Master of Accountancy
Comprehensive Final Exam
Part II
Wednesday, April 30, 2008
ALB 201
4:00-8:00 PM
Exam Procedures
· Students will use the laptops provided to take the exam. No notes, books, electronic files, or electronic gadgets may be brought into the exam. Students may bring drinks, ear plugs, and a pen or pencil. The department will provide scratch paper for those students who wish to make notes during the test.
· Students are welcome to get a drink, use the restroom, or take a short walk during the exam period but will not receive extra time for these interruptions.
· Your answers should be submitted to the department administrative assistant no later than the end of each exam period.
· Anonymity: The exam questions will be graded anonymously. In other words, the graders will not know whose exam they are grading. To aid with this process, you will be assigned a test number when you arrive for your exam. Only the test administrator will know which number corresponds to which student. You should use only your test number, instead of your name, when saving and writing all of your answers.
· Please note: Your answers should be saved in separate files. The file name should be ‘TestNumber#_QUESTION’. For example: ‘Test10_Auditing’ or ‘TestNumber10_Theory’.
Each file should contain a header with your test number and the page number in the upper right hand corner.
Exam #
Master of Accountancy
Comprehensive Final Exam
Spring 2008
Question 3. Financial Accounting and Reporting Seminar Question
Your client, MiniConGlom, is a publicly-traded corporation that has just acquired a franchise right to open and operate a Quispy Qreme pastry and coffee shop. The store is being set up as a separate limited liability company with MiniConGlom holding all its equity. Additional resources have been provided by a 2-year bank loan and a 5-year subordinated loan that was negotiated as part of the franchise agreement (as shown in the diagram below).
As part of the team attempting to determine whether the LLC is a variable interest entity under FIN46R and whether MiniConGlom holds a variable interest in the LLC, you have been assigned to look into whether the condition in paragraph 5(b)(1) is met. As part of your assignment, you have read the franchise agreement and found that the franchisor has many important rights under the franchise agreement, including:
· The right to approve specific store site, relocation of the store, and any sale of the franchise
· The right to specify exactly what signs, menuboards, and employee uniforms will be used
· The right to determine which products may be sold at the store
· The right to be sole supplier of all ingredients for making the pastries
· The right to approve suppliers for uniforms, packaging materials, computer hardware, equipment and other furnishings
· The right to approve the days and hours of operation
· The right to set prices on all products on a regional basis
Other members of your team are looking at scope limitations and other conditions listed in paragraph 5 so limit your research to just the specific issue described in FIN46R, paragraph 5(b)(1).
Write a memo to the senior on the audit explaining whether or not MiniConGlom lacks the paragraph 5(b)(1) ability to make decisions that have a significant impact on the success of the entity. Your answer should explain your conclusion in your own words with citations to the authoritative literature. Avoid long quotations but you may attach an appendix with paragraphs from the authoritative literature.
Hint: FASB provides specific guidance related to the facts of this case.
Master of Accountancy
Comprehensive Final Exam
Spring 2008
Question 4. Auditing
Answer two of the following three questions (A, B, C):
A. Sarbanes Oxley Act was enacted to improve the accuracy and transparency of financial reporting and corporate disclosures of publicly-traded companies.
1. Discuss managements’ responsibilities related to internal controls under SOX and PCAOB’s Auditing Standard No. 5. Include a discussion on how the current requirements are different from the requirements prior to SOX.
2. Discuss external auditors’ responsibilities related to internal controls under SOX and PCAOB’s Auditing Standard No. 5. Include a discussion on how the current requirements are different from the requirements prior to SOX.
3. Discuss the impact of PCAOB’s Auditing Standard No. 5 on the audits of privately-held companies, specifically on the Auditing Standards Board’s new audit risk standards.
(Students who answer question “C”, do not have to answer this part).
B. Sarbanes Oxley Act and the PCAOB Auditing Standards include provisions to enhance independence of auditors.
Discuss several specific provisions (note do not just discuss the “nine prohibited services”).
C. Statement on Auditing Standards No. 99 was designed by the Auditing Standards Board to formalize the auditors’ responsibility for fraud detection.
1. SAS No. 99 significantly expands the number of information sources for identifying risks of fraud. It provides guidance on obtaining information from management and others within the organization.
a. Discuss 3-5 specific questions that the auditor(s) should ask management.
b. Discuss 3-5 specific questions that the auditor(s) should ask others within the organization. Include the position of the “others” that the specific question would be addressed, i.e. the Audit Committee chair.
2. How have the requirements of SAS No. 99 been incorporated in the design of the PCAOB Audit Standard No. 5 (2)?