting minutes that relate to the cleanup process.
Review the process that management follows to determine whether a liability and related
Any other evidence that may help to determine whether the criteria in FASB Statement
In 1996, Sunbeam also recognized an excessive figure for a “cooperative advertising” reserve
that was established to fund a portion of its retailers’ costs of running local promotions. The
amount recorded, $21.8 million, was approximately 25% higher than the prior year’s accrual
amount. Andersen should have identified the increase during a horizontal analysis of the
Under GAAP, the matching principle does require that an estimate be made for all expenses
incurred that relate to revenue of that period. Thus, the recording of an estimated “cooperative
5
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CHAPTER XVIII.
[Introductory.]
[L .]
Let the person say this chapter, he will be purified and come
forth by day, after his death, and take all forms for the
satisfaction of his will, and if this chapter be recited over him, he
will be prosperous upon earth, he will come forth safe from every
fire, and no evil thing will approach him: with undeviating
regularity for times infinite.(11)
N .
The eighteenth chapter is one of those found in the earliest
copies of the Book of the Dead, on the wooden coffins of the ‘Old’
and ‘Middle’ Empires; the most complete ancient copy being on
the coffin of Queen Mentuhotep of the eleventh dynasty.
It consists of a Litany addressed to Thoth, who is invoked for
securing the triumph of the departed against his adversaries in
presence of the gods of certain localities. Each petition has
reference to some mythological event, and is supplemented by the
enumeration of the gods constituting the divine company
presiding at the locality named, and sometimes by a short
comment on the myth referred to.
The order of petitions is somewhat different in the later
recensions, and the text has suffered other alterations.
Copies of this chapter are extremely numerous, particularly in
the later periods.
The chapter really begins with the petitions to Thoth. The
preceding portion is, as far as I know, found only in the Papyrus of
Ani. But as the vignette which belongs to this portion has a place
in the great Leyden Papyrus of Kenna, the text cannot have been
confined to a single manuscript. It is particularly valuable as
illustrative of the ritual use of portions of the Book of the Dead.
1. The deceased person is supposed to be presented to the gods
by two priests in succession, one called An-maut-ef
ϫⲱϫ, a head (or rather top of the head), as in the Latin vertex,
akin to vortex, from the same root as vertere. The sign , which
in later texts often appears as the determinative, has its origin in
the cursive form of carelessly written. Instead of we
32. .
Thy Father Tmu hath prepared for thee this beautiful Crown of
Triumph, the living diadem which the gods love, that thou mayest
live for ever. Osiris, Prince of Amenta, maketh thee to triumph
over thine adversaries. Thy Father Seb hath decreed that thou
should be his heir, and be heralded as Triumphant, Horus son of
Isis and son of Osiris, upon the throne of thy Father Rā, through
the defeat of thine adversaries. He hath decreed for thee the Two
Earths, absolutely and without condition(1). And so hath Atmu
decreed, and the Cycle of the gods hath repeated the glorious act
of the triumph of Horus the son of Isis and the son of Osiris for
ever and ever.
Osiris, the Prince of Amenta, the Two Parts of Heaven united,
all gods and all goddesses who are in heaven and upon earth join
in effecting the Triumph of Horus the son of Isis and son of Osiris
over his adversaries before the Great Circle of gods in Heliopolis,
on the Night, etc.
Horus repeateth the proclamation four times. All the
adversaries fall and are overthrown and slaughtered.
N repeateth the proclamation four times, and all his adversaries
fall and are overthrown and slaughtered.
Horus son of Isis and son of Horus repeateth an infinite number
of festivals, and all his adversaries fall down, are overthrown and
slaughtered. Their abode is transferred to the slaughtering block
of the East, their heads are cut away, their necks are crushed, their
thighs are lopped off, they are given to the great Annihilator who
resideth in the Valley(2) that they may not ever escape from under
the custody of Seb.(3)
N .
The nineteenth chapter is a very recent recension of the
eighteenth. The MSS. containing it, as far as we know, are not
older than the Greek period. It derives its origin from the practice
of placing garlands or floral crowns upon the mummies. The
mummy of Aahmes I, the first king of the eighteenth dynasty,
when found “portait au cou,” M. Maspero writes, “une guirlande
de jolies fleurs roses de Delphinium orientale.” Remains of such
crowns are to be found in our Museums. For farther details I must
refer to an excellent paper entitled La Couronne de la
Justification, by Dr. Pleyte of Leyden, in the second volume of the
Transactions of the Oriental Congress held at Leyden in 1884; and
see Plate VIII.
1. . This adverbial expression is apparently
D ;T , LXXV.
CHAPTER XXI.
Hail to thee, Lord of Light, who art Prince of the House which is
encircled by Darkness and Obscurity. I am come to thee glorified
and purified.
My hands are behind thee; thy portion is that of those who have
gone before thee.(1)
Give me my mouth that I may speak with it; and guide(2) my
heart at its hour of Darkness and Night.
N .
The oldest papyrus containing this chapter is that of Ani, and
the translation is based upon it. But the text differs both from
those written on the very ancient coffins of Heru and Set-Bastit,
copied by M. Maspero,[34] and from the later texts.
The second paragraph seems to be spoken by the god, the first
and third being from the deceased.
“My hands are behind thee” is a formula implying protection.
On the coffins the invocation is addressed not to “Osiris, Lord of
Light” or “Radiant One” , but to the ,
“one whose head is clothed with radiant white, of the House of
Darkness and Obscurity.”
Instead of “obscurity” the coffin has
34. Mission Archéologique Française, II, p. 216 and 223. The text is unfortunately
incomplete on both coffins.
PLATE X.
PLATE XI.
CHAPTER XXII.
I shine forth out of the Egg which is in the unseen world.(1) Let
there be given my mouth that I may speak with it in presence of
the great god, Lord of the Tuat. Let not my hand be repulsed by
the Divine Circle of the great god.
I am Osiris, the Lord of Restau, the same who is at the head of
the Staircase.(2)
I am come to do the will of my heart, out of the Tank of Flame,
which I extinguish when I come forth.(3)
N .
This is one of the chapters of which the text certainly belongs to
the earliest epoch. It is one of those copied by Wilkinson from the
coffin(2) of Queen Mentuhotep. In the Papyrus of Ani it is
followed by chapter 21 as its conclusion, and both chapters are
appended to chapter 1, before the rubric belonging to that chapter.
1. The Egg in the unseen world is the globe of the Sun while yet
below the horizon. It is only through a mistranslation of chapter
54, 2 that the Indian notion of a ‘Mundane Egg’ has been ascribed
to the Egyptians.
The 17th chapter addresses “Rā in thine Egg, who risest up in
thine orb, and shinest from thine Horizon.”
N .
35. .
N .
This is another of those chapters of which the antiquity is
proved by the coffins of Horhotep and Queen Mentuhotep. And
even in the early times to which these coffins belong it must have
been extremely difficult to understand. In the translation here
given I have adhered as closely as possible to the oldest texts, but
these, as the variants show, are not entirely trustworthy.
1. Thigh. This is the usual translation, which accords with the
frequent pictures of the goddess Nut, as the Sky, with the divine
[39]
Scarab in the position described. But signifies that
which runs, from uār, run, fugere; and the noun (the
runner) is often applied to running water. It is the geographical
name of a river or canal. M. Naville has already pointed out that in
the Book of the Dead it has for variants and
3. The later texts read , but all the earlier ones give
4.
37. Nu.
38. .
39. See also in Plate XI the Vignette from chapter 17 in the Turin and all the later
papyri.
40. Columella speaks of the “contumacia pervicax boum.”
CHAPTER XXV.
N .
1. Every Egyptian Temple being symbolical of Heaven, had its
Great House and its House of Flame
N .
earliest and in the latest papyri. But some texts have simply
, which is certainly a mistake, and others omit the conjunction
before the verb. The sense is not much affected by this omission.
signifies if not, unless, until, but, but surely. Cf. the
O ye gods who seize upon Hearts, and who pluck out the Whole
Heart; and whose hands fashion anew the Heart of a person
according to what he hath done; lo now, let that be forgiven to him
by you.(1)
Hail to you, O ye Lords of Everlasting Time and Eternity!
Let not my Heart be torn from me by your fingers.
Let not my Heart be fashioned anew according to all the evil
things said against me.
For this Heart of mine is the Heart of the god of mighty
names(2), of the great god whose words are in his members, and
who giveth free course to his Heart which is within him.
And most keen of insight(3) is his Heart among the gods. Ho to
me! Heart of mine; I am in possession of thee, I am thy master,
and thou art by me; fall not away from me; I am the dictator to
whom thou shalt obey in the Netherworld.
N .
1. There is a great difference here as in so many other places
between the MSS. of different periods. I long ago translated the
of the Todtenbuch by non ignoretur
a vobis, M. de Rougé, after me, by non renuatur a vobis. But M.
Naville pointed out the fact that in some of the oldest MSS. the
particle did not occur. It now appears that the particle is not
found in any of the older MSS., and I have also found it omitted in
hieratic papyri. The passage therefore must be translated
differently, and this is possible through a slight change in the
interpretation of from ignorare to ignoscere; ignoscatur illi
a vobis. The pronoun which in the older texts follows
2. The god of mighty names is Thoth, and the later texts read
“For this is the Heart of the great god who is in Hermopolis.”
O Lion-god!
I am Unbu(1), and what I abominate is the block of execution.
Let not this Whole Heart of mine be torn from me by the divine
Champions(2) in Heliopolis!
O thou who clothest(3) Osiris and hast seen Sutu:
O thou who turnest back after having smitten him, and hast
accomplished the overthrow:
This Whole Heart of mine remaineth weeping over itself in
presence of Osiris.
Its strength proceedeth from him, it hath obtained it by prayer
from him.
I have had granted to it and awarded to it the glow of heart at
the hour of the god of the Broad Face, and have offered the
sacrificial cakes in Hermopolis.
Let not this Whole Heart of mine be torn from me.(4) It is I who
entrust to you its place, and vehemently stir your Whole Hearts
towards it in Sechit-hotepit and the years of triumph over all that
it abhors and taking all provisions at thine appointed time from
thine hand after thee.
And this Whole Heart of mine is laid upon the tablets(5) of
Tmu, who guideth me to the caverns of Sutu and who giveth me
back my Whole Heart which hath accomplished its desire in
presence of the divine Circle which is in the Netherworld.
The sacrificial joint and the funereal raiment, let those who find
them bury them.(6)
N .
the offspring (Todt., 42, 19) of Nu and Nut. As a common noun the
word unbu means the Hawthorn or some other kind of flowering
bush. This god is called ‘the golden Unbu’
in the Pyramid Texts (Teta 39). We have no means of determining
the exact sense of this word, which as an appellative expresses an
attribute possessed both by the Sun and by the fruit, foliage, or
other parts of the tree.