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a) The following describes a potential audit client which is in the financial services sector and has a large number of consumer loans, including mortgages, outstanding. i. The CEO and CFOs compensation is based on three components: (a) base salary, (b) bonus based on growth in assets and profits and (c) significant stock options ii. iii. iv. Required The audit committee meets semi-annually. It is chaired by a retired CFO who knows the company well because she had served as the CFO of a division of the company. The other two are local community members one is the president of the chamber of commerce and the other is a retired executive from a successful local manufacturing firm. The company has an internal auditor who reports directly to the CFO and makes an annual report to the audit committee The previous auditor has resigned because of a dispute regarding the accounting treatment and fair value assessment of some of the loans For each of the factors listed above, indicate whether it is indicative of poor corporate governance. Explain the reasoning for your assessment. b) The audit report provides reasonable assurance that the financial statements are free from material misstatements. The auditor must assess materiality in planning the audit to ensure that sufficient audit work is performed to detect material misstatements. Required Once the auditor develops an assessment of materiality, can it change during the course of the audit? Explain.

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