Reference no: EM133906146

Question

Murray, the owner of a small entity, asked Scott, CPA, to conduct an audit of the entity's records. Murray told Scott that the audit was to be completed in time to submit audited financial statements to a bank as part of a loan application. Scott immediately accepted the engagement and agreed to provide an auditors' report within three weeks. Murray agreed to pay Scott a fixed fee plus a bonus if the loan was granted.

Scott hired two accounting students to conduct the audit and spent several hours telling them exactly what to do. Scott told the students not to spend time reviewing the controls but instead to concentrate on proving the mathematical accuracy of the ledger accounts and on summarizing the data in the accounting records that support Murray's financial statements. The students followed Scott' instructions and, after two weeks, gave Scott the financial statements, which did not include footnotes. Scott studied the statements and prepared an unmodified auditors' report. The report, however, did not refer to generally accepted accounting principles or to the fact that Murray had changed to the accounting standard for capitalizing interest.

1. Describe each of the principles and indicate how the action(s) of Scott resulted in a failure to comply with these principles.