PCAOB guidance-The Ten Standards

PCAOB guidance-The Ten Standards

Ray, the owner of a small company, asked Holmes, CPA, to conduct an audit of the company’s records. Ray told Holmes that the audit must be completed in time to
submit audited financial statements to a bank as part of a loan application. Homes immediately accepted the engagement and agreed to provide an auditor’s
report within three weeks. Ray agreed to pay Holmes a fixed fee plus a bonus if the loan was granted. Holmes hired two accounting students to conduct the audit
and spent several hours telling them exactly what to do. Holmes told the students not to spend time reviewing the controls, but instead to concentrate on
proving the mathematical accuracy of the ledger accounts and to summarize the data in the accounting records that support Ray’s financial statements. The
students followed Holmes’ instructions and after two weeks gave Holmes the financial statements, which did not include footnotes because the company did not
have any unusual transactions. Holmes reviewed the statements and prepared and unqualified auditor’s report. The report, however, did not refer to GAAP or to
the year-to-year application of such principles. Briefly describe each of the ten PCAOB guidance standards and indicate how the action(s) of Holmes resulted in
a failure to comply with each standard.

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