Reference no: EM132464809

(Generally accepted auditing standards) Ray, the owner of a small company, asked Holmes, a CPA, to conduct an audit of the company's records. Ray told Holmes that an audit is to be completed in time to submit audited financial statements to a bank as part of a loan application. Holmes 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 summarizing the data in the accounting records that support Ray's financial statements. The students followed Holmes's instructions and after two weeks gave Holmes the financial statements that did not include footnotes. Holmes reviewed the statements and prepared an unqualified auditor's report. The report, however, did not refer to generally accepted accounting principles or to the year-to-year application of such principles.

Required

Question 1: Briefly describe each of the generally accepted auditing standards and indicate how the action(s) of Holmes resulted in a failure to comply with each standard. Organize your answer as follows:

1. Brief Description of Generally Accepted Auditing Standards
2.  Holmes' Actions Resulting in Failure to Comply with Generally