Luca, a Newly Licensed Certified Public Accountant, Performed an Audit

question 42

Essay

Luca, a newly licensed certified public accountant, performed an audit for ABC Corporation. Shortly after the audit, a number of company officials were indicted for fraud. Luca tells his boss, Olivia, that he is not concerned because he had no duty under GAAS or GAAP to detect fraud and that so long as those obligations were met, he had no duty to do more. He says that auditors are not expected to have perfect judgment. Set forth what the initials GAAS and GAAP represent. Additionally, discuss whether Luca is correct on the following issues, and why or why not:
1. His contention regarding compliance with GAAS and GAAP completely satisfying auditing obligations.
2. His contention regarding the obligation of auditors in relation to fraud.
3. His contention that auditors are not required to have perfect judgment.

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Definitions:

Local Population

pertains to the number of inhabitants residing within a specific area or region, often used in studies and planning at a community or municipal level.

Free-Market Economy

An economic system where prices for goods and services are determined by the open market and by consumers, with minimal government intervention or centralized planning.

Banking Presence

The extent and availability of banking services and institutions within a particular area or region.

Credit Provided

The provision of funds or resources now with an agreement or expectation of repayment in the future, often with interest.