Auditing Case Numbers 7.1, 4.3, 4.4

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7.1 Ligund Pharmaceuticals 1. Engagement risk may be defined as the risk of becoming involved with a client whose management lack integrity. Factors that should be considered are the accounting framework and principles used by management, management integrity, and firms that are going bankrupt or are a going concern. Professional responsibilities are affected because there is a greater chance of issuing an unqualified opinion on financial statements that are material misstated. 2. Human Resources should assess the skills and competencies of the auditor and ensure that the engagement partner possesses these competencies in order to fulfill engagement responsibilities. 3. Revenue recognition typically occurs at the point of sale. Ligand should have increased its allowance for sales returns to a greater quantity to account for the large number of sales returns. This greatly overstated their revenue. 4. The auditors for Deloitte should have immediately told management to note the misstatement and if management refused, the auditors should have notified those relying on the statements to not depend on the auditor’s opinion. 5. The PCAOB has been criticized for not revealing how many inspections it conducts on each Big Four audit firm and for its delay in reporting. I do not agree with the first criticism as I don’t find it relevant. However, I do agree with the criticism of delayed reporting. I believe that the PCAOB should work harder to make its processes more efficient to provide timelier reporting. I believe that the PCAOB, over time, is working to streamline its processes so as to expedite its issuance of inspection reports. Suzette Washington, Accounting Major 1. I would have been the one who wrote the anonymous note. 2. Yes, it was appropriate. It would have been unethical not to report the theft. 3. I do. Accounting majors must

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