On November 15, 2004, the Securities and Exchange Commission (SEC) filed an enforcement action in the Northern Illinois U.S. District Court against Hollinger Inc., a Toronto-based company, and its former Chairman and CEO, Conrad Black, and the company’s former chief operating officer, David Radler.1 In the SEC’s Civil Action Complaint, the SEC alleged that during the period 1999 to at least 2003, Black and Radler engaged in a fraudulent scheme to divert cash and assets from Hollinger International, Inc., a Chicago-based company that owned newspapers such as the Chicago-Sun Times, The Daily Telegraph in London, and The Jerusalem Post, among others. Hollinger International’s Class A common stock shares were publicly traded on the New York Stock Exchange under the symbol “HLR” while its Class B common shares were owned by Toronto-based Hollinger Inc. The SEC alleged in its complaint that Black and Radler diverted millions of dollars for personal use by misrepresenting and omitting material facts from communications with Hollinger International’s Audit Committee and Board of Directors regarding a series of related party transactions. These men diverted cash by issuing “non-competition” payments to themselves by including disguised clauses in contracts they negotiated as part of several transactions involving Hollinger International’s sale of several of its U.S. and Canadian newspaper properties. In total, at least $85 million was diverted as disguised non-compete payments, which constituted about 14 percent of Hollinger International’s total pretax income and 340 percent of its net earnings for the three-year period from 1999 through 2001. The fraud was fairly simple. As Black and Radler negotiated contracts for the sale of selected newspaper subsidiaries, they included a clause in each sales contract stating that neither they nor Hollinger Inc. (the Toronto owner of the Class B shares) would compete against the new owner of the newspaper for a period of time. When each transaction was settled, portions of the sales transaction proceeds were allocated to Black, Radler, and Hollinger Inc. as compensation for their willingness to not compete with the new owners of the newspaper. Thus, Black and Radler were able to take advantage of their positions within Hollinger to benefit personally at the expense of Hollinger International and its Class A common shareholders. Because of Black’s and Radler’s positions, these non-compete transactions constituted “related party transactions.” Hollinger International’s internal policies required that all related party transactions be reviewed and approved by the Audit Committee of Hollinger International’s Board of Directors. However, Black and Radler failed to disclose and they misled the Audit Committee of Hollinger International about the non-competition agreements they negotiated on behalf of Hollinger International. In addition to their misrepresentations and failure to disclose these related-party transactions to the company’s Audit Committee for approval, Black and Radler omitted these transactions from the financial statements and proxy documents filed with the SEC. Black and Radler also attempted to disguise these payments from their auditors at KPMG, LLP. In the SEC’s complaint, Stephen M. Cutler, Director of the SEC’s Division of Enforcement said, “Black and Radler abused their control of a public company and treated it as their personal piggy bank. Instead of carrying out their responsibilities to protect the interest of public shareholders, the defendants cheated and defrauded these shareholders through a series of deceptive schemes and misstatements.” THE TRIAL The trial began in March 2007 in a Chicago federal courtroom, more than two years after the filing of the SEC’s complaint. After months of testimony, which included a damaging confession from Black’s closest business associate, David Radler, the jury returned to the courtroom hopelessly deadlocked. Instructed by the judge to continue deliberations, the jury returned 12 days later with its verdict. Black was found guilty on four of the 13 charges against him, including obstruction of justice and mail fraud. In December 2007, Black was sentenced to 6.5 years in jail and ordered to report to prison in 12 weeks. As part of the trial deliberations, representatives from KPMG, LLP were required to testify regarding numerous aspects of their financial statement audits of Hollinger Inc. and Hollinger International.The testimony provided by KPMG partner Marilyn Stitt includes information regarding KPMG’s role in performing an audit, detecting fraud, examining related party transactions, and communicating with Hollinger International’s Audit Committee. TRANSCRIPTS OF MS. STITT’S TESTIMONY In the text boxes that follow you will find selected excerpts of Ms. Stitt's testimony on the morning of April 23, 2007. Each excerpt is presented verbatim from transcripts of the trial testimony. Different sections of testimony are separated by either a series of asterisks (* * *) or by bold headings indicating a different topic of discussion in the transcript. In the text that follows, “Q” represents the question asked of Ms. Stitt and “A” represents the response. “Witness” refers to Ms. Stitt and “The Court” refers to the judge in the trial. When reading the transcripts, keep in mind that the testimony is captured verbatim. Thus, grammatical errors made by the witness or examiner are captured word-for-word. As you read the transcripts, pay particular attention to the testimony about KPMG’s discussions with some of the members of management about the related party transactions, including discussions with the Hollinger International Audit Committee. One can begin to see examples of how management failed to be forthcoming with details about these transactions in their effort to conceal their fraud and in their attempt to mislead the Audit Committee into thinking these transactions were approved by the Audit Committee when they were not. While KPMG was not a defendant in this particular trial, imagine the stress felt by Ms. Stitt as she was required to respond under oath in the spring of 2007 to voluminous and incredibly detailed questions regarding audits of Hollinger financial statements dating back to 1999 – 2001. In two days of back-to-back testimony on April 23-24, 2007, Ms. Stitt had to recall events and discussions between KPMG personnel and client personnel and respond to numerous specific questions about detailed working papers prepared by KPMG colleagues not only in Chicago, but also in Toronto and other KPMG offices involved in the engagement. As you read the trial transcripts, picture yourself in Ms. Stitt’s shoes as she sat on the witness stand in a Chicago courtroom. Imagine the difficulty of accurately testifying about events that may have occurred as far back as seven years earlier. Also, think about how important clear, specific audit working papers would be in terms of her ability to testify and respond to cross-examination. You can imagine that Ms. Stitt might have wished that the working paper documentation had been more exact regarding the procedures performed during the 1999-2001 audits. APRIL 23, 2007 – AM SELECTED TESTIMONY ABOUT CONCEPT OF “REASONABLE ASSURANCE” 2 [Q] Would you state your name, please? [A] Marilyn Stitt. [Q] How do you spell your last name? [A] S-t-i-t-t. [Q] What’s your line of work, Ms. Stitt? [A] I’m a Chartered Accountant. [Q] Are you with a firm? [A] Yes, I’m a partner with KPMG Canada. [Q] And tell the members of the jury what KPMG is, please. [A] KPMG is a professional services firm. We provide services in accounting, auditing, taxation and a variety of business advisory services. * * * [Q] Describe for us what this concept of “reasonable assurance” means, as it’s articulated here, and as you applied it in your conduct for audits of KPMG. [A] All right. So, “reasonable assurance” isn’t necessarily, to the best of my recollection, defined in the standard, but it certainly distinguishes it from “absolute assurance” and says that it is a lower — a lower — level than “absolute assurance.” It’s being reasonably comfortable that the financial statements are free of material misstatement. There’s a — I think the reasons why it’s, you know, distinguished — or, sorry, why we cannot provide absolute assurance or a guarantee — is articulated in the second bullet, which is, “because of a nature of audit evidence and the characteristics of fraud.” [Q] We’re going to come to the characteristics of fraud, again, from an audit perspective in just a moment; but, as for the first part — the nature of audit evidence — tell us why the nature of doing an audit prevents you from giving an absolute assurance or guarantee about the financial statements? [A] Sure. So, to be able to give absolute assurance, you would need to sort of look at every transaction; every balance that a company would be involved with. And for a company, they may have millions of transactions, millions of sales, millions of receivables. And the whole concept of an audit, as I explained a little bit earlier, is on the premise of selective testing. So, there’s a huge amount of judgment that goes in to decide sort of, “What are the areas that we’re going to focus on when we’re doing our audit?” And even within those we make judgments about, “Well, what kinds of tests are we going to be performing? How much work are we going to do? When are we going to do those tests?” So, there’s a lot of judgment. And, then, even when you get audit evidence, there’s a fair amount of judgment involved as to, you know, what conclusion you can draw from that audit evidence. So, as an example, if you were going to rely on a particular control in a company, you might test 30 items and go, “It would appear that that control is working.” And you could draw a reasonable conclusion that the control seems to be effective and perhaps could reduce your testing. Well, you may have selected 30 items where it did work, but that’s not to say for the other millions of transactions that the company’s undertaken, that that control has always operated effectively. So – * * * [Q] Now, you mentioned that the second reason has to do with characteristics of fraud, again, from an audit perspective. If we continue looking at the reasonable assurance standard, it states, “Because of the characteristics of fraud, a properly planned and performed audit may not detect a material misstatement.” Can you explain that for us? [A] Generally, a fraud is an intentional act to deceive. And, so, as a result of that, it may not be apparent to 2 Trial transcripts of the April 23, 2007 – AM – Testimony of Marilyn Stitt in the federal trial, United States Securities and Exchange Commission, Plaintiff, vs. Conrad M. Black, F. David Radler, and Hollinger, Inc., Defendants. APRIL 23, 2007 – AM SELECTED TESTIMONY ABOUT CANWEST NON-COMPETE PAYMENTS 3 [Q] In early 2002, did you become aware of these CanWest non-compete payments to individuals? [A] Yes. [Q] In particular, the $11.9 million to Mr. Black and Mr. Radler; and, also, the payments to Mr. Boultbee, Mr. Atkinson and Ravelston? [A] Yes. [Q] Now, as of early 2002, at the time that you were working on this 10-K, had these CanWest non-compete payments then been disclosed in any 10-Ks that had been audited by KPMG? [A] No, they had not. [Q] Were they included in that 2000 10-K that we were just looking at, Government Exhibit Filing 9-C? [A] No, they were not. [Q] Were you planning to include them in the 2001 10-K? [A] Yes, when we became aware of them, we had concluded in our view they were material-related party transactions and needed to be disclosed in the company’s 2001 financial statements. [Q] Did you discuss that at the time with anyone from Hollinger’s management? [A] Yes. [Q] And who did you talk to first? [A] The first I spoke to was Jack Boultbee.4 [Q] Approximately when was your discussion with Mr. Boultbee? [A] I believe it was early the first week of February — [Q] And where? [A] — of 2002. 3 The CanWest transaction represented one of the several sale transactions that triggered non-compete payments to Black and Radler. CanWest represents “CanWest Global Communications Corporation,” a former subsidiary of Hollinger International. 4 From 1995 through 2002, Jack Boultbee served as Hollinger International’s chief financial officer, and in 1998 he became Executive Vice President of Hollinger International. [Q] Where did this conversation take place, Ms. Stitt? [A] I met with Jack Boultbee in his offices at 10 Toronto Street. [Q] Was anyone else present besides you and Mr. Boultbee? [A] No, it was just the two of us. [Q] What did Mr. Boultbee say to you and what did you say to him? [A] I started the conversation by indicating that I had become aware of the CanWest non-compete payments. [Q] Keep your voice up, Ms. Stitt. [A] Sorry. I had become aware of the 2000 payments – the CanWest non-compete payments — to the Ravelston and to the executives that, in my view, they were material-related party transaction; and, that I was of the view that it needed to be disclosed in 2001, and was concerned that it had not been disclosed in the 2000 financial statements. [Q] And, again, you’re having this conversation with Mr. Boultbee in early ‘02? [A] Early February. So, February 5th or 6th of 2002. [Q] When you made these statements to Mr. Boultbee, how did he respond? [A] I don’t remember his exact words, but I do remember Jack indicated that these were not related-party transactions under generally accepted accounting principles; they did not need to be disclosed. I do recall Jack indicating to me that CanWest had demanded the non-compete payments — or, sorry, the Non-Compete Agreements — and that Hollinger International was really acting as an agent in receiving the funds. They were just acting as an agent to take the funds from CanWest and make those payments to the individuals; and, that it was not a related-party transaction that needed to be disclosed under GAAP. [Q] What was your response? [A] I said I didn’t — didn’t — didn’t agree with him on his conclusion that he had reached; that, in my view, the company was not acting as an agent; that the company — it was the company, not CanWest, who had concluded that the payments would be made to the individuals. [Q] Which company are you referring to? [A] Sorry, Hollinger International was the company who had decided that the payments would be made to the individuals; that that was not — that was not — CanWest. So, I didn’t accept the argument that the company was simply acting as an agent between CanWest and the employees. That it was my view that it was a material related-party transaction; that if it wasn’t disclosed, we would probably be in a position where we would need to qualify our audit report; and, that while I couldn’t necessarily speak for my U.S. colleagues who issued the opinion on the Hollinger International statements, I was reasonably comfortable that they would reach the same conclusion or be of the same view. [Q] Is this what you communicated to Mr. Boultbee that day? [A] Yes. APRIL 23, 2007 – AM TESTIMONY ABOUT AUDIT COMMITTEE PRESENTATION [Q] Ms. Stitt, I’d like you to turn forward with me and focus on February 20, 2002. So, a couple weeks after these conversations you had with Mr. Boultbee and Mr. Kipnis. Okay?5 [A] Yes. [Q] Was there a meeting of Hollinger International’s Audit Committee that day? [A] Yes, there was. [Q] Did you attend the meeting? [A] Yes. [Q] Where did the meeting take place? [A] It took place in Hollinger International’s offices in New York City. [Q] And who else from KPMG was there besides you? [A] Pat Ryan, who is a partner with KPMG in Toronto; Jim Winikates, who is the Lead Engagement Partner from Chicago on the Hollinger International audit; and, another partner from KPMG Chicago by the name of Leslie Coolidge, who was the SEC Concurring Review Partner working with Jim on the Hollinger International audit. [Q] Were there any members of the Audit Committee present? [A] Yes. Governor Thompson was president — sorry, was present. [Q] He was present in person? [A] Yes. [Q] And do you remember if anybody was on the phone from the Audit Committee? [A] I know one member of the Audit Committee participated by phone. I don’t recall which — whether it was Mr. Burt or Ms. Kravis. [Q] And in terms of Hollinger International’s management, were any representatives of management present? [A] Yes. [Q] Do you recall who was there? [A] Mark Kipnis was there, Jack Boultbee, Fred Creasey, David Radler. [Q] And might there have been others present, as well? [A] Yeah, there may — Linda Loye may have been present, as well. [Q] Now, in terms of getting ready for this meeting, Ms. Stitt, what did you understand would be the purpose of the meeting? [A] At the conclusion of every audit, before we issue our audit report, we would generally meet with — for a public company with — the company’s Audit Committee. And in that meeting, our professional standards — so, the book that was shown, one of the standards in there are some required communications. So, there’s some things that we mandatorily need to communicate to the Audit Committee. But, in addition to that, we generally outline sort of the scope of the work that we’ve done; what areas we have focused on; you know, the — our findings; if we had any significant concerns; and, we talk about independence and unrecorded adjustments. [Q] And this was a meeting that you had annually with the Audit Committee? [A] Yes. * * * [Q] Approximately how long did the meeting last all together? [A] Hour, hour and ten minutes is what I would recall. [Q] And in terms of the talking points that you had prepared on the related-party transactions in particular, did you, in fact, speak to those items at the meeting? [A] No, I did not. 5 Mr. Kipnis served as Secretary and Vice President – Law for Hollinger International from 1998 through 2003. [Q] Who did? [A] Pat Ryan. * * * [Q] Once the group reached this portion of the presentation that Mr. Ryan was walking through, did any of the members of management have anything to say on the topic of non-compete agreements? [A] I recall management sort of interjecting into the Minutes on — [MR. NEWMAN] Objection to the form of that response. Management interjecting, Judge. [THE COURT] Sustained. [MS. RUDER] [Q] Did it — first “Yes” or “No,” did anyone from management make any comments during this portion of the presentation? [A] Yes. [Q] Who from management made comments? [A] Mark Kipnis and Jack Boultbee. * * * [Q] And when you reached that portion of the presentation, what in particular did Mr. Kipnis say? [A] I remember Mr. Kipnis leaning over to Governor Thompson going — “You — that is on the agenda for this afternoon’s meeting or the meeting later to formally ratify that.” [Q] Now, at some other point in the presentation, you said Mr. Boultbee made a comment? * * * [Q] What did Mr. Boultbee say? [A] I recall Mr. Boultbee interjecting into the meeting and saying, “Governor Thompson, you will recall when the CanWest non-compete payments were approved, there was an error in the minutes and that was subsequently rectified.” [Q] And was Mr. Ryan, in fact, talking about the company’s Minutes with respect to non-compete payments in general, as far as the presentation? [A] Yes. I mean, we’re — we’re talking about the fact that we were looking for approval of these various payments. [Q] All right. So, Mr. Kipnis mentioned Osprey and Mr. Boultbee mentioned CanWest; is that correct? [A] That is correct. [Q] What, if anything, did Mr. Kipnis or Mr. Boultbee say during the portion of the comments concerning the U.S. Community non-competes? [A] Don’t recall them saying anything. [Q] What, if anything, did Mr. Radler say during that portion of the discussion? [A] Nothing. [Q] Did anyone on the Audit Committee speak to any of these issues? [A] No. [Q] Were they listening — or only Mr. Thompson was in front of you; is that correct? [A] Yeah. Mr. Thompson was sitting at the head of the table, yes. [Q] And did Mr. Thompson say anything during this portion of Mr. Ryan’s presentation? [A] No. [Q] Now, in terms of the context, I’m putting next to each other Government Exhibit KPMG 19 and Government Exhibit KPMG 5. Before we leave this meeting, I want to understand a little better from you, Ms. Stitt, the context of where the “related-party transactions” discussion fits into the overall meeting. You mentioned that the overall meeting was around an hour, hour and ten minutes? [A] That — that — is my recollection, yes. [Q] It could have been a little longer or a little shorter? [A] Yeah. [Q] In terms of this discussion on related-party transactions, approximately how long did that portion of the discussion take? [A] I would estimate it was somewhere between five to ten minutes. * * * [Q] Coming away from the meeting — well, before we go away from the meeting, during the meeting was there some – was there anything — different or especially significant about your discussion about the U.S. Community non-competes, as opposed to any of the other topics that were covered during the session? [A] No. We — we — wanted to make sure that the Audit Committee were aware of them. And we wanted — although it’s not necessarily required under our auditing standards, we wanted — to ensure — because we thought it was the appropriate thing to do, to make sure — that they had previously been approved and that — and, so, we were there looking for confirmation that there was perhaps some lack of clarity in the original Minutes; and, we were just looking for clarification that, in fact, they had been previously approved. [Q] And coming out of the meeting, what was your understanding of the status of that issue concerning the U.S. Community non-competes? [A] Although they didn’t say anything explicit, they didn’t — they didn’t — raise any concerns; they didn’t object; they didn’t ask any questions in the general session, in the private session. I — I — took the — you know, there was a pregnant pause as we were sort of waiting for a reaction, and there was none. And we proceeded with the rest of it. And I took away from that meeting that they, basically, confirmed to us that they had previously been approved. * * * [Q] Why was it, coming away from the meeting — with the interaction that you’ve described, why were you satisfied coming away from that meeting with the status of the issue? [A] Because nobody objected at the meeting to say these hadn’t previously been approved. I mean, I took their silence as meaning that they had — they had — considered them before and they had been approved. APRIL 23, 2007 – AM SELECTED TESTIMONY ABOUT AUDIT WORKING PAPERS [Q] Now, I want to switch topics for a second and just focus on work papers. You mentioned work papers previously? [A] Correct. [Q] Work papers are the — and we’re going to talk about them a lot later, but work papers are the documentation of the work of the auditors, right? [A] It’s what we’ve performed and what we found, yeah. The results of our tests. [Q] And work papers provide support for the auditor’s ultimate conclusion as your evidential matter? [A] Yes, that is correct. [Q] And work papers are the official records of the audit, right? [A] That is correct. [Q] And they get prepared by auditors reviewing the records? [A] Yes. They’re prepared by whoever is performing the test, yeah. [Q] And sometimes the work papers include discussions with clients? [A] Yes. [Q] And they reflect confirmation from outside sources when that’s done? [A] Yeah. When that’s done, yeah. [Q] But the work papers don’t necessarily record all of the work or considerations that go into the audit, right? [A] I mean, generally, we try to document all of the items that we think are significant and perform a foundation for us expressing our opinion. [Q] You do your best, but not everything makes it into the work papers, right? [A] That’s — that could be a fair comment, yeah. [Q] But, like you said, it records many important considerations and what you’re focusing on as material, right? [A] That’s correct. * * * [Q] And when you initial a work paper, it means that, basically, you’ve reviewed it and you signed off on it subject to any comments you might have written onto the document, right? [A] Practice is somewhat mixed. I mean, sometimes you may review a document and have a question and you’ve prepared what we refer to as review notes. And you would sort of separately track your outstanding items with respect to review of a document. [Q] But it’s — the typical practice is when you initial it, you’re signing — is it called “signing off on the document”? [A] Generally, that is the practice. You shouldn’t sign off on it until you have cleared your review notes. [Q] And, then, after the audit’s completed, the work papers are all filed in a central place that KPMG keeps, right? [A] That is correct. Required  The following requirements relate to Ms. Stitt’s testimony about the concept of reasonable assurance: [a] Research the auditing standards for “reasonable assurance” and provide your assessment as to the accuracy of Ms. Stitt’s description of that concept in her testimony. [b] Ms. Stitt testified that audit evidence is often not conclusive. Describe professional standards requirements related to the need to collect audit evidence and provide a summary of what is meant by “sufficient appropriate audit evidence.” [c] As part of Ms. Stitt’s testimony, she describes auditor responsibility for detecting material misstatements due to fraud. Review auditing standards requirements related to auditor responsibilities for detecting material misstatements due to fraud and assess whether her testimony is consistent with auditing standards.  The following requirements relate to Ms. Stitt’s testimony about the CanWest non-compete payments: [a] The concept of a “related party” is defined by generally accepted accounting principles (GAAP). Review the FASB's Accounting Standards Codification (ASC) and determine where guidance for related parties in contained in accounting standards. [b] Provide a brief overview of the accounting standards' definition of “related party transactions.” [c] What are the primary accounting requirements for related parties described in the ASC? What types of information should be included in financial statements? [d] Based on your understanding of the concept of “related party transactions,” why would the non- compete payments described in this case be considered a “related party transaction?” [e] Summarize the primary auditor responsibilities in PCAOB AS 2410, "Related Parties," for identifying related party relationships and transactions.  The following requirements relate to Ms. Stitt’s testimony about the audit committee presentation: [a] Visit the PCAOB's website to identify where guidance related to auditor communications with audit committees resides. [b] Provide a brief overview of the requirements in PCAOB auditing standards about the auditor's communications with those charged with governance. Be sure to describe the overall purpose of this required communication. [c] What does PCAOB AS 2410, "Related Parties," say about communications with audit committees? [d] Based on your overview of the auditor’s communication responsibilities, why was it appropriate for KPMG to discuss the related party transactions with Hollinger International’s Audit Committee? [e] Based on your review of the transcript about the audit committee meeting, describe whether you believe KPMG exercised due professional care in pursuing this issue with Hollinger International’s Audit Committee. Did KPMG accomplish the intent of auditing standards? What could KPMG have done differently with respect to this issue during this meeting?  The following requirements relate to Ms. Stitt’s testimony about the audit working papers: [a] Based on your review of requirements in auditing standards related to auditor documentation, why must auditors prepare audit documentation? [b] Discuss the concept of “experienced auditors” as described in auditing standards and highlight how that concept relates to the form, content, and extent of audit documentation. [c] Summarize the requirements for identifying the preparer and reviewer of audit documentation. Is Ms. Stitt’s testimony consistent with those requirements? Briefly explain. [d] Summarize the responsibilities for reviewing audit documentation as described in auditing standards. PROFESSIONAL JUDGMENT QUESTIONS It is recommended that you read the Professional Judgment Introduction found at the beginning of the book prior to responding to the following question.  In December 2012, the PCAOB issued Staff Audit Practice Alert No. 10, Maintaining and Applying Professional Skepticism in Audits. Review that Alert to answer the following: [a] How does the PCAOB define professional skepticism? [b] How do responsibilities for applying professional skepticism differ among the engagement team? [c] What are common impediments to the application of professional skepticism? [d] What types of audit procedures represent examples where professional skepticism is needed? [e] What is the role of systems of quality control in regards to the application of professional skepticism?
> Refer to the data on garbage in Exercise 3.31 . (a) Plot the amount of garbage (millions of tons) versus population (millions). (b) Does there appear to be a strong correlation? Explain. (c) H ow does your interpretation of the association differ from
> The amount of municipal solid waste created has become a major problem. According to the Environmental Protection Agency, the yearly amounts (millions of tons) are: (a) Plot the amount of garbage ( millions of tons) versus year. (b) Visually, does there
> Suppose all x measurements are changed to x' = ax + b and all y measurements to y' = cy + d, where a, b, c, and d are fixed numbers (a â‰ 0, c â‰ 0). Then the correlation coefficient remains unchanged if a and c have the
> At the conclusion of one semester, a sample of 250 juniors was questioned about how long they studied for each of their final exams. Students were also classified as social, biological, or physical science majors. Compare the times studying for finals by
> Refer to concerning spurious correlation. Replace number of smartphones with per capita soda consumption in gallons. (a) Create a scatter diagram and identify the kind of association. (b) Comment on possible lurking variables.
> An ongoing study of wolves is being conducted at the Yukon-Charley Rivers National Preserve. Table in the Data Bank gives the physical characteristics of wolves that were captured. (a) Plot length versus weight for the female wolves. From your visual ins
> An ongoing study of wolves is being conducted at the Yukon-Charley Rivers National Preserve. Table in the Data Bank gives the physical characteristics of wolves that were captured. (a) Plot length versus weight for the male wolves. From your visual inspe
> A zoologist collected 20 wild lizards in the southwestern United States. After measuring their total length (mm), they were placed on a treadmill and their speed (m/sec) recorded. (a) Create a scatter plot. Comment on any unusual observations. (b) Calcu
> The Department of Natural Resources in Wisconsin monitors air quality in the state. Ozone is a major component of smog and high temperatures also contribute. The summer maximum daily ozone (ppm) and temperature for 23 Wednesdays during two summers are Ca
> Over the years, a traffic officer noticed that cars with fuzzy dice hanging on the rear-view mirror always seemed to be speeding. Perhaps tongue in cheek, he suggest ed that outlawing the sale of fuzzy dice would reduce the number of cars exceeding the
> What is wrong with this statement of purpose? PURPOSE: Determine if a new style wireless mouse is comfortable. Give an improved statement of purpose.
> Calculations from a data set of n = 36 pairs of ( x, y) values have provided the following results. Obtain the correlation coefficient.
> Is the correlation in Figure 9 about (a) .1, (b) .5, (c) .9, or (d) -.7?
> Match the following values of r with the correct diagrams. (a) r - .3 (b) r .l (c) r .9
> (a) Construct scatter diagrams of the data sets (b) Calculate r for the data set (i). (c) Guess the value of r for the data set (ii) and then calculate r.
> Breakfast cereals from three leading manufacturers can be classified either above average or below average in sugar content. Data for ten cereals from each manufacturer are given below: (a) Complete the marginal totals. (b) Calculate the relative freque
> Refer to the alligator data of the Data Bank. Using the data on x3 and x4 for male and female alligators from Lake Apopka: (a) Make a scatter diagram of the pairs of concentrations for the male alligators. Calculate the sample correlation coefficient.
> For the data set (a) Construct a scatter diagram. (b) Guess the sign and value of the correlation coefficient. (c) Calculate the correlation coefficient.
> If the value of r is small, can we conclude that there is not a strong relationship between the two variables?
> A new study is widely reported to show that dog owners benefit by being more agreeable and extroverted than cat owners. Comment in light of facts that, on average, dogs cost more to maintain and that dog owners have larger incomes than cat owners.
> In each of the following instances, would you expect a positive, negative, or zero correlation? (a) Number of salespersons and total dollar sales for real estate firms. (b) Total payroll and percent of wins of national league baseball teams. (c) The amou
> What is wrong with this statement of purpose? PURPOSE: Determine whether or not, over the course of the semester, the campus bus reaches your stop at the scheduled time. Give an improved statement of purpose.
> Would you expect a positive, negative, or nearly zero correlation for each of the following7 Give reasons for your answers. (a) The physical fitness of a dog and the physical fitness of the owner. (b) For each person, the number of songs downloaded fro
> With reference to the quit-smoking experiment: (a) Suppose the placebo trials were ignored and you were only told that 120 of 216 were abstinent after using the medicated patches. Would this now appear to be stronger evidence in favor of the patches? (
> With reference to the quit-smoking experiment, suppose two new subjects are available. Explain how you would assign one subject to receive the placebo and one to receive the medicated patch.
> Nausea from air sickness affects some travelers. A drug company, wanting to establish the effectiveness of its motion sickness pill, randomly gives either its pill or a look-alike sugar pill (placebo) to 200 passengers. (a) Complete the marginal totals.
> A sample of persons will each be asked to give the number of their close friends. The responses are to be grouped into the following classes: 0, 1-3, 3-5, 6 or more. Left endpoint is included. Explain where difficulties might arise.
> The number of goals your favorite ice hockey team scores are to be collected for each game. These game totals are to be grouped into the classes 0- 1, 2- 3, 4- 5, 7 or more. Both endpoints are included. Explain where a difficulty might arise.
> Data from one campus dorm on the number of burglaries are collected each week of the semester. These data are to be grouped into the classes 0-1, 2-3, 3-5, 6 or more. Both endpoints included. Explain where a difficulty might arise.
> Of the $207 million raised by a major university's fund drive, $11 7 million came from individuals and bequests, $24 million from industry and business, and $66 million from foundations and associations. Present this information in the form of a pie char
> At the last minute, 6 tickets have become available for a big football game. Use Table 1, Appendix B, to select the recipients from among 89 interested students.
> Eighty customers at a bakery named their favorite pie. The responses are as follows: (a) Calculate the frequency for each pie. (b) Construct a pie chart.
> The number of automobile accidents reported per month helps to identify intersections that require improvement. The number of crashes per month reported at an intersection near a university campus in Madison, Wisconsin, are Present these data in a freque
> A student at the University of Wisconsin surveyed 40 students in her dorm concerning their participation in extracurricular activities during the past week. The data on number of activities are Present these data in a frequency table and in a relative fr
> Recorded here are the blood types of 40 persons who have volunteered to donate blood at a plasma center. Summarize the data in a frequency table. Include calculations of the relative frequencies.
> The city of Madison regularly checks the water quality at swimming beaches located on area lakes. The concentration of fecal coliforms, in number of colony forming units (CFU) per 100 ml of water, was measured on fifteen days during the summer at one bea
> A campus area merchant recorded the number of bad checks received per month, for five months 4 5 4 7 6 Display the data in a dot diagram.
> Before microwave ovens are sold, the manufacturer must check to ensure that the radiation coming through the door is below a specified safe limit. The amounts of radiation leakage (mW/cm2) with the door closed from 25 ovens are as follows (courtesy of Jo
> A person with asthma took measurements by blowing into a peak-flow meter on seven consecutive days. 429 425 471 422 432 444 454 Display the data in a dot diagram.
> A sample of 50 departing airline passengers at the main check-in counter produced the following number of bags checked through to final destinations. (a) Make a relative frequency line diagram. (b) Comment on the pattern. (c) What proportion of passenger
> A major West Coast power company surveyed 50 customers who were asked to respond to the statement, "People should rely mainly on themselves to solve problems caused by power outages" with one of the following responses. 1. Definitely agree. 2. Somewhat
> Twelve bicycles are available for use at the student union. Use Table 1, to select 4 of them for you and three of your friends to ride today.
> A survey of 451 men revealed that 144 men, or 3 1.9%, wait until Valentine's day or the day before to purchase flowers. Identify a statistical population and the sample.
> It was 9:30 A.M. on a Monday morning when the call came through. “Hi Dr. Mitchell, do you have a minute?” “Sure,” the professor replied. “I am one of your former students, but if you don’t mind, I would prefer to remain anonymous. I think it is best for
> Nathan recently interviewed with one of the accounting firms in the city where he wants to live. The firm agreed to cover the expense of a rental car that he used to travel from his university to the firm’s office. The rental car agency required that Nat
> Brent Dorsey graduated six months ago with a master’s degree in accounting. Immediately after graduation, Brent began working with a large accounting firm in Portland, Oregon. He is now on his second audit engagement—a company called Northwest Steel Prod
> Banking regulators announced in early 2015 a greater focus on evaluating ethical culture as part of their regulatory examination of a bankâ€™s health. In a February 2015 speech, Thomas Baxter, Executive Vice President and General Counsel
> Murchison Technologies, Inc. recently developed a patient-billing software system that it markets to physicians and dentists. Jim Archer and Janice Johnson founded the company in Austin, Texas five years ago after working at IBM for more than 15 years. J
> Scott glanced up at the clock on his office wall. It read 2:30 P.M. He had scheduled a 3:00 P.M. meeting with George “Hang-ten” Baldwin, chief executive officer of Surfer Dude Duds, Inc. Surfer Dude specialized in selling clothing and accessories popular
> Spencer and Loveland, LLP is a medium-sized, regional accounting firm based in the western part of the United States. A new client of the firm, K&K, Inc., which manufactures a variety of picture frames, recently contracted with Spencer and Loveland t
> Auto Parts, Inc. (“the Company”) manufactures automobile subassemblies marketed primarily to the large U.S. automakers. The publicly held Company’s unaudited financial statements for the year ended December 31, 2018, reflect total assets of $56 million,
> The information below relates to the audit of EyeMax Corporation, a client with a calendar year-end. EyeMax has debt agreements associated with publicly traded bonds that require audited financial statements. The company is currently, and historically ha
> The Runners Shop (TRS) was a family-owned business founded 17 years ago by Robert and Andrea Johnson. In July of 2018, TRS found itself experiencing a severe cash shortage that forced it to file for bankruptcy protection. Prior to shutting down its opera
> Southeast Shoe Distributor (SSD) is a closely-owned business that was founded 10 years ago by Stewart Green and Paul Williams. SSD is a distributor that purchases and resells menâ€™s, womenâ€™s, and childrenâ€&#
> Southeast Shoe Distributor (SSD) is a closely owned business founded 10 years ago by Stewart Green and Paul Williams. SSD is a distributor that purchases and resells menâ€™s, womenâ€™s, and childrenâ€™s sho
> Southeast Shoe Distributor (SSD) is a closely owned business that was founded 10 years ago by Stewart Green and Paul Williams. SSD is a distributor that purchases and sells menâ€™s, womenâ€™s, and childrenâ€
> After being in business for only two years, Your 1040 Return.com has quickly become a leading provider of online income tax preparation and filing services for individual taxpayers. Steven Chicago founded the company after a business idea came to him whi
> Southeast Shoe Distributor (SSD) is a closely owned business that was founded 10 years ago by Stewart Green and Paul Williams. SSD is a distributor that purchases and sells menâ€™s, womenâ€™s, and childrenâ€
> Southeast Shoe Distributor (SSD) is a closely owned business that was founded ten years ago by Stewart Green and Paul Williams. SSD is a distributor that purchases and sells menâ€™s, womenâ€™s, and childrenâ€
> RedPack Beer Company is a privately-held micro brewery located in Raleigh, North Carolina. Bank loan covenants require that RedPack submit audited financial statements annually to the bank. Specifically, the bank covenants contain revenue and liquidity m
> Your audit firm, Garrett and Schulzke LLP, is engaged to perform the annual audit of Hooplah, Inc., for the year ending December 31, 2017. Hooplah is a privately-held company that sells electronics components to companies that manufacture various applian
> The Financial Accounting Standard Board’s Accounting Standards Codification Topic 820, Fair Value Measurement, (ASC 820) provides a framework for measuring or estimating the fair value of certain assets and liabilities. It provides a hierarchy with three
> Confirmations of accounts receivable play an important role in the accumulation of sufficient, appropriate audit evidence. One of the principal strengths of confirmations is that they provide evidence obtained directly from third-parties. Auditing Standa
> You couldn’t be more excited about being on your first financial statement audit as you launch into your new professional accounting career. Having recently graduated with a Master of Accountancy degree, you are thrilled to be employing all the skills ac
> Henrico Retail, Inc. is a first year audit client. The audit partner obtained the following description of the sales system after recently meeting with client personnel at the corporate office. DESCRIPTION OF THE SALES SYSTEM Henrico’s sales system is IT
> Wally’s Billboard & Sign Supply, Inc. was founded four years ago by Walter Johnson. The company specializes in providing locations for sign and billboard advertising and has recently begun to enter the sign design market. After working several years in t
> Burlingham Bees, an independent, minor league baseball team, competes in the Northwest Coast League. The team finished in second place in 2018 with a record of 94-50. The Beesâ€™ 2018 cumulative season attendance of 534,784 spectators set
> Asher Farms, Inc. is a fully-integrated poultry processing company engaged in the production, processing, marketing and distribution of fresh and frozen chicken products.Asher Farms sells ice pack, chill pack and frozen chicken, in whole, cut-up and bone
> Northwest Bank (NWB) has banking operations in 35 communities in the states of Washington, Oregon, and Idaho. Headquarters for the bank are in Walla Walla, Washington. NWBâ€™s loan portfolio consists primarily of agricultural loans, comme
> Analytical procedures can be powerful tools in conducting an audit. They help the auditor understand a clientâ€™s business and are useful in identifying potential risks and problem areas requiring greater substantive audit attention. If f
> Anne Aylor, Inc. (Anne Aylor) is a leading national specialty retailer of high-quality womenâ€™s apparel, shoes, and accessories sold primarily under the â€œAnne Aylorâ€ brand name. Anne Aylor is a highly
> Town and Country Hardware (T&CH) is a closely owned business founded six years ago by Caleb and Jasmine Wright. T&CH has retail hardware stores located at three lake communities along the Virginia and North Carolina border. T&CH sells products for home i
> In a management review control (MRC), members of management review key information and evaluate its reasonableness by comparing it to expected values. Some examples include comparing budget to actual, reviewing impairment analyses, and reviewing estimate
> On January 24, 2008, Société Générale, France’s second largest bank announced the largest trading loss in history, a staggering 4.9 billion Euro ($7.2 billion U.S.), which it blamed on a single rogue trader. The trader, Jérôme Kerviel, worked at what Soc
> Large public companies in the U.S. are required by law to engage an auditor to perform an “integrated audit” involving both a traditional financial statement audit and an audit of internal control over financial reporting. PCAOB Audit Standard No. 2201,
> You are the new information technology (IT) audit specialist at the accounting firm of Townsend and Townsend, LLP. One of the audit partners, Harold Mobley, asked you to evaluate the effectiveness of general and application IT-related controls for a pote
> St. James Clothiers is a high-end clothing store located in a small Tennessee town. St. James has only one store, which is located in the shopping district by the town square. St. James enjoys the reputation of being the place to buy nice clothing in the
> An entrepreneur by the name of Francisco Fernandez recently entered into a new venture involving ownership and operation of a small, 26-room motel and café. The motel is located in a remote area of southern Utah. The area is popular for tourists, who com
> Apple Inc. (Apple) is a worldwide provider of innovative technology products and services. Apple’s products and services include iPhone®, iPad®, Mac®, iPod®, Apple Watch®, Apple TV®, a portfolio of consumer and professional software applications, iOS, ma
> Tina is an audit manager with a national public accounting firm and one of her clients is Simply Steam, Co. Simply Steam provides industrial and domestic carpet steam-cleaning services. This is the first time Simply Steam has been audited. Thus, Tina doe
> John C. Koss started his first company, J.C. Koss Hospital Television Rental Company, in 1953, based in Milwaukee, Wisconsin, but John had greater ambitions. Eventually he partnered with Martin Lange, an engineer, and by 1958 the two had founded Koss Ele
> In December 1995, the flamboyant entrepreneur, Michael “Mickey” Monus, formerly president and chief operating officer (COO) of the deep-discount retail chain Phar-Mor, Inc., was sentenced to 19 years and seven months in prison. Monus was convicted for th
> Xerox Corporation (Xerox), once a star in the technology sector of the economy, found itself engulfed in an accounting scandal alleging that it was too aggressive in recognizing equipment revenue.1 The complaint filed by the Securities and Exchange Commi
> Waste Management, Inc.â€™s Form 10-K filed with the Securities and Exchange Commission (SEC) on March 28, 1997 described the company at that time as a leading international provider of waste management services. According to disclosures i
> One can only imagine the high expectations of investors when the boards of directors of CUC International, Inc. (CUC) and HFS, Inc. (HFS) agreed to merge in May 1997 to form Cendant Corporation. The $14 billion stock merger of HFS and CUC, considered a m
> Enron Corporation entered 2001 as the seventh largest public company in the United States, only to later exit the year as the largest company to ever declare bankruptcy to that point in U.S. history. Investors who lost millions and lawmakers seeking to p
> Don’t ever tell yourself, “that won’t happen to me.” Just ask Cynthia Cooper, former Vice President of Internal Audit at WorldCom. Cynthia Cooper was a typical accounting student as an undergrad at Mississippi State University. Raised in Clinton, Mississ
> The accounting firm of Barnes and Fischer, LLP, is a medium-sized, national CPA firm. The partnership, formed in 1954, now has over 4,000 professionals on the payroll. The firm mainly provides auditing and tax services, but it has recently had success bu
> In what ways can leaders create ethical organizations?
> How do the contemporary theories of leadership relate to earlier foundational theories?
> What are the contingency theories of leadership?
> What are the causes and consequences of abuse of power?
> What power or influence tactics and their contingencies are identified most often?
> How is leadership different from power?
> The authors who suggested that membership in a team makes us smarter found that teams were more rational and quicker at finding solutions to difficult probability problems and reasoning tasks than were individuals. After participation in the study, team
> On the highly functioning teams in which you’ve been a member, what other characteristics might have contributed to success?
> From your experiences in teams, do you agree with the researchers’ findings on the characteristics of smart teams? Why or why not?
> Imagine you are a manager at a national corporation. You have been asked to select employees for a virtual problem-solving team. What types of employees would you include and why?
> Can you think of strategies that can help build trust among virtual team members?
> Recall a time when you felt like you could not trust members on your team. Why did you feel that way? How did that affect the team’s performance?