Auditing A Risk-Based Approach to Conducting a Quality Audit 9th Edition Johnstone Solutions Manual

Auditing A Risk-Based Approach to Conducting a
Quality Audit 9th Edition Johnstone Solutions Manual
download pdf
https://testbankfan.com/product/auditing-a-risk-based-approach-to-
conducting-a-quality-audit-9th-edition-johnstone-solutions-manual/
Visit testbankfan.com today to download the complete set of
test banks or solution manuals!

Here are some recommended products for you. Click the link to
download, or explore more at testbankfan.com
Auditing A Risk-Based Approach to Conducting a Quality
Audit 9th Edition Johnstone Test Bank
conducting-a-quality-audit-9th-edition-johnstone-test-bank/
Auditing A Risk Based-Approach to Conducting a Quality
Audit 10th Edition Johnstone Solutions Manual
conducting-a-quality-audit-10th-edition-johnstone-solutions-manual/
Auditing A Risk Based-Approach to Conducting a Quality
Audit 10th Edition Johnstone Test Bank
conducting-a-quality-audit-10th-edition-johnstone-test-bank/
Managerial Economics Applications Strategies and Tactics
13th Edition McGuigan Solutions Manual
https://testbankfan.com/product/managerial-economics-applications-
strategies-and-tactics-13th-edition-mcguigan-solutions-manual/

Social Problems 7th Edition Macionis Test Bank
https://testbankfan.com/product/social-problems-7th-edition-macionis-
test-bank/
Arts and Culture An Introduction to the Humanities
Combined Volume 4th Edition Benton Test Bank
https://testbankfan.com/product/arts-and-culture-an-introduction-to-
the-humanities-combined-volume-4th-edition-benton-test-bank/
Calculus Early Transcendentals 8th Edition Stewart Test
Bank
https://testbankfan.com/product/calculus-early-transcendentals-8th-
edition-stewart-test-bank/
Ethical Obligations and Decision Making in Accounting Text
and Cases 2nd Edition Mintz Test Bank
https://testbankfan.com/product/ethical-obligations-and-decision-
making-in-accounting-text-and-cases-2nd-edition-mintz-test-bank/
Accounting Volume 2 Canadian 9th Edition Horngren
Solutions Manual
https://testbankfan.com/product/accounting-volume-2-canadian-9th-
edition-horngren-solutions-manual/

Management Leading and Collaborating in a Competitive
World 11th Edition Bateman Test Bank
https://testbankfan.com/product/management-leading-and-collaborating-
in-a-competitive-world-11th-edition-bateman-test-bank/

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
12-1
Solutions for Chapter 12
True-False Questions
12-1 F
12-2 T
12-3 T
12-4 T
12-5 T
12-6 T
12-7 T
12-8 F
12-9 T
12-10 F
12-11 T
12-12 F
12-13 F
12-14 T
12-15 T
12-16 T
Multiple-Choice Questions
12-17 D
12-18 A
12-19 D
12-20 A
12-21 B
12-22 D
12-23 B
12-24 C
12-25 A
12-26 D
12-27 C
12-28 A
12-29 B
12-30 C
12-31 C
12-32 B

12-2
Review and Short Case Questions
12-33
The existence and valuation assertions related to long-lived assets are usually the more relevant
assertions. Organizations may have incentives to overstate their long-lived assets and may do so
by including fictitious long-lived assets on the financial statements. Alternatively, organizations
may capitalize costs, such as repairs and maintenance costs, which should be expensed. Concerns
regarding valuation include whether the organization properly and completely recorded
depreciation and properly recorded any asset impairments. The valuation issues typically involve
management estimates that may be subject to management bias.
Identifying and focusing on the relevant assertions will allow the auditor to be more efficient in
the performance of the audit (i.e., the auditor will not over-audit the lower risk assertions).
12-34
Depreciation expense relates to the expensing of a fixed asset over its life. For natural resources,
the related expense account would be referred to as depletion expense (the expense associated
with the extraction of natural resources). For intangible assets with a definite life, the related
expense account would be referred to as amortization expense.
12-35
The five management assertions relevant to long-lived assets are as follows:
1. Existence or occurrence. The long-lived assets exist at the balance sheet date. The focus is
typically on additions during the year.
2. Completeness. Long-lived asset account balances include all relevant transactions that have
taken place during the period.
3. Rights and obligations. The organization has ownership rights for the long-lived assets as of
the balance sheet date.
4. Valuation or allocation. The recorded balances reflect the balance that is in accordance with
GAAP (includes appropriate cost allocations and impairments).
5. Presentation and disclosure. The long-lived asset balance is reflected on the balance sheet in
the noncurrent section. The disclosures for depreciation methods and capital lease terms are
adequate.
12-36
Asset impairment is a term used to describe management’s recognition that a significant portion
of fixed assets is no longer as productive as had originally been expected. When assets are
impaired, the assets should be written down to their expected economic value.
Much of the inherent risk associated with long-lived assets is due to the importance of
management estimates, such as estimating useful lives and residual values and determining

12-3
whether asset impairment has occurred. Inherent risk related to asset impairment stems from the
following factors:
• Normally, management is not interested in identifying and writing down assets.
• Sometimes, management wants to write down every potentially impaired asset to a minimum
realizable value (although this will cause a one-time reduction to current earnings, it will lead
to higher reported earnings in the future).
• Determining asset impairment, especially for intangible assets, requires a good information
system, a systematic process, good controls, and professional judgment.
Other inherent risks associated with long-lived assets and related expenses include:
• Incomplete recording of asset disposals
• Obsolescence of assets
• Incorrect recording of assets, due to complex ownership structures
• Amortization or depreciation schedules that do not reflect economic impairment or use of the
asset
12-37
Natural resources present unique risks. First, it is often difficult to identify the costs associated
with discovery of the natural resource. Second, once the natural resource has been discovered, it
is often difficult to estimate the amount of commercially available resources to be used in
determining a depletion rate. Third, the client may be responsible for restoring the property to its
original condition (reclamation) after the resources are removed. Reclamation costs may be
difficult to estimate.
12-38
Intangible assets should be recorded at cost. However, the determination of cost for intangible
assets is not as straightforward as it is for tangible assets, such as equipment. As with tangible
long-lived assets, management needs to determine if the book values of patents and other
intangible assets have been impaired. Thus, there is a great deal of estimation by management
associated with intangible assets.
12-39
a. Management’s motivation to overstate fixed assets is similar to other circumstances in
which fraud is perpetrated:
• Increase reported earnings
• Boost stock price
• Improve ability of the company to acquire another company
• Avoid a violation of company debt covenants

12-4
b. The auditor should also consider the other two components of the fraud triangle–
opportunity and rationalization–when assessing fraud risk associated with long-lived assets.
12-40
A skeptical auditor will understand that management can manage earnings in a number of ways,
including:
• Improperly recording repairs and maintenance costs that should be expensed as fixed assets.
• Lengthening the estimated useful lives and/or increasing estimated residual value of
depreciable assets without economic justification as was done in the Waste Management
fraud.
The auditor becomes aware of management’s potential by considering relevant fraud risk factors,
including incorporating information related to internal control effectiveness–in particular the
control environment.
12-41
Potential fraud schemes related to long-lived assets include:
• Sales of assets are not recorded and proceeds are misappropriated.
• Assets that have been sold are not removed from the books.
• Inappropriate residual values or lives are assigned to the assets, resulting in miscalculation of
depreciation.
• Amortization of intangible assets is miscalculated.
• Costs that should have been expensed are improperly capitalized.
• Impairment losses on long-lived assets are not recognized.
• Fair value estimates are unreasonable or unsupportable.
12-42
Typically, the more relevant assertions (areas of higher risk) for tangible long-lived assets (e.g.,
property, plant, and equipment) include existence and valuation. For these assertions, the
appropriate internal controls could include:
• The use of a computerized property ledger. The property ledger should uniquely identify
each asset. In addition the property ledger should provide detail on the cost of the property,
the acquisition date, depreciation method used for both book and tax, estimated life,
estimated scrap value (if any), and accumulated depreciation to date.
• Authorization procedures to acquire new assets. In particular, the use of a capital budgeting
committee to analyze the potential return on investment is a strong control procedure.
• Periodic physical inventory of the assets and reconciliation with the recorded assets.
• Formal procedures to account for the disposal of assets.

12-5
• Periodic review of asset lives and adjustments of depreciation methods to reflect the changes
in estimated useful lives.
12-43
The more relevant assertions for intangible assets include valuation and presentation and
disclosure. For intangible assets, controls should be designed to:
• Provide reasonable assurance that decisions are appropriately made as to when to capitalize or
expense research and development expenditures (presentation and disclosure).
• Develop amortization schedules that reflect the remaining useful life of patents or copyrights
associated with the asset (valuation).
• Identify and account for intangible-asset impairments (valuation).
Management should have a monitoring process in place to review valuation of intangible assets.
For example, a pharmaceutical company should have fairly sophisticated models to predict the
success of newly developed drugs and monitor actual performance against expected performance
to determine whether a drug is likely to achieve expected revenue and profit goals. Similarly, a
software company should have controls in place to determine whether capitalized software
development costs will be realized.
Specific examples of controls include:
• Management authorizations are required for intangible asset transactions.
• Documentation regarding intangible assets should be maintained and such documentation
should include:
o Manner of acquisition (e.g., purchased, developed internally)
o Basis for the capitalized amount
o Expected period of benefit
o Amortization method
• Amortization periods and calculations should be approved and periodically reviewed by
appropriate personnel.
12-44
Analytical procedures that would be helpful in performing preliminary analytical procedures
related to depreciation expense include analysis of the following relationships in the light the
expectations developed by the auditor:
• Current depreciation expense as a percentage of the previous year's depreciation expense,
• Fixed assets (by class) as a percentage of previous year's assets. The relative increase in this
percentage can be compared with the relative increase in depreciation expense as a test of
overall reasonableness.

12-6
• Depreciation expense (by asset class) as a percentage of assets each year. This ratio can
indicate changes in the age of equipment or changes in depreciation policy, or computation
errors.
• Accumulated depreciation (by class) as a percentage of gross assets each year. This ratio
provides information on the overall reasonableness of the account and may indicate problems
of accounting for fully depreciated equipment.
• Average age of equipment (by class). This ratio provides additional insight on the age of
assets and may be useful in modifying depreciation estimates.
12-45
Ratios and expected relationships that auditors can use when performing preliminary analytical
procedures include:
• Review and analyze gains/losses on disposals of equipment (gains indicate depreciation lives
are too short, losses indicate the opposite).
• Perform an overall estimate of depreciation expense.
• Compare capital expenditures with the client’s capital budget, with an expectation that capital
expenditures would be in line with the capital budget.
• Compare depreciable lives used by the client for various asset categories with that of the
industry. Large differences may indicate earnings management.
• Compare the asset and related expense account balances in the current period to similar items
in the prior audit and determine whether the amounts appear reasonable in relation to other
information you know about the client, such as changes in operations
Ratios that the auditor should plan to review, after developing independent expectations, include:
• Ratio of depreciation expense to total depreciable long-lived tangible assets. This ratio
should be predictable and comparable over time unless there is a change in depreciation
method, basis, or lives. The auditor should plan to analyze any unexpected deviation and
assess whether any changes are reasonable.
• Ratio of repairs and maintenance expense to total depreciable long-lived tangible assets.
This ratio may fluctuate because of changes in management’s policies (for example,
maintenance expenses can be postponed without immediate breakdowns or loss of
productivity). The auditor should plan to analyze any unexpected deviation with this
consideration in mind.

12-7
12-46
Panel B of Exhibit 12.3 illustrates the different levels of assurance that the auditor could obtain
from tests of controls and substantive procedures. The reason for the differing approaches is due
to the different levels of risk of material misstatement associated with each of the clients. Panel
B makes the point that because of the higher risk associated with the existence of equipment at
Client B, the auditor will want to design the audit so that more of the assurance is coming from
tests of details. In contrast, the risk associated with the existence of equipment at Client A is
lower and therefore the auditor would be willing to obtain more assurance from tests of controls
and substantive analytics, and less assurance from substantive tests of details. Note that the
relative percentages are judgmental in nature; the examples are simply intended to give you a
sense of how an auditor might select an appropriate mix of procedures.
12-47
For many organizations, long-lived assets involve only a few assets of relatively high value. In
these settings, the time and effort needed to perform tests of controls in order to reduce
substantive testing may exceed the time required to simply perform the substantive tests. Thus,
the most efficient approach would be to use a substantive approach, using test of details, for
testing.
12-48
Control Procedure Purpose of Control
Procedure (a)
Impact on Substantive Audit
Procedures (b)
1. Periodic physical
inventory of assets.
Provide reasonable
assurance that records
reflect equipment on-hand
and in use. Relates to
existence and
completeness.
Auditor should expand
procedures either by taking a
sample from the property ledger
and verifying existence or take a
tour of plant and identify idle
equipment for future review (or
both procedures.)
2. Policy to classify
equipment and compute
depreciation.
Provide reasonable
assurance of consistent use
of depreciation methods
based on experience of
client. Relates to valuation.
Auditor would have to review
each equipment life for
consistency and rationale for the
life chosen.
3. Policy on minimum
amounts that are to be
capitalized.
Promote processing
efficiency by expensing
small dollar value items.
There is no particular effect on
the audit except that the
property, plant and equipment
ledger would have substantially
larger items as the smaller dollar
items would have been
expensed..

12-8
Control Procedure Purpose of Control
Procedure (a)
Impact on Substantive Audit
Procedures (b)
4. Method for designating
scrap or idle equipment for
disposal.
Provide reasonable
assurance that the records
are updated for changes in
productive life of assets.
Relates to valuation.
Auditor would expand
production facilities tour with
special emphasis on identifying
obsolete or non-productive
assets. The items identified
would be discussed with
management in order to
determine if adjustments are
needed.
5. Differentiate major
renovations from repair
and maintenance.
Provide reasonable
assurance that the proper
accounting since major
renovations may extend
the life of the asset and
should be debited to
accumulated depreciation.
Expand review of repairs and
maintenance expense.
Investigate all large expenditures
to determine if they are more
appropriately classified as
renovations.
6. Self-construction of
assets.
Provide reasonable
assurance of proper
accounting for self-
constructed assets.
Perform a detailed review of all
self-constructed assets.
7. Systematic review for
asset impairment.
Provide reasonable
assurance of proper
accounting for asset
impairment (valuation
issues). Company
performing the review on a
consistent basis is a strong
control because it
eliminates many of the
"big bath" write-offs.
Auditor would have to review
asset productivity each year and
make inquiries of client of the
accounting for impaired assets.
Auditor would be more alert to
declining productivity indicators
or changes in product mix that
might affect asset values.
8. Management
periodically reviews
disposals for potential
impact on changing asset
lives for depreciation
purposes.
Provide reasonable
assurance of asset
valuation.
Auditor should review asset
disposals for potential impact on
choice of economic lives for
assets.

12-9
12-49
Test of controls over tangible long-lived assets could include:
• Examine documentation corroborating that a tangible long-lived asset budget is prepared and
used.
• Examine relevant documentation for management's approval process of the tangible long-
lived asset budget.
• Examine a sample of tangible long-lived asset requisition forms for management's approval.
• Inspect copies of the vouchers used to document departmental request for sale, retirement, or
scrapping of tangible long-lived assets for management's approval.
• Test depreciation shown in the general ledger to the amounts shown in the tangible long-
lived asset ledger. (This might be performed as a dual purpose test.)
• Review or recompute a sample of depreciation calculations.
• Agree the posting of depreciation expense to the general ledger.
• Inspect the tangible long-lived asset ledger for adequate detail to support the tangible long-
lived asset accounts.
• Verify that the tangible long-lived asset ledger is periodically balanced to the general ledger.
• Verify accuracy of calculations on a sample of tangible long-lived asset requisition forms.
• Check for the existence of a written policy which establishes whether a budget request is to
be considered a capital expenditure or a routine maintenance expenditure.
• Confirm the existence of approved vouchers for entries which remove assets from the
tangible long-lived asset ledger.
• Inspect documentation of tangible long-lived asset requisition forms for authenticity.
• Test a sample of maintenance expenditures to evaluate compliance with the written policy
which establishes whether an item is to be considered a capital expenditure or a routine
maintenance expenditure.
• Evaluate the effectiveness and appropriateness of the written policy used to distinguish
capital expenditures from maintenance expenditures.
• Compare costs and prices on a sample of tangible long-lived asset requisition forms to
established list prices to determine reasonableness.
• Compare sale or scrap prices on a sample of vouchers used to document departmental
requests for sale, retirement, or scrapping of tangible long-lived assets to established list
prices to determine reasonableness.
• Review tangible long-lived asset budget reports and note management's explanation of any
significant variances.
• Scan the tangible long-lived asset ledger for unusually large or small items.
• Through review of relevant documentation and inquiry of appropriate personnel determine
that tangible long-lived asset records are maintained by persons other than those who are
responsible for custody and use of the assets.
• Agree the identification numbers of a sample of fixed assets to those shown in the tangible
long-lived asset ledger.
• Through review of relevant documentation and inquiry of appropriate personnel, verify that
periodic physical inventories of tangible long-lived assets are taken for purposes of

12-10
reconciliation to the tangible long-lived asset ledger as well as appraisal for insurance
purposes.
• Through review of relevant documentation and inquiry of appropriate personnel, substantiate
that periodic physical inventories of tangible long-lived assets are taken under the
supervision of employees who are not responsible for the custody of record keeping for the
tangible long-lived assets.
• Through review of relevant documentation and inquiry of appropriate personnel, investigate
whether significant discrepancies between the tangible long-lived asset ledger and physical
inventories are reported to management.
12-50
CONTROL POSSIBLE TESTS OF CONTROLS
Management authorizations are required for
intangible asset transactions.
For selected intangible asset transactions
inquire of management as to the authorization
process and review documentation of the
appropriate authorizations.
Documentation regarding intangible assets
should be maintained and such documentation
should include:
o Manner of acquisition (e.g., purchased,
developed internally),
o Basis for the capitalized amount,
o Expected period of benefit, and
amortization method.
For selected intangible assets, review
documentation and assess reasonableness of
management estimates
Amortization periods and calculations should
be approved and periodically reviewed by
appropriate personnel.
For selected items, inquire of management
regarding this process, review documentation
supporting the process, and recompute
calculations.
12-51
To detect fictitious assets, the auditor should have traced recent acquisitions to the fixed-asset
accounts and to original source documents; doing so would have enabled the auditor to realize
that such documents did not exist. For improper depreciation, the auditor should have compared
depreciation expense over a period of time, adjusted for the volume of business and the number
of trucks used. The decrease in depreciation per truck should have led to more detailed
investigation, including tests of depreciation on each truck. For the impairment issue, the auditor
should have compared current earnings with future expected earnings that were predicted when
the goodwill was initially recorded. A dramatic decrease in current earnings signals the need for
an impairment adjustment. For the impaired assets, the auditor should have noted (a) the relative
age of the assets (net book value has decreased), (b) idle equipment during a tour of the factory,
and (c) should have traced apparently idle assets to the books. For the assets overvalued at
acquisition, the auditor should have determined if the company had used a reputable and certified

12-11
independent appraiser. If the auditor had doubts, he or she should have hired an appraiser to form
an independent opinion.
12-52
Compute the average balance: ($380,500 + $438,900) / 2 = $409,700
Adjust for the salvage value: $409,700 * .9 = $368,730
Compute the annual depreciation expense: $368,730 / 6 = $61,455.
Once the auditor has developed an expectation of the account balance, the auditor will compare
that expectation with the amount recorded by the client. If the difference between the two
amounts is less than the threshold (based on level of materiality) set by the auditor, the auditor
would conclude that the recorded depreciation expense is reasonable. Although the problem did
not provide details on the auditor’s threshold, it is reasonable to believe that the difference
between the auditor’s expectation and the client’s recorded amount in this problem would be
below that auditor’s threshold. Thus, the auditor would likely conclude that the recorded
depreciation expense of $60,500 appears reasonable. Given the results of this substantive
analytical procedure, the auditor will likely not need to perform any additional substantive tests
of details.
12-53
The audit approaches applicable to identifying and determining the proper accounting of fully
depreciated or idle facilities would include:
• The auditor should tour the client facilities and make inquiries concerning idle equipment.
The auditor should note all idle equipment to be subsequently traced to the property ledger.
Discussions with management about these issues will also be helpful.
• Generalized audit software could be used to develop a schedule of fully depreciated assets. A
sample could be taken and the auditor could attempt to physically observe the asset and
determine whether it is in production and whether a scrap value is appropriate.
12-54
The client has a policy that apparently has been used for a number of years. Assignment of assets
to classes for depreciation purposes is common and represents an expedient method of dealing
with depreciation issues. The auditor can determine the reasonableness of the classification
schemes by:
• Reviewing previous data on the asset's productive life (within each category
• Reviewing IRS guidelines for classification and reasonableness in comparison with the
company's categories and life guidelines

12-12
• Noting significant gains/losses on disposal.
12-55
The general concept of valuing impaired assets consists of two major approaches:
• Estimating the future economic benefits to be derived from the asset. The auditor would
evaluate management’s assumptions and estimates for reasonableness.
• Obtaining an independent appraisal of current value. The auditor could either assess the
competence and independence of the appraiser hired by management and the reasonableness
of the assumptions used or the auditor could obtain an independent appraisal of the value of
the asset.
12-56
The auditor must make sure the appraisal is reasonable. The auditor should consider the
qualifications and certification of the appraiser and appropriateness of the assumptions used by
the appraiser. The auditor may also need to use a specialist/expert to assist with these audit
procedures.
12-57
General substantive procedures for leases include:
• Obtain copies of lease agreements, read the agreements, and develop a schedule of lease
expenditures.
• Review the lease expense account, select entries to the account, and determine if there are
entries that are not covered by the leases obtained from the client. Review to determine if the
expenses are properly accounted for.
• Review the relevant criteria from FASB ASC to determine which leases meet the
requirement of capital leases.
• For all capital leases, determine that the assets and lease obligations are recorded at their
present value. Determine the economic life of the asset. Calculate amortization expense and
interest expenses, and determine any adjustments to correct the financial statements.
• Develop a schedule of all future lease obligations or test the client’s schedule by reference to
underlying lease agreements to determine that the schedule is correct.
• Review the client’s disclosure of lease obligations to determine that it is in accordance with
GAAP.
12-58
a. Items 1 through 6 would have been found in the following way:
1. The company's policies for depreciating equipment are available from several sources:

12-13
• The prior-year's audit working papers and permanent file.
• Footnote disclosure in the annual report and SEC Form 10-K.
• Company procedures manual.
• Detailed fixed asset records.
• Inquiry of relevant client personnel.
2. The ten-year lease contract would be found when supporting data for current year's
equipment additions were examined. Also, it may be found by a review of company lease and
contract files.
3. The building wing addition would be apparent by the addition to buildings during the
year. The use of the low construction bid amount would be found when support for the addition
was examined. When it was determined that this inappropriate method was followed, the actual
costs were determined by reference to construction work orders and supporting data. The wing
was also physically observed by the auditor.
4. The paving and fencing was discovered when support was examined for the addition to
land. These costs should be charged to Land Improvements and depreciated.
5. The details of the retirement transactions were determined by examining the sales
agreement, cash receipts documentation, and related detailed fixed asset record. This
examination would be instigated by the recording of the retirement in the machinery account or
the review of cash receipts records.
6. The auditor would become aware of a new plant in several ways:
• Volume would increase.
• Account details such as cash, inventory, prepaid expenses, and payroll would be attributed to
the new location.
• The transaction may be indicated in documents such as the minutes of the board, press
releases, and reports to the stockholders.
• Property tax and insurance bills examined show the new plant.
• Inquiry of appropriate client personnel.
One or more of these factors would lead the auditor to investigate the reasons and
circumstances involved. Documents from the city and appraisals would be examined to
determine the details involved.
b. The appropriate adjusting journal entries are as follows:
1. No entry necessary.
2. This is an operating lease because it is cancelable with a 60 day notice and should not
have been capitalized.

12-14
Dr. Prepaid rent $ 5,000
Dr. Lease liability 35,400
Dr. Allowance and depreciation-- 2,020
machinery and equipment
Cr. Machinery and equipment 40,400
Cr. Depreciation expense 2,020
To correct initial recording of lease.
Dr. Equipment rent expense $ 3,750
Cr. Prepaid rent $3,750
To record nine months of rent:
9/12 x $5,000 = $3,750
3. The wing should have been recorded at its cost to the company.
Dr. (Accounts originally credited) $1,500
Cr. Buildings $1,500
To correct initial recording of a new wing at its cost rather than the outside bid.
Dr. Depreciation expense $ 290
Cr. Allowance for depreci-
ation--buildings $ 290
To correct depreciation for excess cost.
Depreciation on beginning balance.
120,000/25 = 4,800
Depreciation recorded on addition
5,150 - 4,800 = 350
Correct depreciation for addition:
Remaining useful life of addition at the beginning of the year is 12 ½ years (60,000/120,000 x 25
=
12 ½ years; (25 – 12 ½ = 12 ½)
Depreciation = $16,000/12 ½ / 2 = $640
Correction = $640 - $350 = $290
4. The paving and fencing are land improvements and should be depreciated over their
useful lives.
Dr. Land improvements $5,000
Cr. Land $5,000
To correct initial recording of paving and fencing.

12-15
Dr. Depreciation expense $ 250
Cr. Allowance for depreci-
ation--Land Improvements $250
To record first year's depreciation on paving and fencing.
$5,000/10 / 2 = $250
5. The cost and allowance for depreciation should have been removed from the accounts
and a gain or loss on sale recorded separately into income.
Cost of asset $48,000
Allowance for depreciation:
Through 2013: 48,000/10 x 7 ½ $36,000
For 2014: (48,000/10)/2 2,400
38,400
Net book value 9,600
Cash proceeds 26,000
Gain on sale $16,400
Depreciation expense for 2014 should be $2,400 rather than the $3,500 that was recorded.
The correcting entry is:
Dr. Allowance for depreciation--
Machinery and Equipment $39,500
(36,000 + 3,500)
Cr. Machinery and Equipment $22,000
Cr. Depreciation expense
(3,500 – 2,400) 1,100
Cr. Gain on sale 16,400
6. Donated property should be capitalized at its fair market value.
Dr. Land $10,000
Dr. Buildings 40,000
Cr. Contributed capital-
Donated Property $50,000
To record land and buildings for new plant donated by Crux City.
Dr. Depreciation expense $800
Cr. Allowance for depreciation-
-Buildings $ 800
To record depreciation on new plant.
$40,000/25 / 2 = $800

12-16
12-59
a. Impairment of assets refers to long-lived assets and certain identifiable intangibles to be held
and used by an entity for which events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In performing the review for recoverability, the
entity should estimate the future cash flows expected to result from the use of the asset and
its eventual disposition. If the sum of the expected future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the asset, an impairment loss is
recognized. Otherwise, an impairment loss is not recognized. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that an entity expects to hold and use
should be based on the fair value of the asset.
b. Management’s motivation will depend on the specific facts and circumstances. In some
settings, management may follow the so-called big bath theory and take very large write-offs
when any write-off occurs. The rationale for this approach is that the market seems to be
forgiving, especially if there is a change in management and the new management can blame
the problems on the previous management. If the write-off is large, then it decreases the
amount of assets that might be charged against earnings in the future. In some settings, the
investment public is skeptical of the large write-offs and has recognized such write-offs as a
symbol of management failure. Thus, managers will resist taking any write-offs unless there
is compelling evidence that there has been impairment in assets.
However, it is important to recognize that management will want to understate expenses, and
thus overstate income, and so will want to understate the right. The auditor has to be aware of
management’s incentives when assessing the nature and type of potential misstatements.
c.
Step 1. Identify the ethical issue. The ethical issue is that the auditor believes that her estimate is
correct, and knows that it is materially lower than management’s estimate of the impairment.
Step 2. Determine who are the affected parties and identify their rights. There are various
affected parties:
• shareholders, who have a right to accurate financial information
• the audit committee and board, who have a right to know that the auditor and management
are having a material disagreement
• management, who has a right to uphold their own valid, defensible professional opinions
• the auditor and audit firm, who have a right to exercise their own professional judgment and
to minimize potential litigation against themselves
• tax authorities, who have a right to expect that management will make tax deductions that are
reasonable and appropriate
Step 3. Determine the most important rights. The most important rights are likely those of
shareholders, followed by the audit committee and board as major players in the corporate

12-17
governance of the company. The tax authorities represent society in general, so their rights are
also quite important.
Step 4. Develop alternative courses of action. The auditor could pursue various courses of action:
a. Try again to convince management that the auditor’s estimates are
superior.
b. Alert the audit committee of the disagreement and let them help to resolve
it.
c. Threaten management with a qualified audit opinion if they refuse to
acquiesce to the auditor’s preference.
d. Resign from the engagement.
Step 5. Determine the likely consequences of each proposed course of action.
a. Trying to convince management may or may not work. If it does work, then
the situation is resolved. If it does not work, the relationship between the
auditor and management will likely become even more strained.
b. Alerting the audit committee is required by professional standards. While it
may annoy management, the auditor can fall back on the fact that they are
required to discuss such issues with the audit committee.
c. Threatening management will obviously strain the relationship with the
auditor, but it may be successful in getting management to see the auditor’s
point of view.
d. Resigning is the last resort as it is a fairly extreme measure, and will result in
public disclosure of the disagreement for the company, and loss of revenue for
the audit firm.
Step 6. Assess the possible consequences, including an estimation of the greatest good for the
greatest number. The auditor is required via professional standards to alert the audit committee,
and doing so will likely enable the auditor to (a) re-think their estimate if the audit committee
convincingly challenges their calculations, or (b) use the interaction to convince management to
use the correct valuation in the impairment. Ultimately, the process of interacting with the audit
committee and management will enable all parties to determine the most appropriate impairment
calculation. The revelation of that amount to shareholders and tax authorities will result in the
greatest good for the greatest number.
Step 7. Decide on the appropriate course of action. The auditor should first try to convince
management to change the estimate, and even if they succeed in doing so the auditor must alert
the audit committee to the situation.
12-60
1. The main difficulty that the auditor faces in determining whether the charges are reasonable is
to understand management’s estimation procedures and to decide if they are reasonable. The
auditor will have to understand the following types of decisions:

12-18
• Which third party offers were used in the calculations? How did management choose which
offers to use if there were multiple offers?
• What is the appropriate discount rate for the discounted future cash flow calculations?
• Is it appropriate to completely write off the Falkirk, Scotland assets? Or is management
possibly setting up a cookie jar reserve by doing so?
2. The consequences of the auditor’s decisions are associated with providing reasonable
assurance that no fixed assets are inappropriately over-valued on the balance sheet (with
resulting under-expensing of impairment charges on the income statement) or under-valued on
the balance sheet (with resulting over-expensing of impairment charges on the income statement).
3. The risks are those associated with inaccurate financial reporting, particularly if the
impairment charges are material to the client’s financial statements. The uncertainties involve the
estimates, for example, is a 7% discount rate correct, or should it be 5%?
4. The auditor can gather various types of evidence:
• Documentation of management’s estimation process and assumptions
• Documentation that includes third-party offers and negotiations
• Confirmations with third parties
• Comparisons of fixed asset values with competitors
• Understanding and documenting management’s potential motivations for under- or over-
expensing the impairment charges
• Obtaining current market values of assets.
Contemporary and Historical Cases
12-61
a. IRG’s lease accounts and fixed asset accounts (including related deprecation charges)
were misstated.
b. While the textbook feature does not provide information specifically related to
management motivation, students will likely note that the company recently went public and may
have intentionally misstated the financial statements so that the public offering would be more
successful. The motivation, coupled with opportunity due to weak internal controls, is often
highlighted by students.
c. Typical controls that affect multiple assertions for long-lived assets include:
• Formal budgeting process with appropriate follow-up variance analysis
• Written policies for acquisition and disposals of long-lived assets, including required
approvals
• Limited physical access to assets, where appropriate
• Periodic comparison of physical assets to subsidiary records
• Periodic reconciliations of subsidiary records with the general ledger

12-19
Further, controls should be in place to:
• Identify existing assets, inventory them, and reconcile the physical asset inventory with the
property ledger on a periodic basis (existence).
• Provide reasonable assurance that all purchases are authorized and properly valued
(valuation).
• Appropriately classify new equipment according to its expected use and estimate of useful
life (valuation).
• Periodically reassess the appropriateness of depreciation categories (valuation).
• Identify obsolete or scrapped equipment and write the equipment down to scrap value
(valuation).
• Review management strategy and systematically assess the impairment of assets (valuation).
With respect to the lease accounts, the company should have policies and procedures requiring
review all of leases by a qualified lease accountant to provide reasonable assurance over proper
recording of those transactions.
d. The auditors should have gained an understanding of the client’s internal controls over
these long-lived assets. If the controls were not well designed (or determined not to be operating
effectively), the auditors should have increased the assurance they needed regarding whether the
asset accounts were materially misstated. For the lease audit, the auditors could perform the
following:
• Obtain copies of lease agreements, read the agreements, and develop a schedule of lease
expenditures.
• Review the lease expense account, select entries to the account, and determine if there are
entries that are not covered by the leases obtained from the client. Review to determine if the
expenses are properly accounted for.
• Review the relevant criteria from FASB ASC to determine which leases meet the
requirement of capital leases.
• For all capital leases, determine that the assets and lease obligations are recorded at their
present value. Determine the economic life of the asset. Calculate amortization expense and
interest expenses, and determine any adjustments to correct the financial statements.
• Develop a schedule of all future lease obligations or test the client’s schedule by reference to
underlying lease agreements to determine that the schedule is correct.
• Review the client’s disclosure of lease obligations to determine that it is in accordance with
GAAP.
As for the tangible long-lived assets, a great deal of this chapter is focused on appropriate
substantive procedures for both the asset and expense accounts. Further, Exhibit 12-4 outlines
possible procedures that the auditor could have performed.
12-62
a. Yes, it would be highly unusual for debits to fixed assets to come from journal entries.
Most debits to fixed assets should come from purchases of the assets and should be evidenced by
invoices and contracts. The auditor should view significant amounts of debits to fixed asset as

12-20
high risk and should investigate all of the entries if the aggregate amount could be significant or
material.
b. No, entries to depreciation expense and accumulated depreciation should normally come
from journal entries. However, the journal entries should come from an automated computer
program. Thus, the auditor should trace the summary entries back to the detail computation for
specific items.
c. An explanation of “Capitalization of line capacity per CFO, amounts were originally
incorrectly recorded as an expense” is a highly unusual transaction. The auditor should be highly
skeptical because it does not appear to be supported by outside, objective evidence. The client
claims it is misclassified as an expense. The auditor should seek the following evidence:
• Ask the client to examine the original invoice, contract, and other information associated
with the original payment for the goods, services, or fixed asset.
• The auditor should examine the invoice to determine the nature of the purchase.
• The auditor should determine that the document that is examined was not used to support
other purchases, that is, the auditor should be suspicious of the information because it is all
obtained internally. The auditor should be concerned that one invoice might serve as support
for this journal entry and another purchase.
• The auditor should use GAS to prepare a list of all other purchases from the vendor. The
auditor should trace the purchases to invoices and to proper recording in the accounts.
• The auditor should consider confirming the total amount of purchases with the outside
vendor.
Significant differences should be recorded as misstatements and projected to the statements as a
whole. If the auditor has suspicions that other such misstatements might exist in the accounts, the
auditor should use GAS to schedule all entries to the account balance that comes from other than
the purchase journal and should investigate all of the entries in a similar manner.
12-63
a. The statement of facts for this case reveals that company management had made
promises (earnings expectations) to investors and Wall Street that were not going to materialize,
thereby suggesting the motivation for management. Further, it is likely that the controls in place
were not very effective. While Safety-Kleen had policies prohibiting the types of fraudulent
entries that were being made, presumably there was no monitoring or review of adherence to
these policies. And students can often see how management might provide rationalizations for
the fraud (for example, not our fault the numbers are not being meant, we shouldn’t suffer
because of something outside of our control, etc.).
b. It is important to note that this response has the benefit of hindsight. However, analytical
procedures (either preliminary or substantive) should have noted the increases in quarter end
adjustments, with rather significant adjustments occurring in the 3rd
and 4th
quarters of 1999.
Further, the 2000 1st
quarter adjustment was quite a bit larger than the previous 1st
quarter

12-21
adjustment. The case states that these adjustments in 1999 were significantly higher than the
adjustments in previous. We assume that these balances in 1999 and 2000 were different than
what an auditor, knowledgeable of the industry, would expect. Therefore, the auditor should
have followed up on these unexpected account balances to determine if there was supporting
documentation to validate the balances. The statement of facts for the case indicates that for the
$7.3 million of fraudulent adjustments to capitalize the tires on the company's trucks and the fuel
in the tanks, a company executive sketched these adjustments on graph paper, without any
analysis or documentation to support them.
The problem states that one of the adjusting entries was recorded twice. The use of GAS or other
procedures should have identified this duplicate recording.
Further, the auditor should likely have selected capitalized items and reviewed documentation to
determine whether the capitalization was appropriate or whether the items (such as salary
expense) should have been expensed.
Students might also expect that audit work in the area of payroll expenses might have identified
an unexpected decrease in payroll expenses and that follow-up of this unexpected result might
have identified the inappropriate capitalization.
Application Activities
12-64
The point of this exercise is to get students to access online financial reports, to see the
relationship to conceptual auditing topics involving impairments, and to read and interpret
financial statement disclosures. Further, discussing each student’s findings in a small group or
even as an entire class may prove beneficial in stimulating conversation about the nature of
impairment charges, their causes, their magnitudes, and implications for the external auditor in
terms of assessing reasonableness of the estimates made by management.
There are many recent examples that students might find including:
• Best Buy, for the fiscal year ended March 3, 2012
• Sears Holding Corporation, for the fiscal year ended January 28, 2012
• AT&T Inc., for the fiscal year ended December 31, 2011
For a less recent example, consider that Starbuck’s recorded a $224 million impairment charge in
2009, and that was following a $325 million impairment charge in 2008. These impairment
charges were associated with a significant slowdown in the Company’s expansion, with fewer
store openings attributed to reduced demand and a steep decline in discretionary consumer
spending related to the recession. Note 2 of Starbuck’s Annual Report provides a nice summary
of the Company’s restructuring plan.

12-22
While the judgments that management made may vary across the selected companies, typical
judgments that management makes concern expected useful lives of long-lived assets,
undiscounted cash flows, and anticipated changes in economic conditions and operating
performance. Necessarily, these types of estimates are by definition uncertain. Thus, the job of
the auditor is to assess their reasonableness and to be professionally skeptical of the numbers
produced by management based upon these estimates.
12-65
DRG Audits- Excerpts from PCAOB Order
DRG reported in the notes to its 2008 financial statements that it had incurred advertising
expenses during 2008 and that it had capitalized approximately $840,000 of those expenses as
"direct response advertising" pursuant to AICPA Statement of Position ("SOP") 93-7, Reporting
on Advertising Costs (December 29, 1993). DRG's capitalized direct response advertising
balance for 2008 represented an increase of over 350% from the prior year and constituted 21%
of DRG's total reported assets.
SOP 93-7 provides that a company may only capitalize advertising expenses as direct response
advertising if (1) the primary purpose of the advertising "is to elicit sales to customers who could
be shown to have responded specifically to the advertising;" and (2) the advertising "results in
probable future benefits." In addition, SOP 93-7 states that direct response advertising costs
reported as assets are to be "amortized on a cost-pool-by-cost-pool basis over the period during
which the future benefits are expected to be received.”
During the 2008 audit, JSW failed to exercise due professional care and failed to obtain
sufficient audit evidence to conclude that DRG was appropriately capitalizing, as opposed to
expensing, the costs it reported as direct response advertising. Specifically, JSW failed to obtain
audit evidence indicating that sales were to customers responding specifically to the advertising.
Nor did JSW obtain sufficient competent audit evidence indicating that the advertising would
result in probable future benefits to DRG. In addition, JSW failed to perform any procedures to
evaluate whether DRG was appropriately amortizing the amounts it capitalized as direct response
advertising. Indeed, JSW's work papers include a schedule, provided by DRG, indicating that the
company was not amortizing those amounts.
DDM Audits- Excerpts from PCAOB Order
As of year-end 2008, more than 75% of DDM's total reported assets were classified as intangible
assets and consisted mostly of website and platform development costs for an unlaunched
product. During the 2008 audit, JSW failed to ensure that the engagement team appropriately
tested DDM's intangible asset balance for impairment. The work papers reflect that
management's basis for not recognizing an impairment on its intangible assets in 2008 was a cash
flow projection. JSW, however, performed no procedures to assess the reasonableness of the
cash flow projection, including the relevance, sufficiency, and reliability of the data supporting
the projection and the assumptions management made in formulating the projection. In addition,

12-23
the untested cash flow projection was inconsistent with JSW's conclusion that there was
substantial doubt as to DDM's ability to continue operating as a going concern.
Sanctions
Accordingly, it is hereby ORDERED that: A. Pursuant to Section 105(c)(4)(E) of the Act and
PCAOB Rule 5300(a)(5), Jewett, Schwartz, Wolfe & Associates, P.L. is hereby censured.
Pursuant to Section 105(c)(4)(A) of the Act and PCAOB Rule 5300(a)(1), the registration of
Jewett, Schwartz, Wolfe & Associates, P.L. is revoked.
After five (5) years from the date of this Order, Jewett, Schwartz, Wolfe & Associates, P.L. may
reapply for registration by filing an application pursuant to PCAOB Rule 2101.
Student discussion as to the severity and appropriateness of the sanctions can be quite lively.
12-66
The following excerpts from the speech provide useful points of discussion including the
difficulty of measuring intangible assets, the potential for abuse, and the constraints imposed by
the accounting standards.
One of the biggest measurement dilemmas relates to intangible assets. We know that they are there. While the value of
Facebook’s tangible assets is relatively limited, its business concept is immensely valuable (although 25% less immense
than a month ago).
Likewise, the money-making potential of pharmaceutical patents is often quite substantial. However, both types of intangible
assets go unrecorded (or under-recorded) on the balance sheet. Under strict conditions, IAS 38 Intangible Assets allows for
limited capitalisation of Development expenditures, but we know the standard is rudimentary because it is based on
historical cost, which may not reflect the true value of the intangible asset.
The fact is that it is simply very difficult to identify or measure intangible assets. High market-to-book ratios may provide
indications of their existence and value. However, after the excesses of the dot.com bubble, there is understandable
reluctance to record them on the balance sheet.
Pragmatism also means we need to look very carefully at any possible undesirable use of our standards. Whenever we are
confronted with a high degree of uncertainty, we should act with great caution. I just gave the example of intangible assets.
We know they are there, but measurement is a big problem. If our standards were to provide too much room for recognition
of intangible assets, the potential for mistakes or abuse would be immense.
In such circumstances, it is better for our standards to require more qualitative reporting than pseudo-exact quantitative
reporting.
By the way, people always tell us we should not set our standards from an anti-abuse perspective. I think that is nonsense. If
we see ample scope for abuse in a standard, we had better do something about it. There are sufficient temptations and
incentives for creative accounting as it is.
These excerpts highlight the difficulty of auditing intangible assets—if the asset is difficult to
measure, it will be difficult to audit. Estimation and uncertainty make audits of intangibles
extremely challenging and highlight the importance of professional skepticism.

12-24
Academic Research Cases
12-67
a. From late 2004 to mid-2006 more than 250 U.S. firms uncovered and corrected
accounting errors related to operating leases. The underlying issue was that the accounting
method used was in violation of generally accepted accounting principles (GAAP). Many of
these companies filed restated financial statements with the SEC, while many other companies
elected to use a less visible current-period catch-up adjustment. GAAP allows companies to
avoid formal restatements when the error is deemed immaterial by management and the
independent auditor. This setting is one where materiality considerations are likely to be the
dominant influence on whether the correct the error through a restatement or through a catch-up
adjustments. Accordingly, this setting allows for the authors to test the role of various materiality
related factors (quantitative and qualitative) in explaining which correction method a company
used. (The authors also consider whether the method previously used by other companies in the
same industry influences the materiality decisions, and hence the correction method used.)
Regulatory bodies provide general guidance on assessing materiality however, they are vague at
best. That leaves the question of materiality to the judgment of company management and the
auditor.
b. The results of the research indicate that the materiality judgment (and hence the judgment
regarding the correction method) is based on more than a purely quantitative approach (for
example, 5 percent of net income). Qualitative factors such as scaled magnitude of the error,
presence of other identified errors, and the importance of leasing activities to firm operations
play an important role in the determination of materiality. Firms’ materiality assessments are also
heavily associated with the prior actions of other firms.
c. In settings where a decision has to made as how to correct an error, there is likely a fair
amount of negotiation between the auditor and the client (preparer). Auditors and their clients
will find it useful to understand the determinants of this decision and whether their own
decisions seem reasonable given the evidence in this paper. It may be that auditors provide some
recommendations to clients on this issue; evidence in this paper could be used to support the
auditor’s recommendation and potentially help avoid placing the auditor in a legal liability
situation.
At least in the setting examined in the paper, it appears that materiality assessments are pretty
consistent across firms. However, the auditing standard setters might consider providing more
specific materiality guidelines for auditors to follow. This would reduce the amount of judgment
required on behalf of the auditor and management, and may be useful in other settings requiring
materiality assessments. The financial statements of companies would be more consistent and
provide more meaningful information to the investors who are comparing company financials
thereby increasing the value of audited financial statement.
d. The initial sample of companies to use for this research was gathered from the investment
newsletter “Analysts’ Accounting Observer” supplemented by companies found in wire service
press releases and SEC filings. The final sample consisted of 244 firms which included 150 firms

12-25
that used restatements to correct lease accounting errors and 91 that used current-period
adjustments. To gain insights in to the factors that affected a company’s decision regarding its
lease correction method, the authors use a logistic regression model of the likelihood that
restatement is used to correct the discovered lease accounting errors. Explanatory variables in the
model included quantitative factors, qualitative factors, and contextual variables.
e. The archival research method used for this paper is subject to certain limitations. For
example, some disclosures regarding correction of the error were not specific as to the dollar
amount of the error and thus were not included in the analysis. Further, there may be variables
other than the ones examined that influenced companies’ corrections methods and if these
variables were included, the results might be different. Further, data limitations do not allow for
the authors to provide evidence on whether auditors differ in the determinants (and weights
placed on those determinants) of error correction decisions and materiality assessments.
12-68
a. This paper addresses the issue of client negotiation in an asset write-down setting. Asset
write-downs can be highly judgmental audit areas, and the amounts reported in financial
statement for such highly judgmental audit areas are a product of auditor-client negotiation. This
paper specifically addresses how an auditor characteristic (negotiation experience) and a client
characteristic (negotiation style) can impact the outcomes of negotiation and thus impact the
amounts reported in the financial statements. The authors examine how these characteristics
influence auditors’ perceptions of negotiation outcomes at the beginning of negotiations. Namely,
the authors ask the participants to predict the ultimate outcome of a negotiation prior to engaging
in dialogue with the client. This study examines the impact of the aforementioned characteristics
on the level of this prediction
b. The authors find that auditor negotiation experience effects auditors’ predictions of the
ultimate outcome of negotiations, but only in situations where the client uses a contentious
negotiating style. Specifically, higher auditor negotiation experience leads auditors to predict a
higher ultimate write-down when a client uses a contentious negotiating style. However, when a
client uses a collaborative negotiating style, auditor negotiation experience does not affect
auditors’ predictions of the ultimate write-down. The authors note these results suggest that
auditor negotiation experience reaps benefits when it is needed most (i.e. when the client is
difficult to deal with). Similarly, the authors show that the effect of client negotiation style on
auditors’ perceived outcomes is contingent on auditor negotiation experience. Specifically, they
note that inexperienced auditors perceive a lower ultimate negotiated write-down when dealing
with a contentious client, rather than a collaborative client. However, experienced auditors
perceived negotiated write-downs are not affected by clients’ negotiation styles.
c. This paper shows that a client’s negotiation style can affect the amounts reported in the
financial statements. This finding indicates that auditors may benefit from considering clients’
negotiation styles in their decision-making. For example, auditors may benefit from considering
client negotiation style in resource management decisions. The authors note that audit firms
could benefit from assigning auditors with greater negotiation experience to negotiate with
clients who are known to be contentious during client-auditor negotiations. Further, the results

12-26
suggest that audit firms could implement policies that encourage inexperienced auditors to seek
assistance in negotiating with contentious clients.
Additionally, auditors can consider client negotiation style in the client acceptance and the
evidence evaluation (completion) stages of the audit. With respect to client acceptance, audit
firms may increase efficiency and profitability by considering the risks and potential resource
demands on engagements for clients that are known to be contentious in negotiation. Further,
audit firms can enhance their risk management procedures through enhanced reviews of final
audited financial statements for clients with contentious financial statements. For example, firms
may consider enhanced concurring review for such clients.
d. The authors perform an experiment using 20 partners (12.1 years of experience) and 76
managers (7.2 years of experience) from a Big 4 CPA firm in China during a regular training
session. The authors randomly assigned each auditor to one of two groups: 1) contentious client
negotiating style and 2) collaborative negotiating style. The authors distributed materials
indicating the audit team identified an audit adjustment for an additional asset write-down of
$1.8 million, where the materiality level for the overall financial statements was $1.9 million.
Participants in the contentious group were told that the CFO had previously adopted a tough
stand, was typically reluctant to record audit adjustments, and had expressed reservations in
recording the current adjustment. Participants in the collaborative group were told that the CFO
had previously been reasonable, was generally open to discussions of audit adjustments, and had
expressed willingness to consider the current audit adjustment. The authors then asked the
participants in both groups the following question: “Suppose that you have had a few rounds of
discussions with the client’s manager. Indicate the amount of the proposed audit adjustment that
you believe will ultimately be recorded in the client’s audited financial statements.” As part of
the experiment, the authors measured auditor negotiation experience by asking each participant
to indicate the number of auditor-client interactions they had completed in the past three years to
resolve 1) a complex and material financial reporting issue and 2) a complex financial reporting
issue that approached materiality. The authors averaged the responses to these two questions to
calculate a measure of negotiating experience.
Using the data collected, the authors measured the effects of auditor negotiation
experience and client negotiation style on the perceived amount of the ultimate audit adjustment.
The authors find that when the client negotiating style is contentious, auditor negotiation
experience has a significant effect on the perceived amount. However, auditor negotiation
experience has no such effect when the negotiating style is collaborative. Similarly, the authors
find that when auditor negotiation experience is low, client negotiating style has a significant
effect on the perceived amount. However, client negotiating style has no such effect when
auditor negotiation experience is high.
e. The authors self-identify four limitations of this study:
• The authors use a self-reported measure of negotiation experience to measure auditor
expertise. Self-reported measures are susceptible to bias, and experience does not necessarily
constitute expertise.
• The audit adjustment used in the study was not quantitatively material. The results may have
been different if this adjustment was quantitatively material

12-27
• This study does not consider several key considerations that can affect auditor-client
negotiations: concern over losing the client, auditors’ preferred write-downs and goals,
auditors’ strategies.
• The authors do not measure an actual outcome of an actual negotiation; rather, they only
measure auditors’ perceived outcome. This measure does not consider the iterative, rich, and
complex nature of negotiation.
Additional weaknesses to consider may include:
• This experiment was performed in China. Cultural differences could limit the generalizability
of these results.
• The authors do not appear to control for the position of the participants (i.e. manager vs.
partner)
• The authors do not explain why auditor negotiation experience might even matter in
negotiations with a collaborative client. For example, if a client is collaborative, then there
may be no reason to believe negotiation will matter. Without this tension, the contribution of
this research is limited.
• The results indicate that while an auditor’s negotiation experience and a client’s negotiating
style may effect auditor-client negotiations, the results do not indicate that auditors allow
material misstatements to go uncorrected. Thus, while the results are interesting, there is no
evidence that the characteristics examined in this study have a meaningful effect on the
outcomes of audits.
Ford and Toyota
12-69
Note to instructor: This answer is based upon the FYE 2009 annual reports for Ford and Toyota
as they appeared in the 8th
edition. An updated solution as of FYE 2012 will be posted to the
Cengage website as soon as the applicable annual reports become available.
1a.
Net property, Assets of discontinued /held for sale operations, depreciation, impairment charges.
1b.
The following are excerpted from Ford’s public filing.
Depreciation and Amortization
Property and equipment are stated at cost and depreciated primarily using the straight-line
method over the estimated useful life of the asset. Useful lives range from 3 years to 36 years.
The estimated useful lives generally are 14.5 years for machinery and equipment, and 30 years
for buildings and land improvements. Maintenance, repairs, and rearrangement costs are
expensed as incurred. Beginning January 1, 2006, we changed our method of amortization for
special tools from an activity-based method (units-of-production) to a time-based method. The

12-28
time-based method amortizes the cost of special tools over their expected useful lives using a
straight-line method or, if the production volumes for major product programs associated with
the tools are expected to materially decline over the life of the tool, an accelerated method
reflecting the rate of decline. For 2006, this change in method decreased Automotive cost of sales
by $135 million.
Asset Impairments
Held-for-Sale and Discontinued Operations. We perform an impairment test on an asset group to
be discontinued, held for sale, or otherwise disposed of when management has committed to the
action and the action is expected to be completed within one year. We estimate fair value to
approximate the expected proceeds to be received, less transaction costs, and compare it to the
carrying value of the asset group. An impairment charge is recognized when the carrying value
exceeds the estimated fair value.
Held-and-Used Long-Lived Assets. We monitor the carrying value of long-lived asset groups
held and used for potential impairment when certain triggering events have occurred. These
events include current period losses combined with a history of losses or a projection of
continuing losses. When a triggering event occurs, a test for recoverability is performed,
comparing projected undiscounted future cash flows (utilizing current cash flow information and
expected growth rates) to the carrying value of the asset group. If the test for recoverability
identifies a possible impairment, the asset group's fair value is measured relying primarily on the
discounted cash flow methodology. Additionally, we consider various market multiples (e.g.,
revenue and earnings before interest, taxes, and depreciation and amortization ("EBITDA")) and
consult with external valuation experts. An impairment charge is recognized for the amount by
which the carrying value of the asset group exceeds its estimated fair value.
1c.
Students may determine a variety of ratios that are useful, and the process of having students
identify their own ratios should help them understand that auditors need to tailor standard
analytics to individual clients. Below we present several ratios that we developed:
Ford
2009 numbers
used to
calculate ratio Toyota
2009 numbers
used to calculate
ratio
Land,
buildings,
machinery,
construction in
process/total
assets: 0.27 52,927/194,850 0.49
(175,027-28,880)
/295,857
Accumulated
depreciation/tot
al assets: 0.18 35,404/194,850 0.34 99,677/295,857
Depreciation
& Amortization 0.04 4,094/105,893 0.08 15,221/195,192

12-29
expense of auto
sector/total auto
sales
These ratios show that:
o Ford has fewer physical assets to total assets compared to Toyota.
o Ford has less depreciated assets to total assets compared to Toyota.
o Ford has lower depreciation expense to total product sales compared to Toyota.
It may be helpful to point out to students that in the actual audits of Ford and Toyota, the auditors
will have the above financial information by segment and geographic region, so disaggregating
the above ratios in those ways will be helpful in understanding where potential problems may lie
in reported numbers. Further, comparing ratios over a longer time horizon would be helpful in
understanding and predicting trends in relevant accounts. Finally, the auditors may want to
compare the client’s ratios to relevant industry averages.
2a.
Monetary value of impairment: $5.3 billion
Cause of the impairment and key assumptions/estimates: According to Footnote 15, the
reasons for the impairment and the key assumptions/estimates were as follows:
“During the second quarter of 2008, higher fuel prices and the weak economic climate in the
United States and Canada resulted in a more pronounced and accelerated shift in consumer
preferences away from full-size trucks and traditional sport utility vehicles ("SUVs") to smaller,
more fuel-efficient vehicles. This shift in consumer preferences combined with lower-than-
anticipated U.S. industry demand and greater-than-anticipated escalation of commodity costs
resulted in impairment charges related to Ford North America's long-lived assets and Ford
Credit's operating lease portfolio.” “Based upon the financial impact of rapidly-changing U.S.
market conditions during the second quarter of 2008, we projected a decline in net cash flows for
the Ford North America segment. As a result, in the second quarter of 2008 we tested the long-
lived assets for impairment and recorded in Automotive cost of sales a pretax charge of $5.3
billion, representing the amount by which the carrying value of the assets exceeded the estimated
fair value. See Note 4 for further discussion of the fair value used in the impairment.”
In general, key assumptions and estimates of this nature generally involve business projections
(particularly in terms of assumptions about the level of product acceptance in the marketplace),
the growth rate (the expected rate at which a business unit’s earnings stream is projected to grow
beyond the planning period), economic projections (assumptions regarding industry sales,
pricing estimates, industry volumes, inflation, interest rates, and prices of raw materials), and
discount rates (the rate at which expected future cash flows are brought to present value).
2b.
The audit firm is obligated to assess whether the key assumptions that management employs in
determining fair value and impairments are reasonable, despite their obvious subjectivity. The

12-30
audit firm is obligated to conduct some independent estimation procedure of its own to determine
the extent to which they agree with management’s estimates, and any potential write down.
These estimates pose risk to the audit firm to the extent that, if the estimates are materially
incorrect, and the audit firm issues an unqualified opinion, then the audit firm has inappropriately
assured third party users of the appropriateness of the estimates when in fact they are not
appropriate. In some circumstances, the auditor may want to use the services of a specialist
within the firm (or an expert outside of the firm) to help the auditor perform these procedures.

Random documents with unrelated
content Scribd suggests to you:

stars in the clear sky, "what makes a Chinaman so afraid of a
camera? I am quite certain that you never told me."
"I believe that they think a man's soul is killed when his picture is
taken," said Chad sleepily. "'Buddha doesn't like it' is quite reason
enough for most of 'em." The last sentence was half lost in a snore,
and the Grand Lama was photographed a dozen times in Jim's
dreams.
The next morning the two men set out again with the one donkey
and its load which the Chinaman left to them, and, after a few
hours' hard travel, they came to the mountain spur just above the
capital of Tibet. The city was well within range, and a few minutes
after they had arrived the camera was set up, and Chad was finding
the focus. While they were both occupied busily, a group of yellow-
clad figures was approaching from a lamasery that was half-hidden
on the mountainside. The leader of the band, a one-eyed Chinaman
with an almost idiotic expression, was evidently greatly respected by
his followers; for the party did not change its position without his
direction. Slowly and with the utmost caution they approached the
unconscious workers and surrounded them; then with a yell the mob
of Buddhist priests was about the camera. In another instant it was
rattling down the mountainside, Chad and Jim were firmly bound,
and the march back had begun.
The few rays of sunlight that found entrance into the Buddhist
lamasery served only to reveal the filthiness of the place; but not
even the disgusting sights and odors could suppress the strangers'
curiosity. In the first room was an immense statue of Buddha with a
large cylinder in front of it. "A prayer wheel," whispered Chad. Jim
nodded.
Suddenly Chad's eyes flashed with an inspiration. Turning to the
leader he exclaimed, "You speak English now, don't you?"
The man bowed gravely, courteously. The honorable strangers'
honorable conversation was greatly edifying, he murmured.

"Well, then," Chad continued, "Will you tell me why we are
detained here?"
"The insignificant custom of the Tibetans is to resent having their
souls destroyed." The voice was calm and matter-of-fact, but the
words were terrible to the two men looking into the circle of hostile
faces which showed so clearly their superstition and ignorance.
"You know, John, or Your Highness, if that suits your present
position better," the Chinaman's face remained impassive, "you know
how carefully we guarded the black box. Did you know that it was
not an ordinary instrument, but the home of a spirit more powerful
than even your Buddha there? The photographic spirit is the child of
the Fire God, and the Fire God protects all who guard his children.
See, here is a part of the Spirit's house," and Chad pulled an extra
lens from his pocket. "With this I can attract the god's attention, and
he will do my bidding." He placed the glass in the sunlight and the
robe of the nearest Lama began to smolder. The priests started back
in great alarm, but Chad continued with only a sufficient number of
pauses for the leading Lama to translate to the others. "While you
were masquerading as my servant, you saw how careful I was of the
camera; you can judge for yourself whether or not the Fiery One will
protect me. What do you think will be the fate of you who have
destroyed this mighty spirit's home? I will tell you. He will descend
from the sky and will burn you with a hotter fire than you have ever
felt—a fire so hot that the spirit of the camera cannot approach it in
intensity." And the Lama screamed as he felt the heat of the
powerful ray upon his arm. "What do you think? Will you anger this
mighty one by further crimes against his favorites?"
"Buddha will protect us," stolidly responded a priest.
"Ask your leader if Buddha could protect him from the burning of
the camera spirit, and then judge whether Buddha can guard you
against the power of the Fire Dragon when he is roused to
vengeance.

Panic began to seize upon the priests. One by one they
disappeared until at length only the Chief Lama was left. "If the
honorable gentlemen will tarry for a few moments I will bring them
their beasts." When the donkeys were brought in, Chad looked their
packs over and prepared them for the journey, while Jim started
back to the ledge, hoping that part of their supplies might have been
unmolested. When Chad came around the rock ten minutes later, he
stopped in amazement and stared at the camera, which Jim had
rescued from the tree in which it had lodged uninjured save for a
broken plate.
As Chad approached, Jim looked up and said, "I've got one; I'll bet
it's a dandy!"
—Hazel Orcutt.

Auditing A Risk-Based Approach to Conducting a Quality Audit 9th Edition Johnstone Solutions Manual

CHAPTER IV
THE ENTERTAINING GROUP
In the group "entertaining" we may class all those narratives that
are told simply for the purpose of pleasing the reader and passing
away his time for him—tales of probable adventure, society stories,
humorous stories, and stories for special occasions, like
Thanksgiving and Christmas. The bulk of magazine fiction is of this
kind. The chief endeavor of the writer is to create the illusions of
probability for a series of events that after all is imaginary. However
numerous may be the actual incidents embodied, the course of the
happening as a whole is nevertheless made-up. There is always a
heightening or lowering of natural color, a modification of real
occurrences, in order to produce the desired effect; namely,
acceptance by the reader of the whole series, and especially the
climax, which may be, for instance, the capture of the wild animal,
the culmination of the love episode, the emphasis of the funny point,
or the accident at the special celebration.
I. The Tale of Probable Adventure
Adventure narratives are essentially boys' stories—the grammar
and high school boys who are past the "foolishness" of fairy tales
and even of Oriental wonder stories, but are not yet appreciative of
realism, the quiet reflection of humdrum life. For many decades The
Youth's Companion has furnished among its other good things
excellent stories of adventure probable and actual. Stevenson's
masterpiece is, of course, one of the two top-notches of excellence
in the extended form of this type of story. How the species may be
historically but a modification of the voyages imaginaires is obviously

Definition
The writing of a
probable
adventure
A warning
suggested no less by "Treasure Island" than by "Robinson Crusoe."
It is the short form of this type that we are dealing with at present.
Stories of probable adventure are narratives of
exciting and extraordinary events that, though really
fictitious, might have happened. We can tell many
of them from true adventures only by the testimony of the authors.
"Captain Singleton's Tour Across Africa," critics have said, seems to
the general reader quite as true an account as Stanley's; while the
"Memoirs of a Cavalier," which records the adventures of a soldier in
the army of Gustavus Adolphus, was long mistaken for
autobiography.
To write a tale of this kind you must put yourself
into the mood of the bold hunter or traveller. You
must imagine exciting things. Many of your own
experiences have just missed being astounding. Add
what-might-have-been, and you have a story of the type we are
discussing. You catch the bear or the bear catches you. You swim
across a turbulent river. You spend the night on an iceberg. You
coast down the frightful curves of the twenty-five miles of the
Benguet road with the steering gear of your automobile entirely
useless. Remember, though, that the adventure must seem real,
however much you have drawn on your reading and imagination.
You must know enough of animal, plant, and human life, and of
geography, to be particular here and there and thus give
verisimilitude to your pictures. In order to get a subject, suppose
you think of what you consider the bravest physical act; then build
up around it a swift, crisp narrative. You may use technical terms
once in a while, such as a nervous story-teller would be likely to fling
off and then explain; only be sure they are intelligible very soon.
An ordinary imagination supplemented by a "Baedeker" will enable
any one to construct an acceptable probable adventure. Superior
excellence will lie in the diction and style.
Because of the prevalence of this kind of narrative,
you will need to guard yourself with especial care

against the temptation to plagiarize. Be sure that your certification of
authorship really tells the truth. It is easier to be original than you
think; as George Bernard Shaw says, any man with brains can more
easily compose a story or a play than steal one.
A Fight with a Bear
One day, being in a forest a few leagues from Dusseldorf, as Gerard
was walking like one in a dream, thinking of Margaret and scarce
seeing the road he trod, his companion laid a hand on his shoulder,
and strung his cross-bow with glittering eye. "Hush!" said he, in a
low whisper that startled Gerard more than thunder. Gerard grasped
his axe tight, and shook a little; he heard a rustling in the wood hard
by, and at the same moment Denys sprang into the wood, and his
crossbow went to his shoulder, even as he jumped. Twang! went
the metal string; and after an instant's suspense he roared, "Run
forward, guard the road! he is hit! he is hit!"
Gerard darted forward, and, as he ran, a young bear burst out of
the wood right upon him; finding itself intercepted, it went upon its
hind legs with a snarl, and, though not half-grown, opened
formidable jaws and long claws. Gerard, in a fury of excitement and
agitation, flung himself on it, and delivered a tremendous blow on its
nose with his axe, and the creature staggered; another, and it lay
groveling, with Gerard hacking it.
"Hallo, stop! You are mad to spoil the meat."
"I took it for a robber," said Gerard, panting. "I mean I had made
ready for a robber, so I could not hold my hand."
"Ay, these chattering travelers have stuffed your head full of thieves
and assassins; they have not got a real live robber in their whole
nation. Nay, I'll carry the beast; bear you, though, my cross-bow."
"We will carry it by turns, then," said Gerard, "for 'tis a heavy load;
poor thing, how its blood drips. Why did we slay it?"

"For supper and the reward the baillie of the next town shall give
us."
"And for that it must die, when it had but just begun to live; and
perchance it hath a mother that will miss it sore this night, and loves
it as ours love us; more than mine does me."
"What, know you not that his mother was caught in a pitfall last
month, and her skin is now at the tanner's? and his father was stuck
full of clothyard shafts t'other day, and died like Julius Cæsar, with
his hands folded on his bosom, and a dead dog in each of them?"
But Gerard would not view it jestingly. "Why, then," said he, "we
have killed one of God's creatures that was all alone in the world—as
I am this day, in this strange land."
"You young milksop," roared Denys, "these things must not be
looked at so, or not another bow would be drawn nor quarrel fly in
the forest nor battlefield. Why, one of your kidney consorting with a
troop of pike-men should turn them to a row of milk pails; it is
ended; to Rome thou goest not alone; for never wouldst thou reach
the Alps in a whole skin. I take thee to Remiremont, my native
place, and there I marry thee to my young sister. She is blooming as
a peach. Thou shakest thy head? Ah! I forgot; thou lovest
elsewhere, and art a one-woman man, a creature to me scarce
conceivable. Well, then, I shall find thee, not a wife, nor a leman,
but a friend; some honest Burgundian who shall go with thee as far
as Lyons; and much I doubt that honest fellow will be myself, into
whose liquor thou hast dropped sundry powders to make me love
thee; for erst I endured not doves in doublet and hose. From Lyons,
I say, I can trust thee by ship to Italy, which being by all accounts
the very stronghold of milksops, thou wilt there be safe; they will
hear thy words, and make thee their duke in a twinkling."
Gerard sighed. "In sooth I love not to think of this Dusseldorf,
where we are to part company, good friend."
They walked silently, each thinking of the separation at hand; the
thought checked trifling conversation, and at these moments it is a

relief to do something, however insignificant. Gerard asked Denys to
lend him a bolt. "I have often shot with a long-bow, but never with
one of these."
"Draw thy knife and cut this one out of the cub," said Denys slyly.
"Nay, nay, I want a clean one."
Denys gave him three out of his quiver.
Gerard strung the bow and leveled it at a bough that had fallen into
the road at some distance. The power of the instrument surprised
him; the short but thick steel bow jarred him to the very heel as it
went off, and the swift steel shaft was invisible in its passage. Only
the dead leaves, with which November had carpeted the narrow
road, flew about on the other side of the bough.
"Ye aimed a thought too high," said Denys.
"What a deadly thing! No wonder it is driving out the long-bow—to
Martin's much discontent."
"Ay, lad," said Denys, triumphantly, "it gains ground every day, in
spite of their laws and their proclamations to keep up the yewen
bow, because, forsooth, their grandsires shot with it, knowing no
better. You see, Gerard, war is not pastime. Men will shoot at their
enemies with the hittingest arm and the killingest, not with the
longest and missingest."
"Then these new engines I hear of will put both bows down; for
these, with a pinch of black dust and a leaden ball, and a child's
finger, shall slay you Mars and Goliath and the Seven Champions."
"Pooh! pooh!" said Denys, warmly; "petrone nor harquebuss shall
ever put down Sir Arbalest. Why, we can shoot ten times while they
are putting their charcoal and their lead into their leathern smoke
belchers, and then kindling their matches. All that is too fumbling for
the field of battle; there a soldier's weapon needs be aye ready, like
his heart."

Gerard did not answer, for his ear was attracted by a sound behind
them. It was a peculiar sound, too, like something heavy, but not
hard, rushing softly over the dead leaves. He turned round with
some little curiosity. A colossal creature was coming down the road
at about sixty paces distance.
He looked at it in a sort of calm stupor at first; but the next
moment he turned ashy pale.
"Denys!" he cried. "O God! Denys!"
Denys whirled round.
It was a bear as big as a cart horse.
It was tearing along with its huge head down, running on a hot
scent.
The very moment he saw it, Denys said in a sickening whisper:
"The cub!"
Oh! the concentrated horror of that one word, whispered hoarsely,
with dilating eyes! For in that syllable it all flashed upon them both
like a sudden stroke of lightning in the dark—the bloody trail, the
murdered cub, the mother upon them, and it. DEATH.
All this in a moment of time. The next she saw them. Huge as she
was, she seemed to double herself (it was her long hair bristling with
rage); she raised her head big as a bull's, her swine-shaped jaws
opened wide at them, her eyes turned to blood and flame, and she
rushed upon them, scattering the leaves about her like a whirlwind
as she came.
"Shoot!" screamed Denys, but Gerard stood shaking from head to
foot, useless.
"Shoot, man! ten thousand devils, shoot! Too late! Tree! tree!" and
he dropped the cub, pushed Gerard across the road, and flew to the
first tree and climbed it, Gerard the same on his side; and, as they
fled, both men uttered inhuman howls like savage creatures grazed
by death.

With all their speed one or other would have been torn to
fragments at the foot of his tree; but the bear stopped a moment at
the cub.
Without taking her bloodshot eyes off those she was hunting, she
smelt it all round, and found, how, her Creator only knows, that it
was dead, quite dead. She gave a yell such as neither of the hunted
ones had ever heard, nor dreamed to be in nature, and flew after
Denys. She reared and struck at him as he climbed. He was just out
of reach.
Instantly she seized the tree, and with her huge teeth tore a great
piece out of it with a crash. Then she reared again, dug her claws
deep into the bark and began to mount it slowly, but as surely as a
monkey.
Denys's evil star had led him to a dead tree, a mere shaft, and of
no very great height. He climbed faster than his pursuer, and was
soon at the top. He looked this way and that for some bough of
another tree to spring to. There was none; and if he jumped down
he knew the bear would be upon him ere he could recover the fall,
and make short work of him. Moreover, Denys was little used to
turning his back on danger, and his blood was rising at being
hunted. He turned to bay.
"My hour is come," thought he. "Let me meet death like a man." He
kneeled down and grasped a small shoot to steady himself, drew his
long knife, and clenching his teeth, prepared to job the huge brute
as soon as it should mount within reach.
Of this combat the result was not doubtful.
The monster's head and neck were scarce vulnerable for bone and
masses of hair. The man was going to sting the bear, and the bear to
crack the man like a nut.
Gerard's heart was better than his nerves. He saw his friend's
mortal danger, and passed at once from fear to blindish rage. He
slipped down his tree in a moment, caught up the cross-bow which
he had dropped in the road, and, running furiously up, sent a bolt

into the bear's body with a loud shout. The bear gave a snarl of rage
and pain and turned its head irresolutely.
"Keep aloof," cried Denys, "or you are a dead man."
"I care not," and in a moment he had another bolt ready and shot
it fiercely into the bear, screaming "Take that! that! that!"
Denys poured a volley of oaths down at him. "Get away, idiot!"
He was right; the bear finding so formidable and noisy a foe behind
him, slipped growling down the tree, rending deep furrows in it as
she slipped. Gerard ran back to his tree and climbed it swiftly. But
while his legs were dangling some eight feet from the ground the
bear came rearing and struck with her forepaw, and out flew a piece
of bloody cloth from Gerard's hose. He climbed and climbed, and
presently he heard as it were in the air a voice say, "Go out on the
bough!" He looked, and there was a long massive branch before him
shooting upwards at a slight angle; he threw his body across it, and
by a series of convulsive efforts worked up it to the end.
Then he looked round panting.
The bear was mounting the tree on the other side. He heard her
claws scrape; and saw her bulge on both sides of the massive tree.
Her eye not being very quick, she reached the fork and passed it,
mounting the main stem. Gerard drew breath more freely. The bear
either heard him or found by scent she was wrong; she paused;
presently she caught sight of him. She eyed him steadily, then
quietly descended to the fork.
Slowly and cautiously she stretched out a paw and tried the bough.
It was a stiff oak branch, sound as iron. Instinct taught the creature
this; it crawled carefully out on the bough, growling savagely as it
came.
Gerard looked wildly down. He was forty feet from the ground.
Death below. Death moving slow but sure on him in a still more
horrible form. His hair bristled. The sweat poured from him. He sat
helpless, fascinated, tongue-tied.

As the fearful monster crawled growling towards him, incongruous
thoughts coursed through his mind. Margaret, the Vulgate, where it
speaks of the rage of a she-bear robbed of her whelps—Rome—
Eternity.
The bear crawled on. And now the stupor of death fell on the
doomed man; he saw the open jaws and bloodshot eyes coming, but
in a mist.
As in a mist he heard a twang; he glanced down; Denys, white and
silent as death, was shooting up at the bear. The bear snarled at the
twang; but crawled on. Again the cross-bow twanged; and the bear
snarled and came nearer. Again the cross-bow twanged, and the
next moment the bear was close upon Gerard, where he sat, with
hair standing stiff on end, and eyes starting from their sockets,
palsied. The bear opened her jaws like a grave, and hot blood
spouted from them upon Gerard as from a pump. The bough rocked.
The wounded monster was reeling; it clung, it stuck its sickles of
claws deep into the wood; it toppled, its claws held firm, but its body
rolled off, and the sudden shock to the branch shook Gerard forward
on his stomach with his face upon one of the bear's straining paws.
At this, by a convulsive effort, she raised her head up, up, till he felt
her hot fetid breath. Then huge teeth snapped together loudly close
below him in the air, with a last effort of baffled hate. The ponderous
carcass rent the claws out of the boughs; then pounded the earth
with a tremendous thump. There was a shout of triumph below, and
the very next instant a cry of dismay, for Gerard had swooned, and,
without an attempt to save himself, rolled headlong from the
perilous height.
Denys caught at Gerard and somewhat checked his fall; but it may
be doubted whether this alone would have saved him from breaking
his neck or a limb. His best friend now was the dying bear, on whose
hairy carcass his head and shoulders descended. Denys tore him off
her. It was needless. She panted still, and her limbs quivered, but a
hare was not so harmless; and soon she breathed her last, and the
judicious Denys propped Gerard up against her, being soft, and

fanned him. He came to by degrees, but confused, and feeling the
bear all round him, rolled away, yelling.
"Courage," cried Denys, "le diable est mort."
"Is it dead, quite dead?" inquired Gerard from behind a tree; for his
courage was feverish, and the cold fit was on him just now, and had
been for some time.
"Behold," said Denys, and pulled the brute's ear playfully, and
opened her jaws and put in his head, with other insulting antics; in
the midst of which Gerard was violently sick.
Denys laughed at him.
"What is the matter now?" said he; "also, why tumble off your
perch just when we had won the day?"
"I swooned, I trow."
"But why?"
Not receiving an answer, he continued, "Green girls faint as soon as
look at you, but then they choose time and place. What woman ever
fainted up a tree?"
"She sent her nasty blood all over me. I think the smell must have
overpowered me. Faugh! I hate blood."
"I do believe it potently."
"See what a mess she has made me!"
"But with her blood, not yours. I pity the enemy that strives to
satisfy you."
"You need not to brag, Maitre Denys; I saw you under the tree, the
color of your shirt."
"Let us distinguish," said Denys coloring; "it is permitted to tremble
for a friend."
Gerard, for answer, flung his arm around Denys's neck in silence.
—Charles Reade.

From "The Cloister and the Hearth."
The Secret of the Jade Tlaloc
"If only this paper on jade were finished!" sighed tall, dignified,
blond Dolores. "These notes sound so interesting. 'Jade
implements,'" she read, "'found in Mexico—source of mineral not yet
discovered—theory that implements are relics of Eastern invasion
disproved—jade said to exist in America,' My! I do think jade is the
most delightful subject for investigation."
"Um-m!" Elsa, who, like her Spanish mother, was small, quick, dark,
and adventure-loving, did not consider jade a particularly fascinating
topic for study. "Now if—we—a—we—a——" she ruminated.
"If we—a——?" Dolores's sentences were always clearly thought
out before she spoke them.
"If we—a—now if we could finish that paper, we might be able to
sell it, you know," Elsa went on. "We certainly haven't an enviably
large fortune." She reached into one of the dark pigeon-holes of her
father's ponderous desk. "Ook-ook!" she pursed up her full red lips,
as she held a yellow scroll from her and gingerly flicked away the
dust which had collected upon it since her father's death. "Now
here's what I call interesting. An old letter or something, written on
agave-leaf paper." From their long association with their father in his
archeological researches, the girls had gained a more than
superficial knowledge of Aztec customs and antiquities. "'We, the
Aztecs, are a proud race,'" she readily translated. "'It is not for the
Spaniards to glory in complete victory over us, for though they have
conquered our bodies, they have not conquered our spirits. Well may
they rejoice in the ruining of our beautiful cities. But when they
search, and search in vain, for the wealth which they know has been
ours, how they will rage! But their anger shall be as vain as their
searching. Those of us who are left will not see the invaders glorying
in what was once the splendor of the Aztecs. Rather will we bury,
and hide from all future generations, if need be, the secrets of our

riches. It is that my descendants may one day scoff at the
descendants of those who have made me, who was a prince, a
slave, that I am making this record. Among the mountains which the
Spaniards have called the "Corderillas" is one in whose top is a hole
of great depth, from which it is said, there once flowed streams of
liquid fire, the vengeance of the gods upon the people. This
mountain stands between two sister mountains of far greater height
than itself, and is near the middle of the range.' Why, that might be
Ahualtaper, right near here." Elsa had the topography of the country
around their home very clearly mapped out in her mind.
Dolores nodded. "Go on," she said.
"'Half-way up the side which faces the rising sun,'" Elsa continued,
"'is a ledge, upon which is a rock, apparently one with the
mountainside, and in which, when viewed from a distance, can be
seen a resemblance to the cross of Tlaloc. One day a descendant of
mine will find and displace this rock; whereupon, the entrance to the
tomb of my ancestors will be revealed. There are many such tombs
and many such mountains as those which I have described, but
which I have not named. However, in the particular burial place to
which I refer is a jade image of the god Tlaloc. It is studded with
valuable turquoise. Where this image is found will also be found
what should be the source of untold wealth to the discoverer.
"'In warning, let me say that none but the eldest son of a family
must ever know of this document; and should he be tempted, ever,
to part with it, let him remember that bodily want is preferable to
the curses of the dead!'"
The two girls remained silent for a few moments. "Well," asked
Elsa, at last, "what do you think of that?"
Dolores turned again to the desk. "It is interesting," she replied,
"but of what use can it ever be to us? We could never find the place.
Why, we've been in dozens of burial grottos already, and they are all
pretty much alike." She opened another drawer. "Here is father's
diary."

The book fell open at the page upon which the last entry had been
made. "'May 15'—the day father became ill—'poor wrinkled old
Gomez died today,'" she read. "'He wanted to give me information
about a jade Tlaloc, some famous image which has been lost. He
tried with his last breath to do me the service of aiding me in my
research. He gave me also a very ancient manuscript. I do not know
where he got it. I hardly feel equal, to-night, to the task of
translating it. Perhaps Elsa will do the translation tomorrow. If I
could find such an idol, it would be of great value to me in my
treatise on jade.'"
Elsa waited long enough only for Dolores to stop reading. "Dolores,
we must find that idol."
Dolores looked gravely at her sister. "This is really a serious matter,
Elsa. It would save us from the necessity of working if we could find
it. But how can you and I alone accomplish anything? We should
have to go into the mountains, and have a donkey, and camp in the
open air, and——"
"Well," Elsa impatiently interrupted the enumeration of objections,
"what of that? You and father and I used often to go into the
mountains, and have a donkey, and camp in the open air; and father
always depended more upon us than we upon him. You think it over
while I get tea." Elsa left her sister sitting alone and looking out of
the study windows to the solemn rugged Corderillas.
Dolores did consider the matter, with the result that, after a few
weeks of study, of consulting maps and plans, and of preparation for
the journey, the sisters were ready to begin the daring exploit whose
aim was to complete the investigations which their father had
begun.
Clad in rough, unsightly denim, and leading a burro which carried a
very considerable store of provisions, they clambered up the jagged
sides of Ahualtapec; they tore their way through thickets and fell
upon cacti.

"We're lost," panted Dolores, finally, as she pulled the many thorns
from her clothing. "Elsa, we're lost."
They had stopped, at about noon on the tenth day of their trip, to
rest, and again to consult their maps.
Elsa stood upon a ledge and looked across to where, between two
lofty mountains, rising to the south of Ahualtapec, a smaller rock
mass showed itself, like a much overgrown hill-the shell of a long
extinct volcano, and a very counterpart of Ahualtapec.
"Dolores," she pointed straight before her, "do you remember? A
stone in which, when viewed from a distance, can be seen a
resemblance to the cross of Tlaloc?"
"Oh, dear," complained Dolores, dejectedly, "and all this time
wasted!"
"Now, Dolores!" small Elsa turned about determinedly, "you ought
to shout for joy, for that certainly must be it. The rocks are bare
around that spot, and you can see it plainly from here. It's on a
ledge, too, just like the one we're on. We will start this very minute,
Dolores."
Delaying long enough only for Elsa, who had a fine sense of
location, to impress upon her mind the position of the cross, they
began once more the tedious scrambling, tearing, tumbling down
slopes and up slopes, across streams and through, streams; but they
did not lose themselves again.
"Do you suppose," Dolores anxiously asked, "that we can ever
move it?" as she saw how the ages had packed, and hardened the
damp soil about the base of the boulder.
"We must." Elsa was resolved not to be defeated. "We absolutely
must," she reiterated.
"How?" demanded Dolores.
Elsa's reply was to unstrap a bag from the burro's back, to take
from it two trowels, and silently to offer one to Dolores. No

explanation was necessary. For five days the girls scraped and dug
away the hardened soil from the lower part of the cross-shaped
stone, until at last the block began to tremble as though about to
fall.
"Dolores! Dolores! It's top heavy, bless it!" Elsa was enthusiastically,
insanely happy.
The fact that the stone was top-heavy made it possible for the girls,
by dint of much tugging, heaving, and pushing, to roll it over the
ledge, and to send it bumping down the mountainside. A narrow
passage, wide enough to admit only one at a time, was thus
opened. Pine torches were lit. Even Dolores was excited. They
squeezed into the entrance, Elsa first. They rushed through the short
tunnel, until, at the end, Elsa stumbled and sank to her knees.
"Oh, my! Dolores, just look!" she was holding her torch down to
see what had caused her fall. "It's it," she remarked, disregarding
rhetoric, while she pointed to a small turquoise-studded image of
Tlaloc, the Neptune of the Aztecs.
The girls carried the idol into the little ante-room which was always
a part of the burial grotto of an Aztec noble family. How pleasant,
how cool, and damp it seemed in here, after their hot toil outside.
The sisters had been in too many tombs to know any fear, to have
any feeling of the presence of the dead. Their own breathing
sounded loud and labored amid the silence of the cave.
Dolores sat down on the moist floor, and examined the statues; she
was thinking of the treasure; but Elsa, now that she was sure of
finding the gold, or the jewels, or whatever the promise might have
meant, desired to explore the grotto.
From the little ante-room she passed into the larger chamber. Here,
for the first time, she felt chilled; she seemed so alone. She was
sure she felt a ghost whisper near her. Her feet slipped on the wet
earth. On the further side of the tomb she saw upon the ground an
urn, on which rested a skull. By the shape of the urn and by the
arrangement of the ornaments above it Elsa knew that it contained

What the society
story is
The pastoral
romance
the ashes of a warrior. A drop of water splashed down from the
ceiling and aroused her. She held her torch aloft. She looked
unbelievingly at the roof. Then she walked slowly around the room,
wonderingly, feeling and scrutinizing the walls.
"Dolores!" she called, "come quick!"
Dolores was not long in coming.
"And here is also what should be the source of untold wealth to the
discoverer," Elsa was murmuring. "Dolores, do you see that green,
that dull gray? How it shines? Don't you know, Dolores? It's jade,
royal jade, Dolores!"
—Dorothea Knoblock.
II. The Society Story
Society stories are those non-consequential
narratives of modern fashionable life which have in
their very lightness their sole excuse for being. They
are set up as only partial reflections of the actual. Since their chief
purpose is to please, they have no studied realism in them. All things
intense and unattractive are omitted. If trouble appears, it is but as
"sweet bells jangled out of tune and harsh," as one of their authors
might promptly quote, and everything is brought to harmonize with
everything else at last. Richard Harding Davis for his "Van Bibber"
tales seems to have found a wide public.
An older representative of the society story is the
pastoral romance, once a very popular form of the
love tale. In it we have a picture of country life, but
it is not the hard, toil-beleaguered life of the real peasant. It is the
imaginary out-of-doors living-for-a-few-days of the courtier who
masquerades as a shepherd and sits cavalierly on a grassy bank with
a golden crook in his hand, sighing out his heart in silvery madrigals.
His lady-love is no ordinary milk-maid, but a courtly princess on
vacation. In this romantic land of shepherd loves, nothing realistic

enters. The talk in even the first examples is philosophic and in the
later becomes euphuistic as well. The critics maintain that the
pastoral romance as a type does not go more than ten years back of
the middle of the fourteenth century, although we have "Aucassin
and Nicolette" of the thirteenth and "Daphnis and Chloe" of the fifth.
The prime fact of the history of the pastoral romance as a society
story is that it grew up as a revolt against the licentious realism of
the Italian novellieri. The "Arcadia" by Sannazaro, written about
1500, is the book that made the epoch and established the rule for
pastoral romance in all languages. Sannazaro took what had been
foreshadowed by Boccaccio in the "Ameto" in 1340, and, enriching it
with elements derived from Theocritus and Virgil, created the
"perfect" example. From Sannazaro, Sir Philip Sidney borrowed the
spirit, many episodes, and part of the name for his notable
combination of prose and verse—the "Countess of Pembroke's
Arcadia." Shakespeare, too, derived much from this important Italian
book. For one thing, he took the name Ophelia; for another, his
charming society pastoral drama "As You Like It" goes historically
back to Sannazaro's "Arcadia" for its lyrics, out-of-doors courting, its
real shepherds, its obvious love of nature, its touch of magic, and its
wholesome morality. The lack of allegorical significance is also
straight example from Sannazaro; but the love chain, the disguised
shepherd princesses, the humorous element in connection with the
coarse shepherds, a touch of adventure, and the cavalier tone are of
later Spanish and English contamination, immediately through
Lodge's prose romance "Rosalynd," and more remotely through
Greene's three pastorals—"England's Mourning Garment,"
"Menaphon," and "Pandosto,"—and through Cervantes's "Galatea"
and Montemayor's "Diana," and Ribeyro's Portuguese "Fragments."
Though the pastoral romance, as we notice, became more and
more artificial, it always remained pure in tone. It centered itself in
idealism and stood against the low, utterly debased, more realistic
novella, which was its predecessor and continued rival for popularity.
The pastoral held the field as the chief and most influential prose

form in Spain until the picaresque romance came to be recognized
as a distinct genre.

Suggestions for
writing
To write a modern society story that will be worth
while is no easy task; for here an author readily
descends to banalities, and the class itself is hardly
acceptable to the serious critic. Yet stories of this kind are so popular
and form (I am sorry to say) so large a part of the reading of our
young women—and our young men, too, for that matter—that the
type surely has come to stay for sometime and must be taken
account of. To make your story commendable, then, you will need to
be original and striking in your choice of situation and to write with a
succinctness and verve that will animate even the commonplace. Be
careful not to be sentimental. If you touch on love, do so with
dignity—with either clean, pure humor, or unaffected seriousness.
Try hard to save your hero from being a cad. The namby-pamby,
third-generation-millionaire protagonist, if not altogether
uninteresting, is surely exasperating to a sensible reader. By playful
imitation, you might write a good satire on this class of story. If you
do so, you will need to be familiar with one or more of the popular
examples in order to use them specifically. Or you might try your
hand at a pastoral, just for the history of the thing. If you care to
adhere to certain elements of the genre, you could put together
under this guise allegorical scenes in which the present lords of the
earth figure as weak or lusty shepherds piping a tune to the watch-
dogs of war, the sheep of commerce, and the Goddess of Getting-
On. If you wish to be more than half serious, you can find
countenance in a number of our most recent light stories that
undoubtedly turn toward the pastoral. This type, too, will give you a
chance at a mixture of prose and verse. Here you can put in some of
those fetching sylvan lyrics that you must have composed long
before now and have always been afraid to mention.
The Fur Coat
Translated by Mrs. J. M. Lancaster. Copyright, 1903, by
The Current Literature Publishing Company. Reprinted by
permission.

Prof. Max Wiegand to Dr. Gustav Strauch
Berlin, November 20.
Dear Gustav—I have some news to tell you to-day which will
certainly surprise you. I have separated from my wife, or rather we
have separated from each other. We have come to an amicable
agreement henceforth to live entirely independent of each other. My
wife has gone to her family in Freiburg, where she will no doubt
remain. I am for the present in our old house; perhaps in the spring
I may look for a smaller house—perhaps not, for I can hardly hope
to find so quiet a workroom as I now have, and the idea of moving
appals me, especially when I think of my large library. You will, of
course, want to know what has happened, though, to tell the truth,
nothing has happened. The world will seek for all possible and
impossible reasons why two people who married for love and who
have for eleven years lived what is called happily together should
now have decided to part. Yes, this world which thinks itself so wise,
but whose judgments are nevertheless so petty, so superficial, will
doubtless be of the opinion that there is something hidden—will
include this case too in one of the two great categories prepared for
such affairs, because it can not conceive of the fact that life in its
inexhaustible variety never repeats itself and that the same
circumstances may assume different aspects according to the
character and disposition of those interested. I need not tell you
this, my dear Gustav. You will understand how two finely organized
natures should rebel against a tie which binds them together after
they have once become fully convinced that in all matters of real
importance a mutual understanding is possible.
My wife and I are too unlike. Between her views of life and mine
there yawns an impassable gulf. The first few years I hoped to
influence her, to win her to my ways of thinking—she seemed so
docile, so yielding, took so warm an interest in my work, so willingly
allowed herself to be taught by me. Not till after our children's death
did she begin to change. Her grief at this loss—a grief which neither
of us has ever been able to live down—matured her, made her

independent of me. A tendency to morbid introspection took
possession of her, and gave increased tenacity to those ideas and
convictions which my influence had hitherto held in check, though
not wholly eradicated. She plunged deeper and deeper into those
mists of sentimentally fantastic imaginings, passionately demanding
my concurrence in her views. She lost all interest in my professional
work, evidently regarding the results of my researches in natural
science as troops from an enemy's camp. At last there was hardly a
subject in the wide realm of nature and human existence on which
we agreed. To be sure we never came to an open quarrel, but the
breach between us was constantly widening. Every day we saw
more and more plainly that though we lived side by side, we no
longer belonged to each other. This discovery irritated and distressed
us, and at last forced all other feelings into the background. If we
had not once loved each other so dearly, or even if we had now
ceased to feel a mutual respect, this state of affairs might perhaps
have lasted for years, but our ideas of the true meaning of marriage
were too lofty, our sense of our own dignity as human beings too
profound to permit us to be content with so incomplete a realization
of our ideals. I hardly know who spoke first, but our resolution was
at once taken, and the decisive words uttered as calmly and
naturally as the overripe fruit falls from the tree. For the first time in
many years we were able with perfect unanimity of sentiment to
discuss a subject of the greatest importance to us both, and this fact
alone soothed our overwrought nerves. We parted yesterday with
the utmost decorum, without a word of reproach, a note of discord.
The many beautiful memories of our early married life, of the long
years we had lived together, made it difficult to refrain from some
manifestation of tenderness, and I assure you that I never felt
greater respect for my wife than at the moment when, all petty
considerations cast aside, the true magnanimity of her nature
asserted itself. Her manner, what she said, and also what she did not
say, robbed the situation of all trace of the commonplace, and gave
it dignity. Deeply moved, almost in tears, we clasped hands in

farewell, so we may look back upon the closing scene of our wedded
life with unalloyed satisfaction.
I had already, with her consent, referred all business details to our
lawyers, for we were not even to communicate with each other by
letter.
Life must begin again for both of us, and already I breathe more
freely. The Rubicon is passed. I believe that you will congratulate
me.
Prof. Max Wiegand to Dr. Gustav Strauch
Berlin, December 12.
Dear Gustav—Pardon me that I have so long delayed thanking you
for your answer of friendly sympathy to my last letter.
I have been in no condition to write, and even now find it difficult.
You congratulate me without reserve on a step which you regard as
essential to my welfare and to my intellectual development, but you
do not take into consideration what it means to separate from one
who has for eleven years been one's constant companion, day and
night. Indeed, it is only during these last dreary weeks that I,
myself, have realized what the change signifies to me. Habit is all
powerful, especially with men who, like you and me, live in the
intellectual world and so require a solid sub-structure.
How are we to take observations from the tower battlements when
its foundations are not firmly established? Of course, I am as certain
as ever I was that our decision is for the best interests of us both,
but in this queer world of ours we can take no step without
unlooked-for results.
I am bothered from morn till night with trifles to which I have never
given a thought since my bachelor days—things which I will not
mention, so absurdly insignificant are they—and yet they rob me of
my time and destroy my peace. I am at a loss what steps to take to
rid myself of the thousand petty cares and annoyances which my

wife has hitherto borne for me. These servants! Now that the cat is
away they think that they can do just as they please, and you have
no idea of the silly obstacles over which I am continually stumbling,
of the wretched pitfalls which beset my path. Here is one instance
out of many: For several days it has been very cold, and I can not
find my fur coat. With the chambermaid's assistance I have turned
the whole house upside down, until she finally remembered that my
wife, last spring, sent it to a furrier's to be kept from the moth. But
to which furrier? I have been to a dozen and can not find it.
If I had only not agreed with my wife that we were, under no
circumstances, to write to each other, I should simply ask her—but it
is best so. No strain of the commonplace must mingle with the sad
echoes of our farewell. No—a farce never follows a drama. Perhaps
she might even imagine that I seize the first pretext to renew
relations with her.
Never!
To-day it is six below zero.
Prof. Max Wiegand to Frau Emma Wiegand
Dear Emma—You will be greatly surprised at receiving a letter from
me in spite of our mutual agreement, but do not fear that I have any
intention of opening a correspondence with you. Our relations
terminated with all possible dignity, and the sealed door shall never
be re-opened. I have but to ask a simple question which you alone
can answer. What is the name of the man to whom you sent my fur
coat last spring? Lina has forgotten the address. Hoping soon to
receive an answer, for which I thank you in advance,
Max.
Frau Emma Wiegand to Prof. Max Wiegand

Freiburg, December 15.
Dear Max—His name is Palaschke, and he is on Zimmer Street. I can
not understand Lina's forgetfulness, as she took the coat there
herself.
Emma.
Dear Emma—I must trouble you once more—for the last time. Herr
Palaschke refuses to let the coat go without the ticket, as he has had
several disagreeable experiences which have made it necessary to
be very strict. But where is the ticket? I spent the whole morning
looking for it, and, of course, Lina has not the slightest idea where it
is. She flew into a rage when I found a little fault with her, and she
leaves the house to-morrow. I prefer paying her till the end of her
engagement, and in addition shall give her a moderate Christmas
gift, for I can not stand for a great length of time such an
impertinent person about me.
Well—be so kind as to write me a line telling me where to find the
ticket. I have already taken a severe cold for want of the fur coat.
Hoping that you are well and quite comfortable with your family.
Max.
Dear Max—The ticket is either in the second or third upper drawer
of the little wardrobe in the dressing-room or in my desk, in the right
or left pigeon-hole. I could find it in a minute if I were there. Lina
has great faults, but she is very respectable. I doubt whether you
can do better, and now, just before Christmas, you will not be able

to replace her. You should have put up with her at least a fortnight
longer, but it is none of my business. I hope your cold is better. I am
quite well.
Emma.
Dear Emma—The ticket is not to be found either in the wardrobe or
in the desk. Perhaps it slipped out when you were packing, and was
thrown away. I can think of no other explanation.
To-morrow or next day I will again go to Herr Palaschke, and try to
wheedle him out of my property by all possible blandishments and
assurances, but to-day I am confined to my room, for my cold has
resulted in a severe attack of neuralgia.
I had a dreadful scene with the cook yesterday. On the day of your
departure she gave me notice, and when I tried to persuade her to
remain she turned on me and told me in a very insolent manner that
I knew nothing about house-keeping, and that it was only out of
sympathy for you, dear Emma, that she had so long remained with
us at such low wages, and that she should leave immediately. I
answered calmly, but firmly, that she must stay till the end of her
engagement. Then she began to cry and storm, and at last was so
outrageously impertinent as to declare that even you could not
manage to live with me. I lost my temper and must, I suppose, have
called her an "impudent woman," though I can not remember saying
it. Unfortunately for me I have had no experience in dealing with
viragos.
Two hours later, after supper, I rang and discovered that she was
already gone, bag and baggage, leaving in the kitchen a badly
spelled billet doux, in which she threatened me with a lawsuit for
calling her an "impudent woman," in case I should refuse to give her
a certificate of character.

I am now entirely without servants. The porter's wife blacks my
shoes for a handsome consideration, and brings me from the café
meals which ought to be condemned by the health inspector. As you
have truly remarked, it will be impossible to replace these women
before the New Year, but I have already written to a dozen
employment bureaus, and will go myself as soon as I am able to
leave the house. This has grown into a long letter, my dear Emma,
but when the heart is full the pen runs rapidly.
I also suspect that abominable cook of taking my gold sleeve
buttons—those left me by Uncle Friedrich—though I have, of course,
no proof. Have you any idea where they are? If so please drop me a
line. Good-by, my dear Emma, and I trust you are more comfortable
than I am.
Your Max.
Dear Max—I have read with much sympathy your account of your
little mishaps and annoyances. The cook often spoke to me very
much as she did to you, but I put up with it because she is a good
cook, and only cooks who know nothing are polite. Now you see
what I have had to stand for years, and that there are problems in
that department also which can not be solved by natural science.
I can not, at this instance, advise you what to do, and should not
consider myself justified in doing so now that our intimate relations
have been terminated in so dignified a manner, as you so truly
remark in your first letter. As for the furrier's ticket and the sleeve
buttons, I will wager that I could find them both in five minutes. You
must remember how often you have hunted in vain for a thing which
I have found at the first attempt. Men occasionally discover a new
truth but never an old button.

Since a correspondence has been begun by you, I have a little
request to make. I forgot before I left to ask you for the letters
which you wrote me during our engagement, and which at my
request you put in your safe. They are my property, and I should like
to have them as a reminder of happier days. Will you be so kind as
to send them to me?
Wishing you a Merry Christmas,
Emma.
My Dear Emma—Your kind wish that I might have a Merry Christmas
has not been fulfilled. I never spent so melancholy a Christmas Eve.
You will not wonder that I could not bear to accept the invitations of
friends—to be a looker-on at family rejoicings—so I stayed at home,
entirely alone. I found it utterly impossible to get a servant before
New Year's, and yesterday was even without a helper from outside.
The porter's wife put a cold supper on the table for me early in the
afternoon, for she was too busy later with Christmas preparations for
her children. A smoky oil lamp took the place of the Christmas tree
which you always adorned so charmingly and with such exquisite
taste every year, and there were none of those pretty surprises by
which you supplied my wants and wishes almost before I was
conscious of them. There was nothing on the Christmas table but my
old fur coat, which Herr Palaschke—softened by my entreaties and
assurances and perhaps also by the spirit of Christmastide—had
allowed me to take the preceding day. It was as cold as charity in
the room, for the fire had gone out and it was beyond my skill to
rekindle it, so I put on the fur coat, sat down by the smoky lamp,
and read over the letters which I wrote you during the time of our
engagement and which I had taken from their eleven years' resting-
place to send to you to-day.

Welcome to our website – the perfect destination for book lovers and
knowledge seekers. We believe that every book holds a new world,
offering opportunities for learning, discovery, and personal growth.
That’s why we are dedicated to bringing you a diverse collection of
books, ranging from classic literature and specialized publications to
self-development guides and children's books.
More than just a book-buying platform, we strive to be a bridge
connecting you with timeless cultural and intellectual values. With an
elegant, user-friendly interface and a smart search system, you can
quickly find the books that best suit your interests. Additionally,
our special promotions and home delivery services help you save time
and fully enjoy the joy of reading.
Join us on a journey of knowledge exploration, passion nurturing, and
personal growth every day!
testbankfan.com

Auditing A Risk-Based Approach to Conducting a Quality Audit 9th Edition Johnstone Solutions Manual

More Related Content

Similar to Auditing A Risk-Based Approach to Conducting a Quality Audit 9th Edition Johnstone Solutions Manual (20)

Recently uploaded (20)

Auditing A Risk-Based Approach to Conducting a Quality Audit 9th Edition Johnstone Solutions Manual