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[3] The Financial Accounting Standards Board (FASB) and the
International Accounting Standards Board (IASB) recently completed a
joint project to develop a common revenue standard for U.S. GAAP and
IFRS to improve revenue recognition practices and to remove
inconsistencies and weaknesses in revenue requirements. The updated
guidance is contained in the Accounting Standards Codification as Topic
606, Revenue from Contracts with Customers. Review that guidance to
summarize the core principle for recognizing revenue and briefly
describe the five steps needed to achieve the core principle. Also,
describe how the core principle was not achieved in this situation.
[4] What types of audit procedures could an external auditor perform
that might help the auditor detect this fraudulent activity?
[5] People who study instances of financial statement fraud often note
that three conditions are generally present for fraud to occur. First, the
person perpetrating the fraud has an incentive or pressure to engage in
fraud. Second, there is an opportunity for that person to carry out the
fraud. Third, the person’s attitude or ethical values allows the perpetrator
to rationalize the unethical behavior. Describe examples of incentive,
opportunity, and attitude conditions that were present in this situation.
[6] In 2014, the AICPA’s Professional Ethics Executive Committee
adopted a revised Code of Professional Conduct that is effective
December 15, 2014. Briefly describe how the new Code is structured
and indicate where would you find guidance about the importance of
integrity.
[7] (a) What would you recommend to the caller if you were Dr.
Mitchell? (b) What are the risks of continuing to work with the company?
(c) What are the risks of resigning immediately?
[8] What responsibility, if any, does the caller have to report this
situation directly to the bank involved? Before you respond, think about
the risks present if the caller does inform the bank and it later turns out