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Chapter 01 - Auditing and Assurance Services
1-1
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
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Solutions Manual
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CHAPTER 01
Auditing and Assurance Services
LEARNING OBJECTIVES
Review
Checkpoints
Multiple
Choice
Exercises, Problems,
and Simulations
1. Define information risk and explain how the
financial statement auditing process helps to
reduce this risk, thereby reducing the cost of
capital for a company.
1, 2, 3 29, 31, 38 57*
2. Define and contrast financial statement
auditing, attestation, and assurance type
services.
4, 5, 6, 7, 8 23, 25, 28, 44,
50
52, 57*
3. Describe and define the assertions that
management makes about the recognition,
measurement, presentation, and disclosure of
the financial statements and explain why
auditors use them as a focal point of the audit.
9, 10, 11 36, 39, 40, 41, 45,
46, 47, 48, 49
54, 55, 59
4. Define professional skepticism and explain its
key characteristics.
12 24, 37 53
5. Describe the organization of public accounting
firms and identify the various services that
they offer.
13, 14 30, 42 56*, 62
6. Describe the audits and auditors in
governmental, internal, and operational
auditing.
15, 16, 17, 18 26, 27, 32, 34, 35 56*, 58

1-2
Education.
7. List and explain the requirements for
becoming a certified public accountant (CPA)
and other certifications available to an
accounting professional.
19, 20, 21, 22 33, 43, 51 60, 61
(*) Item relates to multiple learning objectives

1-3
Education.
SOLUTIONS FOR REVIEW CHECKPOINTS
1.1 Business risk is the risk that an entity will fail to meet its business objectives. When assessing business
risk, a professional must consider all possible threats to an entity’s goals and objectives. Some illustrative
examples include the risk that: 1) its existing customers will start buying products or services from its
primary competitors; 2) its product lines will become obsolete; 3) its taxes will increase; 4) key government
contracts will be lost; 5) key employees will leave the entity; and many other examples exist.
1.2 To help minimize business risk and take advantage of other opportunities presented in today’s competitive
business environment, decision makers such as chief executive officers (CEOs) demand timely, relevant,
and reliable information. There are at least four environmental conditions that increase demand for reliable
information. First, is complexity which implies that events and transactions in today’s global business
environment can be complicated. Most investors do not have the level of expertise needed to properly
account for complex transactions. Second is remoteness which implies that decision makers are often
separated from current and potential business relationships due to distance and time. For example, investors
may not be able to visit distant locations to check up on their investments. Third is time-sensitivity which
implies that in today’s economic environment, investors and other users of financial statements need to
make decisions more rapidly than ever before. As a result, the ability to promptly obtain high-quality
information is essential. Fourth is a consequence which implies that decisions may very well involve
significant investments. As a result, the consequences can be severe if information cannot be obtained
1.3 Of all the different risks discussed in the chapter up to this point, information risk is the one that is most
likely to create the demand for independent and objective assurance services is information risk or the
probability that the information circulated by an entity will be false or misleading. Because the primary
source of information for investors and creditors is the company itself, an incentive exists for that
company’s management to make their business or service appear to be better than it actually may be, to put
their best foot forward. As a result, preparers and issuers of financial information (directors, managers,
accountants, and other people employed in a business) might benefit by giving false, misleading, or overly
optimistic information. This potential conflict of interest between information providers and users which
provides the underlying basis for the demand for reliable information.
1.4 According to the American Accounting Association, “Auditing is a systematic process of objectively
obtaining and evaluating evidence regarding assertions about economic actions and events to ascertain the
degree of correspondence between the assertions and established criteria and communicating the results to
interested users.” In effect, auditors add reliability to the information that is provided to interested users.
Of course, this definition is focused on an external reporting context. Students may also discuss how
governmental and internal auditors operate as well.
In response to “What do auditors do?” students can respond by stating that auditors (1) obtain and evaluate
evidence about assertions made by management about economic actions and events, (2) ascertain the
degree of correspondence between the assertions and the appropriate reporting framework, and (3) issue an
audit report (opinion). Students can also respond more generally by stating that auditors essentially lend
credibility to the financial statements presented by management.
1.5 An attestation engagement is “an engagement in which a practitioner is engaged to issue or does issue a
written communication that expresses a conclusion about the reliability of a written assertion that is the
responsibility of another party”(SSAE 10, AT 101.01). To attest means to lend credibility or to vouch for
the truth or accuracy of the statements that one party makes to another. The attest function is a term often
applied to the activities of independent CPAs when acting as auditors of financial statements.
1.6 An assurance services engagement is any assignment that improves the quality of information, or its
context, for decision makers. Because information (e.g., financial statements) are prepared by managers of
an entity who have authority and responsibility for financial success or failure, an outsider may be skeptical
that the information truly is objective, free from bias, fully informative, and free from material error,
intentional or inadvertent. The services of an independent auditor helps resolve those doubts because the
auditor’s success depends upon his or her independent, objective, and competent assessment of the

1-4
Education.
information (e.g., the conformity of the financial statements with the appropriate reporting framework).
The independent auditor’s role is to lend credibility to the information; hence, the outsider will likely seek
his or her independent opinion about the financial statements.
1.7 An assurance service engagement is one that improves the quality of information, or its context, for
decision makers. Thus, an attestation service engagement is one type of an assurance service. Another
way of thinking about the issue is to remember that the financial statement audit engagement is one type of
an attestation service. Please see exhibit 1.3 in the text which depicts the relationship among assurance,
attestation, and auditing engagements.
1.8 The four major elements of the broad definition of assurance services are
Independence. CPAs want to preserve their reputation and competitive advantage by always preserving
integrity and objectivity when performing assurance services.
Professional services. Virtually all work performed by CPAs is defined as “professional services” as long
as it involves some element of judgment based on education and experience.
Improving the quality of information or its context. The emphasis is on “information,” CPAs’ traditional
area of expertise. CPAs can enhance quality by assuring users about the reliability and relevance of
information, and these two features are closely related to the familiar credibility-lending products of
attestation and audit services. “Context” is relevance in a different light. For assurance services, improving
the context of information refers to improving its usefulness when targeted to particular decision makers in
the surroundings of particular decision problems.
For decision makers. As the “consumers” of assurance services, decision makers are the beneficiaries of the
assurance services. Decision makers may or may not be the “client” that pays the fee and may or may not
be one of the parties to an assertion or other information, but they personify the consumer focus of new and
different professional work.
1.9 Financial accounting refers to the process of recording, classifying, summarizing and reporting about a
company’s assets, liabilities, capital, revenues, and expenses in the financial statements in accordance with
the applicable financial reporting framework (e.g., GAAP). In so doing, the management team is making a
number of assertions about the financial statements. The financial accounting process is the responsibility
of the management team. Financial statement auditing refers to the process whereby professional auditors
gather evidence related to the assertions that management makes in the financial statements, evaluates the
evidence and concludes on the fairness of the financial statements in a report.
They differ because accountants produce the financial statements in accordance with the applicable
financial reporting framework. After this is complete, financial statement auditors then perform procedures
to ascertain whether the financial statements have been prepared in accordance with the applicable financial
reporting framework.
1.10 The three major classifications of ASB assertions with several assertions in each classification are:
Transaction Assertions
Occurrence assertion: The objective is to establish with evidence that transactions giving rise to assets,
liabilities, sales, and expenses actually occurred. Key questions include “Did the recorded sales
transactions really occur?”
Completeness and cutoff assertion: The objective is to establish with evidence that all transactions of the
period are in the financial statements and all transactions that properly belong in the preceding or following
accounting periods are excluded. Completeness also refers to proper inclusion in financial statements of all
assets, liabilities, revenue, expense, and related disclosures. Key questions related to completeness include

1-5
Education.
“Are the financial statements (including footnotes) complete?” and “Were all the transactions recorded in
the right period?”
Accuracy assertion: The objective is to establish with evidence that transactions have been recorded at the
correct amount. Key questions include “Were the expenses recorded at the proper dollar amount?”
Classification assertion: The objective is to establish with evidence that transactions were posted to the
correct accounts. Key questions include “Was this expense recorded in the appropriate account?”
Balance Assertions
Existence assertion: The objective is to establish with evidence that the balance represents assets,
liabilities, sales, and expenses that are real and in existence at the balance sheet date. Key questions
include “Does this number truly represent assets that existed at the balance sheet date?”
Rights and obligations assertion: The objectives related to rights and obligations are to establish with
evidence that assets are owned (or rights such as capitalized leases are shown) and liabilities are owed. Key
questions related to this assertion include “Does the company really own the assets? And “Are related legal
responsibilities identified?”
Completeness assertion: The objective is to establish with evidence that all balances of the period are in the
financial statements. Key questions related to completeness include “Are the financial statements
(including footnotes) complete?”
Valuation assertion: The objective is to establish with evidence that balances have been valued correctly.
Key questions include “Are the accounts valued correctly?” and “Are expenses allocated to the period(s)
benefited?”
Presentation and Disclosure Assertions
Occurrence assertion: The objective is to establish with evidence that transactions giving rise to assets,
liabilities, sales and expenses actually occurred. Key questions include “are we properly presenting and
disclosing transactions that occurred during this period?”
Rights and obligations assertion: The objectives related to establishing with evidence the proper
presentation of assets, liabilities, revenues and expenses to which the company has a legal right or a legal
obligation Key questions related to this assertion include: “Has the company properly presented the assets
in its possession? And, “Are related legal responsibilities identified and properly disclosed?”
Completeness assertion: The objective is to establish with evidence that all balances of the period are
presented and/or disclosed in the financial statements. Key questions related to completeness include: “Are
the financial statements (including footnotes) complete?”
Accuracy and valuation assertion: The objectives are to establish with evidence that balances presented
and disclosed in the financial statements have been recorded accurately and have been valued correctly.
Key questions include “Are the accounts valued correctly?” and “Are expenses allocated to the period(s)
benefited?”
Classification and understandability assertion: The objective is to establish with evidence that
presentation and disclosures are properly classified on the financial statements and that financial statements
including footnotes are understandable to the financial statement users. Key questions relate to “Is this
account properly presented in the correct financial statement category” And, “are the footnote disclosures
presented to promote an understanding of the nature of the account?”

1-6
Education.
1.11 The ASB set of management financial statement assertions are important to auditors because they are used
when assessing risks by determining the different types of misstatements that could occur for each
assertion. Next, auditors use the assertions to develop audit procedures that are appropriate to mitigate the
risk of material misstatement for each assertion. In essence, the key questions that must be answered about
each of the relevant assertions become the focal points for audit procedures. Audit procedures are the
means to answer the key questions posed by management’s financial statement assertions. In fact, the
procedures are completed to provide the evidence necessary to persuade the auditor that there is no material
misstatement related to each of the relevant assertions identified for an engagement.
The ASB assertions differ from the PCAOB assertions in that they provide greater detail and clarity for
auditors to conceptualize the type of misstatements that may exist in the financial statements. Thus, the
PCAOB assertions are more general than the ASB assertions. Importantly, the PCAOB recognizes that
their assertions are more general and do allow auditors to use the more granular and specific ASB
assertions when completing the audit. As a result, largely all of the firms auditing public companies with
international operations feature the ASB assertions to guide their auditing processes. Importantly, a student
of auditing will note that the ASB assertions are in direct alignment with the PCAOB assertions. This is
illustrated in the text in Exhibit 1.4
1.12 Holding a belief that a potential conflict of interest always exists between the auditor and the management
team causes auditors to always be skeptical when completing the audit. Indeed, even though the vast
majority of audits do not contain fraud, auditors have no choice but to consider the possibility of fraud on
every audit. Stated simply, errors and financial reporting frauds have happened in the past, and users of
financial statements and audit reports expect auditors to detect material misstatements if they exist.
Indeed, auditing firms have long recognized the importance of exercising professional skepticism when
making professional judgments. As a student of auditing, you can definitely expect to encounter difficult
economic transactions as an auditor. When a difficult transaction is encountered, auditors must take the
time to fully understand the economic substance of that transaction and then critically evaluate, with
skepticism, the evidence provided by the client to justify its accounting treatment. There are no shortcuts
allowed. Rather, auditors must always hold a belief that a potential conflict of interest exist between the
auditor and management and they must be unbiased and objective when making their professional
judgments.
1.13 Generally speaking, assurance services involve the lending of credibility to information, whether financial
or nonfinancial. CPAs have assured vote counts (Academy Awards), dollar amounts of prizes that
sweepstakes have claimed to award, accuracy of advertisements, investment performance statistics, and
characteristics claimed for computer software programs. Some specific examples of assurance service
engagements performed on nonfinancial information include
 eXtensible Business Reporting Language (XBRL) reporting.
 Enterprise risk management assessment.
 Information risk assessment and assurance.
 Third-party reimbursement maximization.
 Rental property operations review.
 Customer satisfaction surveys.
 Evaluation of investment management policies.
 Fraud and illegal acts prevention and deterrence.
 Internal audit outsourcing.

1-7
Education.
1.14 There are three major areas of public accounting services
 Financial Statement Audit and other types of Assurance services.
 Tax services.
 Consulting and Advisory services.
1.15 Operational auditing is the study of business operations for the purpose of making recommendations about
the economic and efficient use of resources, effective achievement of business objectives, and compliance
with company policies. The AICPA views operational auditing as a type of consulting or advisory service
offered by public accounting firms.
1.16 The GAO is very clear on this point. Specifically, the elements of expanded-scope auditing include (1)
financial and compliance audits, (2) economy and efficiency audits, and (3) program results audits.
1.17 Compliance auditing involves a study of an organization’s policies, procedures, and, ultimately, its
performance in following applicable laws, rules, and regulations. An example would be a school district’s
policies and procedures related to a meal program for its students. In these types of situations, there would
be a demand for a compliance audit which would be designed to insure that the school district complies
with the stated policies and procedures of the program.
1.18 Other kinds of auditors include Internal Revenue Service auditors who are required to audit the taxable
income and deductions taken by taxpayers in tax returns and determine their correspondence with the
standards found in the Internal Revenue Code. They also might have to audit for fraud and tax evasion.
Other examples include state and federal bank examiners who are responsible for auditing banks, savings
and loan associations, and other financial institutions for evidence of solvency and compliance with
banking and other related laws and regulations.
1.19 The purpose of the continuing education requirement is to ensure that CPAs in practice maintain their
expertise at a sufficiently high level in light of evolving business conditions and new regulations. For
CPAs in public practice, 120 hours of continuing education is required every three years with no less than
20 hours in any one year. For CPAs not in public practice, the general requirement is 120 or fewer (90 in
some states) every three years.
1.20 Not everything can be learned in the classroom, and some on-the-job experience is helpful before a person
is able to be held out to the public as a licensed professional. Also, the experience requirement tends to
“weed out” those individuals who are just looking to become certified without ever being involved in actual
accounting work.
1.21 State boards administer the state accountancy laws and are responsible for ensuring that candidates have
passed the CPA examination and satisfied the state requirements for education and experience before being
awarded a CPA certificate. At the same time, new CPAs must pay a fee to obtain a state license to practice.
Thereafter, state boards of accountancy regulate the behavior of CPAs under their jurisdiction (enforcing
state rules of conduct) and supervise the continuing education requirements. As a result, the state boards
play an important role in the CPA certification and licensure process.
1.22 After becoming a CPA licensed in one state, a person can obtain a CPA certificate and license in another
state. The process is known as reciprocity. CPAs can file the proper application with another state board of
accountancy, meet the state’s requirements, and obtain another CPA certificate. Many CPAs hold
certificates and licenses in several states. From a global perspective, individuals must be licensed in each
country. Similar to CPAs in the United States, chartered accountants (CAs) practice in Australia, Canada,
Great Britain, and India.

1-8
Education.
SOLUTIONS FOR MULTIPLE CHOICE-QUESTIONS
1.23 a. Incorrect This is an attestation to the prize promoter’s claims. Because attestation and
audit engagements are subsets of assurance engagements, this is an example of
an assurance engagement. However, each response is an example of an
assurance engagement; thus, the answer is (e).
b. Incorrect This is an audit engagement to give an opinion on financial statements. Because
attestation and audit engagements are subsets of assurance engagements, this is
an example of an assurance engagement. However, each response is an example
of an assurance engagement; thus, the answer is (e).
c. Incorrect This is an assurance engagement on a newspaper’s circulation data. Because
attestation and audit engagements are subsets of assurance engagements, all are
assurance engagements. Thus, the answer is (e).
d. Incorrect This is an assurance engagement on the performance of golf balls. Because
attestation and audit engagements are subsets of assurance engagements, all are
assurance engagements. Thus, the answer is (e).
e. Correct Because attestation and audit engagements are subsets of assurance
engagements, all of the responses are examples of assurance engagements.
1.24 a. Correct The management team is generally trying to put its “best foot forward” when
reporting their financial statement information. The auditor must make sure that
the management team does not violate the accounting rules when doing so. IN
essence, this statement characterizes why professional skepticism is required to
be exercised by auditors.
b. Incorrect “Exclusively in the capacity of an auditor” is not an idea that relates to an
attitude of professional skepticism.
c. Incorrect Professional obligations are not related to an attitude of professional skepticism.
d. Incorrect While it is true that financial statement and financial data are verifiable, this
does not related to the reasons why an auditor needs to begin an audit with an
attitude of professional skepticism.
1.25 a. Incorrect While work on a forecast would potentially be covered by the attestation
standards, the auditors must provide assurance about some type of management
assertion in an attestation engagement.
b. Correct This is the basic definition of an attestation service, as articulated in the book
and the professional standards.
c. Incorrect Since there is no assurance about any management assertion when preparing a
tax return with information that has not been reviewed or audited, this type of
tax work is not considered an attestation service.
d. Incorrect Since there is no assurance about any management assertion when giving expert
testimony about particular facts in an income tax case, this type of work is not
considered an attestation service.
1.26 a. Incorrect The objective of environmental auditing is to help achieve and maintain
compliance with environmental laws and regulations and to help identify and
correct unregulated environmental hazards. This answer is therefore incorrect.
b. Incorrect The objective of financial auditing is to obtain assurance on the conformity of
financial statements with generally accepted accounting principles. This answer
is therefore incorrect.
c. Incorrect The objective of compliance auditing is the entity’s compliance with laws and
regulations. This answer is therefore incorrect.
d. Correct Operational auditing refers to the study of business operations for the purpose of
making recommendations about the economic and efficient use of resources,
effective achievement of business objectives, and compliance with company
policies.

1-9
Education.
1.27 a. Incorrect This is not the primary objective of an operational audit. However, while
completing an operational audit, a professionally skeptical auditor should still be
concerned about compliance with financial accounting standards.
b. Correct This statement exactly characterizes the goal of an operational audit. In
addition, the statement is part of the basic definition of operational auditing.
c. Incorrect An operational audit does not focus on the financial statements of an entity.
d. Incorrect While analytical tools and skills may be used during an operational audit, they
are also a very important aspect of financial auditing.
1.28 a. Correct According to the AICPA definition found in AU 200 (paragraph 11) and in your
book, “the purpose of an audit is to enhance the degree of confidence that
intended users can place in the financial statements. This is achieved by the
expression of an opinion by the auditor on whether the financial statements are
prepared, in all material respects, in accordance with an applicable financial
reporting framework. As a result, this is the correct response.
b. Incorrect The AICPA definition is not limited to the FASB for the appropriate reporting
framework that is used as the benchmark when completing an audit. The
definition is general enough to include other financial reporting frameworks as
well, such as IFRS.
c. Incorrect The AICPA definition does not focus on the SEC as an appropriate reporting
framework to be used as a benchmark when completing an audit. The definition
is focused on the “applicable” financial reporting framework, such as GAAP or
IFRS. The reference to the SEC is wrong.
d. Incorrect This phrase is not referenced in the AICPA definition found in the auditing
standards. This phrase is found in the AAA definition of the audit found in this
book.
1.29 a. Incorrect While complexity is an important condition that increases the demand for
reliable information, the potential conflict of interest between management and
the bank is far and away the biggest factor driving the demand for audited
financial statements.
b. Incorrect While remoteness is an important condition that increases the demand for
reliable information, the potential conflict of interest between management and
the bank is far and away the biggest factor driving the demand for audited
c. Incorrect While the consequences of making a bad decision are an important condition
that increases the demand for reliable information, the potential conflict of
interest between management and the bank is far and away the biggest factor
driving the demand for audited financial statements.
d. Correct The potential conflict of interest between management and the bank is far and
away the biggest factor driving the demand for audited financial statements.
Consider for example a company that was desperate for cash in order to survive.
Would it be possible that the management team would present unreliable
financial statements to the bank in order to get a desperation loan? Because of
this possibility, a financial statement audit is needed to add credibility to the
1.30 a. Incorrect According to Section 201 of the Sarbanes-Oxley Act, bookkeeping services are
prohibited.
b. Incorrect According to Section 201 of the Sarbanes-Oxley Act, internal audit services are
prohibited.
c. Incorrect According to Section 201 of the Sarbanes-Oxley Act, valuation services are
prohibited.
d. Correct Sarbanes-Oxley prohibits the provision of all of the services listed in answers a,
b, and c; therefore, d (all of the above) is the best response.

1-10
Education.
1.31 a. Incorrect Financial statement auditors do not reduce business risk.
b. Correct After completing a financial statement audit, information risk has been reduced
for investors.
c. Incorrect Complexity creates demand for accounting services but is not an objective of the
financial statement audit.
d. Incorrect Auditors do not directly control the timeliness of financial statements.
Management must first provide the information to be audited.
1.32 a. Incorrect A financial statement opinion is the objective of a financial statement audit, not
a compliance audit.
b. Incorrect A basis for a report on internal control is the objective of an internal control
audit under Section 404 of the Sarbanes-Oxley Act, not a compliance audit.
c. Incorrect A study of effective and efficient resources is the objective of an operational
audit, not a compliance audit.
d. Correct A compliance audit refers to procedures that are designed to ascertain that the
company’s personnel are following laws, rules, regulations, and policies.
1.33 a. Incorrect While successful completion of the Uniform CPA is necessary to be licensed as
a CPA, a candidate also requires the proper experience and proper education.
Thus, letter (d.) is correct.
b. Incorrect While proper experience is necessary to be licensed as a CPA, a candidate also
requires the successful completion of the Uniform CPA and proper education.
c. Incorrect While proper education is necessary to be licensed as a CPA, a candidate also
requires the successful completion of the Uniform CPA and proper experience.
d. Correct A candidate requires the successful completion of the Uniform CPA, proper
experience and proper education to be licensed as a CPA.
1.34 a. Incorrect The GIAA is not responsible for monitoring the use of public funds by public
officials. This is the responsibility of the GAO.
b. Incorrect The CIA is not responsible for monitoring the use of public funds by public
c. Incorrect The SEC is not responsible for monitoring the use of public funds by public
d. Correct The mission of the U.S. Government Accountability Office is to ensure that
public officials are using public funds efficiently, effectively, and economically.
1.35 a. Incorrect A financial audit is typically not included as part of a performance audit.
b. (&d) Correct The two categories of performance audits are economy and efficiency audits and
program audits.
c. Incorrect A compliance audit is typically not included as part of a performance audit.
d. (&b) Correct The two categories of performance audits are economy and efficiency audits and
program audits.
1.36 a. Incorrect A review of credit ratings of customers would not provide evidence about the
completeness of accounts receivable. Because GAAP requires the accounts
receivable balance to be valued at the amount expected to be collected from
customers, the review of credit ratings relates to valuation.
b. Incorrect A review of credit ratings of customers would not provide evidence about the
existence of accounts receivable. Because GAAP requires the accounts
c. Correct A review of credit ratings of customers’ gives indirect evidence of the
collectability of accounts receivable. Because GAAP requires the accounts

1-11
Education.
d. Incorrect A review of credit ratings of customers would not provide evidence about the
rights of accounts receivable. Because GAAP requires the accounts receivable
balance to be valued at the amount expected to be collected from customers, the
review of credit ratings relates to valuation.
e. Incorrect A review of credit ratings of customers would not provide evidence about the
occurrence of accounts receivable. Because GAAP requires the accounts
1.37 a. Incorrect Rhonda’s representations are not sufficient evidence to support assertions made
in the financial statements.
b. Incorrect Despite Rhonda’s representations, Jones must gather additional evidence to
corroborate Rhonda’s assertions.
c. Incorrect Rhonda’s representations are a form of evidence (albeit weak) that should
neither be disregarded nor blindly regarded without professional skepticism.
d. Correct Rhonda’s assertions are nice. However, to be considered as sufficient to
conclude that all expenses have been recorded, they will need corroboration with
documentary evidence. Thus, this is the correct response.
1.38 a. Incorrect Although there is a high level of risk associated with client acceptance, this
phrase was created by the authors.
b. Correct By definition, information risk is the probability that the information circulated
by a company will be false or misleading.
c. Incorrect Moral hazard is the risk that the existence of a contract will change the behavior
of one or both parties to the contract.
d. Incorrect Business risk is the probability an entity will fail to meet its strategic objectives.
1.39 a. Correct This is clearly a test of the completeness as the assertion always includes any
issues of transaction cutoff, which means that the recording of all revenue,
expense, and other transactions must be included in the proper period in
accordance with GAAP.
b. Incorrect This is not an existence test. This is clearly a test of the completeness as the
assertion always includes any issues of transaction cutoff, which means that the
recording of all revenue, expense, and other transactions must be included in the
proper period in accordance with GAAP.
c. Incorrect This is not a test of valuation. This is clearly a test of the completeness as the
d. Incorrect This is not a test of rights and obligations. This is clearly a test of the
completeness as the assertion always includes any issues of transaction cutoff,
which means that the recording of all revenue, expense, and other transactions
must be included in the proper period in accordance with GAAP.
e. Incorrect This is not an occurrence test. This is clearly a test of the completeness as the
1.40 a. Incorrect This is not a completeness test. This is clearly a test related to rights and
obligations as the question that must be answered with evidence is to establish
that amounts reported as assets of the company represent true assets that it really
does own and that the amounts reported as liabilities truly represent its
obligations. Goods on consignment, by definition, are not owned by the

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company. Thus, there is a risk that the company is recording assets that they do
not own on their balance sheet.
b. Incorrect This is not an existence test. This is clearly a test related to rights and
c. Incorrect This is not a test of valuation. This is clearly a test related to rights and
d. Correct This is clearly a test related to rights and obligations as the question that must be
answered with evidence is to establish that amounts reported as assets of the
company represent true assets that it really does own and that the amounts
reported as liabilities truly represent its obligations. Goods on consignment, by
definition, are not owned by the company. Thus, there is a risk that the
company is recording assets that they do not own on their balance sheet.
e. Incorrect This is not an occurrence test. This is clearly a test related to rights and
1.41 a. Incorrect This is not a test of completeness. This is a test of existence which is completed
by auditors to answer the question as to whether the transactions recorded as an
asset really represent assets that exist and did add value to the company’s
equipment as compared to routine repair and maintenance expenses under
GAAP. Management’s existence assertion states that the reported assets
actually exist. If an addition to the equipment account cannot be located or
identified as adding value to the equipment balance, it is possible that the
amount should have been classified as repair and maintenance expenses under
GAAP.
b. Correct This is a test of existence. This test is completed by auditors to answer the
question as to whether the transactions recorded as an asset really represent
assets that exist and did add value to the company’s equipment as compared to
routine repair and maintenance expenses under GAAP. Management’s
existence assertion states that the reported assets actually exist. If an addition to
the equipment account cannot be located or identified as adding value to the
equipment balance, it is possible that the amount should have been classified as
repair and maintenance expenses under GAAP.
c. Incorrect This is not a test of valuation. This is a test of existence which is completed by
auditors to answer the question as to whether the transactions recorded as an
GAAP.

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d. Incorrect This is not a test of rights and obligations. This is a test of existence which is
completed by auditors to answer the question as to whether the transactions
recorded as an asset really represent assets that exist and did add value to the
company’s equipment as compared to routine repair and maintenance expenses
under GAAP. Management’s existence assertion states that the reported assets
GAAP.
e. Incorrect This is not a test of occurrence. This is a test of existence which is completed by
auditors to answer the question as to whether the transactions recorded as an
GAAP.
1.42 a. Incorrect Under Sarbanes-Oxley, public accounting firms are prevented from acting in a
managerial decision-making role for an audit client.
b. Incorrect Under Sarbanes-Oxley, public accounting firms are prevented from auditing the
firm’s own work on an audit client.
c. Incorrect Under Sarbanes-Oxley, public accounting firms may only provide tax consulting
services to an audit client with the audit committee’s approval.
d. Correct Sarbanes-Oxley prevents public accounting firms from serving an audit client in
any of the preceding listed roles. As a result, each of the responses a, b, and c is
incorrect and letter d is the correct response.
1.43 a. Incorrect Substantial equivalency does not refer to the financial statement auditing process.
The term relates to the practice of public accountancy in states other than a CPA’s
state of licensure.
b. Incorrect Substantial equivalency does not refer to consulting services. The term relates to
the practice of public accountancy in states other than a CPA’s state of licensure.
c. Incorrect Substantial equivalency does not refer to other professional organizations. The
term relates to the practice of public accountancy in states other than a CPA’s
state of licensure.
d. Correct Substantial equivalency relates to the practice of public accountancy in states
other than a CPA’s state of licensure. Under the concept of substantial
equivalency, as long as the licensing (home) state requires (1) 150 hours of
education, (2) successful completion of the CPA exam, and (3) one year of
experience, a CPA can practice (either in person or electronically) in another
substantial equivalency state without having to obtain a license in that state.
1.44 a. Correct Auditing is a subset of attestation engagements that focuses on the certification
of financial statements. The subject matter is the set of financial statements
from management and the criteria is GAAP in the United States.
b. Incorrect That is not true. Auditing is one example of an attest engagement. The level of
assurance provided is not lower for an attestation engagement.
c. Incorrect That is not true. The auditor is not allowed to provide management support for
its audit clients. Rather, consulting engagements can focus on providing clients
with advice and decision support.
d. Incorrect The definition provided is the one for assurance engagements, which is quite
broad and includes all engagements that are designed to improve the quality of
information, or its context, for decision makers.

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1.45 a. Correct Management is more likely to overstate assets and understate liabilities. As a
result, when auditing an asset balance, the most relevant assertions are likely to
be either existence or valuation. In this situation, because of the nature of cash
and the fact that is no foreign currency translation calculation, the existence
assertion is clearly the most important assertion.
b. Incorrect Although rights and obligations is an important assertion, it is not the most
relevant assertion for the cash balance. Since management is more likely to
overstate assets, when auditing an asset balance, the most relevant assertions are
likely to be either existence or valuation. In this situation, because of the nature
of cash and the fact that is no foreign currency translation calculation, the
existence assertion is clearly the most important assertion.
c. Incorrect Although valuation is an important assertion, it is not the most relevant assertion
for the cash balance. In this situation, because of the nature of cash and the fact
that is no foreign currency translation calculation, the existence assertion is
clearly the most important assertion. If however, there was a foreign currency
translation adjustment, valuation of cash would also be relevant.
d. Incorrect Although occurrence is an important assertion, it is not the most relevant
assertion for any balance sheet account. Rather, the occurrence assertion is more
closely related to income statement accounts because the question that needs to
be answered with evidence is whether the transaction really did occur in
accordance with GAAP. In this situation, because of the nature of cash and the
fact that is no foreign currency translation calculation, the existence assertion is
clearly the most important assertion.
1.46 a. Incorrect This evidence would provide evidence about management’s assertion about
rights and obligations and perhaps existence. However, this evidence would not
help to value the investment in accordance with GAAP.
b. Incorrect While this evidence would potentially be helpful to value an investment in
another company, it is not the best answer. If a quote was available from an
independent source, this would be a better form of evidence for valuation.
c. Incorrect This evidence would provide evidence about management’s assertion about
existence and perhaps rights and obligations. However, this evidence would not
help to value the investment in accordance with GAAP.
d. Correct Always remember that management is more likely to overstate assets. As a
result, when auditing an asset balance like investments, a relevant assertion is
likely to be valuation. In this situation, to answer the question of what the
investment should be valued at in the balance sheet, an auditor would first seek
to obtain a market quotation from an independent source like the Wall Street
Journal.
1.47 a. Incorrect This test is not related to presentation and disclosure. A cutoff test is clearly a
test of the completeness assertion as the test is designed to insure that all
transactions that should have been included in accordance with GAAP have
been recorded.
b. Correct A cutoff test is clearly a test of the completeness assertion as the test is designed
to insure that all transactions that should have been included in accordance with
GAAP have been recorded.
c. Incorrect This test is not related to rights and obligations. A cutoff test is clearly a test of
the completeness assertion as the test is designed to insure that all transactions
that should have been included in accordance with GAAP have been recorded.
d. Incorrect This test is not related to existence. A cutoff test is clearly a test of the
completeness assertion as the test is designed to insure that all transactions that
should have been included in accordance with GAAP have been recorded.
1.48 a. Incorrect This test is designed to test the completeness assertion for the inventory account.
It does not provide any evidence related to the rights and obligations assertion.

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Education.
b. Correct This is clearly a test related to rights and obligations as the question that must be
answered with evidence is to establish that the inventory reported as assets really
is owned by the company. Goods on consignment, by definition, are not owned
by the company. Thus, there is a risk that the company is recording assets that
they do not own on their balance sheet.
c. Incorrect This test is designed to test the completeness assertion for sales revenue. It does
not provide evidence related to the rights and obligations assertion for inventory.
d. Incorrect This test is designed to test the presentation and disclosure assertion for
inventory purchase commitments. It does not provide evidence related to the
rights and obligations assertion for inventory.
1.49 a. Incorrect Management is far more likely to understate liabilities than to overstate them.
As a result, when auditing the accrued liabilities account, existence or
occurrence is not as likely to be violated. Rather, the most relevant assertion is
likely to be completeness.
b. Correct Management is more likely to understate liabilities. As a result, when auditing
the accrued liabilities account, the most relevant assertion is likely to be
completeness.
c. Incorrect Management is far more likely to understate liabilities. As a result, when
auditing the accrued liabilities account, the most relevant assertion is likely to be
completeness. Presentation and disclosure may be relevant. However, it is not
as likely to contain a material misstatement as completeness.
d. Incorrect Management is far more likely to understate liabilities than to overstate them.
As a result, when auditing the accrued liabilities account, the most relevant
assertion is likely to be completeness. Valuation may be relevant. However, it is
not as likely to contain a material misstatement as completeness.
1.50 a. Incorrect This is not correct as an auditing engagement refers to an examination of the
financial statements to determine whether the information has been presented in
accordance with GAAP. Also, a consulting engagement is one where the
professional provides advice and decision support.
b. Incorrect This is not correct as a consulting engagement is one where the professional
provides advice and decision support. Also, an assurance engagement can
include many more types of information than just the financial statements.
c. Incorrect This is not correct as an auditing engagement refers to an examination of the
accordance with GAAP. Also, a consulting engagement is one where the
professional provides advice and decision support.
d. Correct This is correct as an auditing engagement refers to an examination of the
accordance with GAAP and an attestation engagement can include a financial
statement audit. In addition, An assurance engagement can apply to all types of
information and a consulting engagement is one where the professional provides
advice and decision support.
1.51 a. Incorrect Credibility is a reason to become certified. Because all three responses are
reasons, (d) is correct.
b. Incorrect Advancement and promotion are reasons to become certified. Because all three
responses are reasons, (d) is correct.
c. Incorrect Monetary reward is a reason to become certified. Because all three responses are
reasons, (d) is correct.
d. Correct Credibility, advancement, and monetary rewards are all reasons to become
certified.
SOLUTIONS FOR EXERCISES AND PROBLEMS

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Education.
1.52 Audit, Attestation, and Assurance Services
Students may encounter some difficulty with this matching question because the Special Committee on
Assurance Services (SCAS) listed many things that heretofore have been considered “attestation services”
(long before assurance services were invented). As a result, we believe that this question is a good vehicle
for discussing the considerable overlap that exists between attestation and assurance services.
 Real estate demand studies: Assurance service
 Ballot for awards show: Assurance service
 Utility rates applications: Assurance service
 Newspaper circulation audits: Assurance service
 Third-party reimbursement maximization: Assurance service
 Annual financial report to stockholders: Audit service
 Rental property operations review: Assurance service
 Examination of financial forecasts and projections: Attestation service
 Customer satisfaction surveys: Assurance service
 Compliance with contractual requirements: Attestation service
 Benchmarking/best practices: Assurance service
 Evaluation of investment management policies: Assurance service
 Information systems security reviews: Assurance service
 Productivity statistics: Assurance service
 Internal audit strategic review: Assurance service
 Financial statements submitted to a bank loan officer: Audit service
1.53 Controller as Auditor
When Hughes Corporation hired the CPA, she or he can no longer be considered independent with respect
to the annual audit and, as a result, can no longer perform an independent audit of the financial statements.
It is true that the in-house CPA can perform all procedural analyses that would be required of an
independent audit; however, it is extremely unlikely that the CPA could inspire the confidence of users of
financial statements outside the company. Because she or he is no longer independent of the company, the
CPA cannot modify the perception of potential conflict of interest that creates demand for the independent
audit. As a matter of ethics rules, this CPA would be prohibited from signing the standard unqualified
attest opinion. Moreover, if Hughes were a public company, under Sarbanes-Oxley, it would be restricted
from hiring one of its auditors into a senior accounting position for a full year under Section 206 of the law.

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Education.
1.54 Management Assertions
PCAOB Assertion Corresponding ASB assertion Nature of assertion
Existence or Occurrence Existence Balance
Occurrence Transactions
Disclosures
Rights and Obligations Rights and Obligations Balances
Disclosures
Completeness Completeness Transactions
Balances
Disclosures
Cutoff Transactions
Valuation and Allocation Accuracy Transactions
Disclosures
Valuation Balances
Disclosures
Presentation and Disclosure Classification Transactions
Disclosures
Understandability Disclosures
1.55 Management Assertions
Existence or Occurrence - Assertions about existence or occurrence address whether assets or liabilities of the
entity exist at a given date and whether recorded transactions have occurred during a given period. For example,
management asserts that Accounts Receivable on the balance sheet represent valid amounts owed to the company
that were likely provided the in exchange for goods or services from the company.
Completeness - Assertions about completeness address whether all transactions and accounts that should be
presented in the financial statements are so included. For example, management asserts that all amounts that should
be recorded and included in the financial statements as accounts receivable actually have been recorded.
Valuation or Allocation - Assertions about valuation or allocation address whether asset, liability, equity, revenue,
and expense components have been included in the financial statements at appropriate amounts. For example,
management asserts that Accounts Receivable are stated at net realizable value.
Rights and Obligations - Assertions about rights and obligations address whether assets are the rights of the entity
and liabilities are the obligations of the entity at a given date. For example, management asserts that the Accounts
Receivable on the balance sheet really are owned by the company. As a result, they have not factored (i.e., sold) any
of the balances that are listed on the balance sheet.

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Education.
Presentation and Disclosure - Assertions about presentation and disclosure address whether particular components
of the financial statements are properly classified, described, and disclosed. For example, management asserts that
the presentation of accounts receivable and the related allowance for doubtful accounts have been presented and are
disclosed in accordance with GAAP.
1.56 Operational Auditing
One possibility is someone from the management advisory services department of a CPA firm. The major
advantage may be total objectivity. The CPA firm has no stake in making a report reflect favorably or
unfavorably on Smalltek (provided there are no prior relations of the CPA firm with Bigdeal managers that
may suggest a bias or with Smalltek). The possible disadvantage is that the CPA firm may not possess the
required expertise in Smalltek’s industry or type of business.
Another possibility is the Bigdeal internal audit department. The major advantage may be that the internal
audit department has a thorough appreciation of Bigdeal’s managerial effectiveness and efficiency
standards and a long-standing familiarity with Bigdeal’s business. The possible disadvantage could be that
the internal auditors may not be independent or objective enough from internal management pressures for
making or breaking the deal for reasons other than Smalltek’s efficiency and effectiveness.
Another possibility is a non-CPA management consulting firm. The major advantage of objectivity would
be similar to the CPA firm, and such firms often have experts in manufacturing, sales, and research and
development management. The major disadvantage could be a lack of appreciation and familiarity with
Bigdeal’s management standards (as possessed by the Bigdeal internal auditors). In addition, such firms
are typically very expensive.
1.57 Auditor as Guarantor. Loot Starkin appears to be uninformed on the following key points:
The auditors did not prepare the Dodge Corporation
financial statement.
Inform your neighbor that Dodge management is
primarily responsible for preparing the financial
statements and deciding upon the appropriate
accounting principles.
An unqualified opinion does not mean that an
investment is safe. Rather, it merely means that the
financial statements are free of material misstatement.
Tell your neighbor that the financial statements
are a historical record of the business’
performance. The value of Loot’s investment
depends on future events, including the many
factors that affect market prices. Thus, the
financial statements are just one piece of
information that should be analyzed. Tell Loot
that the unqualified opinion means only that the
statements conform to the appropriate reporting
framework (e.g., GAAP) and that the financial
statements are free of material misstatement.

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1.58 Identification of Audits and Auditors
The responses to this matching type of question are ambiguous. The engagement examples are real
examples of external, internal, and governmental audit situations. You might point out to students that the
distinctions among compliance, economy and efficiency, and program results audits are not always clear.
The “solution” is shown in the following matrix form, showing some engagement numbers in two or three
cells. The required schedule follows.
Type of Audit Engagement
Auditor
Financial
Statement Compliance
Economy and
Efficiency
Program
Results
Independent CPA 2, 10
Internal auditor 6, 8 4, 8
Governmental (GAO)
auditor
1, 3 1, 3, 9
IRS auditor 5
Bank examiner 7
Type of Audit Type of Auditor
1. Proprietary school’s training
expenses
Economy and efficiency or
program results
Governmental (GAO)
auditors
2. Advertising agency financial
statements
Financial statement Independent CPAs
3. Dept. of Defense launch
vehicle
Economy and efficiency or
program results
Governmental (GAO)
auditors
4. Municipal services Economy and efficiency Internal auditors
5. Tax shelters Compliance IRS auditors
6. Test pilot reporting Compliance Internal auditors
7. Bank solvency Compliance Bank examiners
8. Materials inspection by
manufacturer
Compliance or Economy and
Efficiency
Internal auditors
9. States’ reporting chemical
use data
Program goal Governmental (GAO)
auditors
10. Sports complex forecast Financial statement Independent CPAs

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Education.
1.59 Financial Assertions and Audit Objectives
By definition, management financial statement assertions give rise to questions that can be answered with
evidence. The objectives for the audit of Spillane’s securities investments at December 31 are to obtain
evidence about the assertions implicit in the financial presentation, specifically:
1. Existence. Obtain evidence that the securities are bona fide and held by Spillane or a responsible
custodian.
Occurrence. Obtain evidence that the loan transaction and securities purchase transactions
actually took place during the year under audit.
2. Completeness. Obtain evidence that all the securities purchase transactions were recorded.
3. Rights. Obtain evidence that Spillane owned the securities.
Obligation. Obtain evidence that $500,000 is the amount actually owed on the loan.
4. Valuation. Obtain evidence of the cost and market value of the securities held at December 31.
Decide whether any write-downs to market are required by the appropriate reporting framework.
5. Presentation and disclosure. Obtain evidence of the committed nature of the assets, which should
mean they should be in a noncurrent classification like the loan. Obtain evidence that restrictions
on the use of the assets are disclosed fully and agree with the loan documents.
1.60 Internet Exercise: Professional Certification
These answers will depend on the student’s state of residence. Many states have recently reduced the
experience requirements by either (1) reducing or eliminating an audit experience requirement and/or (2)
reducing the experience requirement in lieu of additional education. For a quick link to each state, visit the
National Association of State Boards of Accountancy (www.nasba.org).
1.61 Internet Exercise: Professional Certification
The Institute of Internal Auditors does a good job explaining the benefits of becoming a certified internal
auditor. The exam consists of four parts: the Internal Audit Activity’s Role in Governance, Risk, and
Control; Conducting the Internal Audit Engagement; Business Analysis and Information Technology; and
Business Management Skills. You must have at least a bachelor’s degree to sit for this exam.
The Institute of Management Accountants also does a good job of explaining the benefits of the
certification. The parts of the exam include Business Analysis, Management Accounting and Reporting,
Strategic Management, and Business Applications. You must have at least a bachelor’s degree to sit for
this exam.
The Association of Certified Fraud Examiners also does a good job of explaining the benefits of the
certification. The areas of study tested on the exam include criminology and ethics, financial transactions,
fraud investigation, and legal elements of fraud. You must have at least a bachelor’s degree to sit for this
exam.
The Information Systems Audit and Control Association website explains the benefits of becoming
certified. You must have at least an associates’ degree to sit for this exam.

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1.62 Mini-Case: The Market for Audit Services
NOTE TO INSTRUCTOR: For this assignment, question 4 from this Mini-Case is applicable.
4. The impact of a smaller number of major, international accounting firms on public companies
includes:
 The potential for a less competitive market for audit services (from the client’s
standpoint), providing the existing firms with increased levels of pricing power.
 The inability to receive as wide an array of nonaudit services from large accounting
firms. The prohibited services can be found in Section 201 of Sarbanes-Oxley.
 The potential need for public companies to consider smaller audit firms if the smaller
number of major firms cannot absorb the excess capacity created by the demise of one or
more major, international accounting firms.
Some of the negative impacts of a smaller number of major, international accounting firms can be
evidenced by the actions of the other major accounting firms as KPMG resolved its federal
litigation issues. See “No Poaching from KPMG, Say Audit Firms,” www.cfo.com, August 24,
2005 (http://www.cfo.com/article.cfm/4315600?), in which the other firms allegedly ordered their
partners to not approach KPMG clients.

Exploring the Variety of Random
Documents with Different Content

CHAPTER III
ANECDOTES OF THE IMPERIAL FAMILY
When Alexander II. ascended the Throne the Imperial family was
composed of his three brothers, two sisters, his aunt the Grand Duchess
Hélène Pavlovna (widow of the youngest brother of the Emperor Nicholas
I.) and her daughter the Grand Duchess Catherine (married to Duke George
of Mecklenburg, and living with her husband in St. Petersburg) and of
Prince Peter of Oldenburg, the son of the Grand Duchess Catherine
Pavlovna, the youngest daughter of the late Emperor Paul.
We shall refer to all these august personages in turn, but will begin by
mentioning the two Empresses, the wife and the mother of the new Tsar.
The Empress Marie Alexandrovna was a fair, slight woman, very
delicate in health, who during the first years of her marriage had led a
singularly quiet existence in which her numerous babies played an
important part. Her husband had fallen in love with her, much to the
surprise of everybody. He had been sent to Germany with the idea of
marrying him to a German princess of higher rank than the daughter of the
Duke of Hesse, but the latter had appealed to him by her meek manner and
kindness of disposition. She had led a most unhappy life at home, and
therefore looked upon her marriage with the Grand Duke Alexander quite as
much as a means of escape from that as a brilliant match, such as
reasonably she could not have hoped for; and her feeling of intense
gratitude towards him made her later on bear with an extraordinary patience
his numerous infidelities.
Whilst her mother-in-law lived, Marie Alexandrovna never asserted
herself in the least, but later on she developed a great interest in the
numerous charitable institutions placed under her patronage, and especially
in the education of young girls belonging to the poorer nobility. So long as
her health permitted her to do so, she regularly visited the various
institutions where they were brought up, and personally superintended the
yearly examinations, knowing the schoolgirls by name and later on
following them in their future careers. She was very reserved, very
religious, very good, excessively conscientious, and devoted to everything

Russian and orthodox. During the months preceding the Turkish War of
1877, she openly supported the Slavonic party, and was very much under
the influence of a certain coterie, of which the most prominent members
were her confessor, Father Bajanov, and one of her ladies-in-waiting, the
Countess Antoinette Bloudoff, about whom we shall have something more
to say later on. Very unhappy in her married life, she sought in religion a
comfort for the deceptions which she felt very bitterly, but nevertheless was
too proud to admit. Extremely cultured, she used to read a great deal, and
was au courant with everything that went on either in the literary or the
scientific world. Politics interested her greatly, though she would never
express a political opinion in public.
Few princesses have controlled a Court to the degree of perfection that
she did, and her manner, in that respect, never left anything to be desired;
nevertheless, her receptions were always cold, and it was difficult to feel at
one’s ease in her presence. She was extremely respected, but she never
unbent, though full of sympathy for the woes or joys of others. At first she
had tried to be of use to her husband, but soon found out that he had very
little time to give to her, and that her constant ill health bored him to the
extreme. All her hopes and ambitions, therefore, had turned and were
centred upon her eldest son, the Grand Duke Nicholas, to whose education
she had attended with the greatest care, going so far as to read the same
books that he did, and to practically follow with him his course of studies.
She loved him passionately, and her affection was fully justified, for the
young man was not only attractive in the extreme, but also gifted with the
rarest qualities of heart and mind. There is no doubt that had his life been
spared he would have made a remarkable Sovereign, but he died at the early
age of twenty-two years, from the results of a fall from his horse, which
caused a disease of the spine. He was about to be married to the Princess
Dagmar of Denmark. The Empress never recovered from this blow, and
from then her own health began steadily to decline. She grew silent and
melancholy, and her sadness increased still more after her only daughter’s
marriage with the Duke of Edinburgh, and consequent departure to live in
England. Then came further disappointments, political anxieties, all the
terrors of Nihilism and its constant menace to the Emperor. Domestic
sorrows, too, ensued—the association of Alexander II. with the Princess
Dolgorouky; and at last, when the poor Empress died, it was more from a

broken heart than from the illness from which she had suffered for a
number of years.
Marie Alexandrovna was strict upon all matters of etiquette, and during
her reign precedence was observed at Court in the most rigid manner. She
was not very popular among Royal circles in Europe, partly on account of
that devotion to ceremonial, which became almost an obsession with her.
She had a very high opinion of her rank as Empress of Russia, and it is said
that when she went to England on the occasion of the birth of the first child
of the Duchess of Edinburgh, she was not satisfied with the reception she
had there, and declared that she would never return to a country where they
did not appreciate the honour that she had conferred upon it by her
presence. Her great delight were her visits to Darmstadt, where she had
built for herself, in the neighbourhood of the town, a castle called
Heiligenberg, which she left in her will to her brother Prince Alexander of
Hesse, who was her great favourite, notwithstanding his unequal marriage
with Mademoiselle von Haucke. That marriage nearly caused the
banishment of the Prince from the Russian Court, so incensed was the
Emperor Nicholas, not so much at the marriage itself, but at the
circumstances that had attended it. Mademoiselle Julie von Haucke was a
maid of honour to the Empress; the Prince fell in love with her, and the
romance was accidentally discovered one day during an official dinner,
when the young girl suddenly fainted. The Prince was ordered by the Tsar
to marry her, and both were exiled from the Court, in spite of the tears of
the Tsarevna.
Mademoiselle von Haucke was in her turn granted the title, first of
Countess, and, later on, of Princess of Battenberg, and she remained always
upon good terms with her Imperial sister-in-law.
The Empress Alexandra Feodorovna, the consort of Nicholas I., was
most incensed at this escapade of the brother of her daughter-in-law, and the
relations between the two ladies became very strained in consequence. In
fact, they had never been very cordial, because the Empress, in spite of her
great kindness and amiability, imposed upon the Tsarevna and rather
crushed her. The young timid girl never felt at her ease before the elder
lady, with her grand eighteenth-century manners. Even after she became
Empress she was always nervous in presence of her mother-in-law, whom,
nevertheless, she continually treated with the utmost respect.

Alexandra Feodorovna was extremely liked among St. Petersburg
Society, into the interests of which she had entered almost from the first day
of her arrival in Russia. She knew everybody, had learned by heart the
different family alliances and the genealogy of all the people who were
introduced to her. Without being regularly beautiful like her mother the
famous Queen Louise of Prussia, she had an extraordinary charm of manner
and wonderful grace in all her movements. It is said that when she entered a
room it was with such quiet dignity that everybody felt awed, but at the
same time delightfully impressed. She liked Society, and was always
surrounded by her friends. Every evening a few people were invited to take
tea with her and the Emperor, who in that way learned to know persons and
to hear what was going on through other channels than his Ministers. Even
after her widowhood, the Empress continued to receive guests in a quiet
way, until her health, which had always been extremely delicate, forbade it.
Then she used to get the members of her family to gather round her, and
amuse her with their tales and stories as to what was going on in the world.
Her favourite brother was Prince William of Prussia, afterwards the
Emperor William I., and in him she used to confide whenever she found any
difficulty in her path. The two remained close friends until the Empress’s
death, and the friendship was continued by Alexander II., who was always
upon intimate terms with his Prussian uncles, and nearly always favoured
the policy of a rapprochement with Germany.
As I have said already, the Emperor Alexander had three brothers. The
elder of them, the Grand Duke Constantine Nicolaievitch was a very
remarkable man. Singularly clever, he had been most carefully educated,
and with zeal that is rare among members of Royal Houses, had profited by
this education, and developed the gifts which nature had showered upon
him. He had strong Liberal leanings, and was the adviser of his brother in
the great reforms which followed upon the emancipation of the serfs. It can
safely be affirmed that without him the emancipation would not have taken
place so soon. It was he who brought to the Sovereign’s notice the men who
were able to help him to put his generous intentions into operation, and
supported them in spite of the violent opposition which they encountered. It
was he who called into existence the different commissions over which he
presided, and induced the Emperor to appoint to a responsible post in the
Ministry of the Interior Nicholas Milioutine, the brother of the future Field-
Marshal Count Dmitry Milioutine. To the efforts of the former, seconded by

the famous Samarine and by Prince Tcherkassky, were due the principal
reforms which marked the reign of Alexander II.
At one time the Grand Duke was the most praised and the most hated
man in the whole of the Empire. The Old Russian or Conservative party
declared him to be a dangerous Radical, whilst the Liberals praised without
limit the courage he showed in prompting his brother to lead Russia on the
path of necessary reforms, and to continue the work of Peter the Great by
bringing her into line with other European nations. At his house could be
met all the intelligent men in Russia, no matter whether or not they had an
official rank. He was the first to try to break through that circle of
bureaucracy in which the country was confined, the first to attempt to do
away with the Tchin, that plague of Russia. He had the instincts of a
statesman, though through the tendency of his education he did not admit
that a statesman could influence his nation against the wishes of its ruler,
and held that it was that ruler alone who could decide as to what was good
or bad for it. In his heart of hearts, he secretly envied his brother, and would
fain have been in his place. He was, indeed, accused by his enemies of
having ambitious designs against his lawful Sovereign; but that was an
absurdity, for the Grand Duke was above everything else a Romanoff, who
only cared for the welfare of his House, and had its respect for its head.
What he certainly would have liked would have been to be granted more
official authority than was the case.
At last, however, the governmental talents of the Grand Duke were put
to a test. He was sent as Viceroy to Warsaw, when revolutionary trouble was
brewing. It was hoped that by the introduction of Liberal reforms, and a
kind of autonomy, under the guidance of a member of the Imperial House,
the threatened storm would be averted. Constantine went to Warsaw, and
with his beautiful wife he held a Court there; they both tried to make
themselves popular with all classes, going so far as to call a son that was
born to them by the Polish name of Viatcheslav. Further, to give more
significance to the mission of peace he had undertaken, he called to the
head of his Ministry one of the rare Poles who really understood the needs
of their country, the Marquis Vielopolski.
It was all in vain; the insurrection broke out, Vielopolski was compelled,
amid execrations and curses, to fly from Warsaw, the Grand Duke himself
was fired upon, and had to acknowledge that his essay of a constitutional
government on the banks of the Vistula had failed. He went back to St.

Petersburg, to find his influence with his brother singularly diminished, and
himself looked upon as a revolutionary to whose policy was due all the
horrors and difficulties which followed upon the unfortunate rebellion of
1863. His political career was ended.
He then concentrated all his efforts upon the Navy. He was High
Admiral and Commander-in-Chief of all the naval forces, but there again
misfortune pursued him. His was a great mind, capable of great
conceptions, but quite unable to grapple with details. His administration
was not a success, and he carried his neglect so far that rumours went about
that a great proportion of the secret funds granted to the Navy had found
their way into his pockets.
The war with Turkey in 1877 revealed the unsatisfactory condition of the
Navy, but Alexander II. was still too fond of his brother to deprive him of
his post, and it was only after the Emperor’s assassination that the Grand
Duke Constantine, whose relations with his nephew the new Tsar were most
unsatisfactory, himself resigned his various offices. The Grand Duke was
fond of spending money, and was in his later years essentially un homme de
plaisir. After having been passionately in love with his wife, the Princess
Alexandra of Saxe-Altenburg—who certainly was one of the most beautiful
women of her day—he ended by completely neglecting her; they scarcely
saw each other until the last illness, which prostrated the Grand Duke, when
his consort, forgetting old grievances, went to nurse him in the distant
Crimea, where he had retired.
His eldest son, the Grand Duke Nicholas Constantinovitch, was the hero
of a scandal which resulted in his exile to Taschkent, where he remains to
the present moment, having married there the daughter of a police officer.
As for the other children of the Grand Duke Constantine Nicolaievitch,
one daughter is the Dowager Queen of Greece, who is so beloved
everywhere, and whose popularity in her adopted country is as great as it is
in her own; the other, the Grand Duchess Wéra, died a short time ago, the
widow of Duke Eugène of Würtemberg. The second son, Constantine
Constantinovitch, is the cleverest man in the Imperial Family; he has
written several volumes of verses, and is President of the Imperial Academy
of Sciences. His youngest brother, the Grand Duke Dmitri, is a keen
sportsman, and one of those happy creatures that have no history.

The second brother of Alexander II., the Grand Duke Nicholas
Nicolaievitch, was a very handsome man, whose features closely resembled
those of the Emperor Nicholas. But with this resemblance the likeness
ended. He was not stupid in the strict sense of the word, but ignorant, self-
opinionated, stubborn, and very vindictive, a trait he shared in common
with his elder brother. There is a curious anecdote about him, for the
authenticity of which I can vouch. He was once president of a commission,
one of the members of which was a great personal friend of the Sovereign, a
man who always had his franc parler, and whose opinion had often been
taken into consideration by the stern Nicholas I. This man disliked the
Grand Duke, and having suddenly noticed that the latter counted under the
table upon his fingers whilst discussing certain credits for the Army,
interrupted brusquely with the remark:
“Monseigneur, quand on sait settlement compter sur ses doigts, on se
tait.”
The scandal can be imagined.
In spite of this deficiency in his arithmetical attainments, the Grand
Duke was entrusted with various military commands, and was Commander-
in-Chief of the Army during the war with Turkey. It is well known how
utterly incompetent he showed himself in that capacity and the disasters
which were due to his obstinacy and want of foresight. Public opinion was
very bitter against him for his incapacity. He died only a few months before
his brother, the Grand Duke Constantine, and his splendid palace was
acquired by the Crown for the purposes of a college for young girls, which
is known as the Xenia Institute, and which was founded by the late Emperor
at the time of his eldest daughter’s marriage.
The Grand Duke Nicholas left two sons, both of whom are married to
daughters of the King of Montenegro.
The youngest brother of Alexander II., the Grand Duke Michael
Nicolaievitch, died only quite recently, and was always very highly thought
of and deeply respected by all the Imperial Family. Even his stern nephew
the Emperor Alexander III. reverenced him, and frequently turned to him
for advice. He had occupied for many years the responsible position of
Viceroy of the Caucasian provinces, and had filled it to general satisfaction.
His wife, the Grand Duchess Olga Feodorovna, by birth a Princess of Bade,
was one of the most cultured princesses in Europe, and a woman of brilliant

intellect, kind heart, and charming manners. She was the type of the grande
dame of past days, full of gentleness and dignity, and altogether an
exception to the general mould after which princesses are fashioned. Her
conversation was exceptional, and her powers of assimilation quite
remarkable. When she liked she could win all hearts, even those of her
enemies.
On her return from the long absence in the Caucasus her house became
the rendezvous of all the intellectual and artistic elements of St. Petersburg
Society, and she was rather feared by the other ladies of the Imperial
BROTHERS OF ALEXANDER II.
Grand Duke Constantine Nicolaievitch Grand Duke Michael Nicolaievitch
BROTHERS OF ALEXANDER III.
Grand Duke Vladimir Alexandrovitch Grand Duke Alexis Alexandrovitch

Family for her authoritative manners and domineering spirit.
The Grand Duke distinguished himself during the Turkish War, where he
won the Grand Cross of St. George and the baton of Field-Marshal. He was
a tall man, with the characteristic features of the Romanoffs, a long beard,
and altogether the look of a thorough grand seigneur. He kept in favour
during three reigns, and was extremely regretted when he died, especially
by the Dowager Empress. His wife had predeceased him by a number of
years; she died on her way to the Crimea from the shock which she
sustained when she heard of her second son’s marriage with the Countess
Torby.
The grand ducal couple had a large family—six sons and one daughter,
who is now Dowager Duchess of Mecklenburg-Schwerin.
Of the three daughters born to the Emperor Nicholas I. and the Empress
Alexandra Feodorovna, the second, Alexandra, died a few months after
marriage; she was extremely beautiful, and it is said that her mother never
recovered from the blow caused by her death. The youngest—the Grand
Duchess Olga, with whom an Austrian Archduke had been in love, and
whose proposed marriage had failed on account of religious questions—
became Queen of Würtemberg, and had neither a happy nor a pleasant life.
She also was extremely beautiful, and possessed of her mother’s grand
manner, a Sovereign every inch of her, with that born dignity which it is
next to impossible to acquire. Her husband was her inferior in everything,
and no children were born to her in whom she could have forgotten her
other disappointments. She died after a lingering illness, very much
regretted by those who knew her well, but almost a stranger to the country
over which she had reigned.
Not less lovely, but with a very different disposition, was her eldest
sister, the Grand Duchess Marie Nicolaievna, who married the son of Prince
Eugène de Beauharnais and Princess Amelia of Bavaria. Clever, with a
shade of intrigue, wonderfully gifted, but of a passionate, warm disposition,
she made a very inferior marriage, from sheer disappointment at having
missed a brilliant alliance which her coquetry had caused to be abandoned.
Extremely fascinating, a fact of which she was perfectly aware, she was a
general favourite in society, and so much beloved that by a kind of tacit
agreement everybody united their efforts to hide from her stern father her
numerous frailties. When at length the Duke of Leuchtenberg wanted to

make a scandal and separated from his wife, the Emperor interfered, and
granted to his daughter’s children the title of Prince (or Princess)
Romanovsky. She afterwards married Count Gregoire Strogonoff, but
lacked the courage to tell the fact to the Emperor, and Nicholas I. died in
ignorance of it. There is no doubt he would never have forgiven her, though
the Strogonoffs rank among the great nobles of Russia. The union, indeed,
was only acknowledged by Alexander II. after a long struggle. The Grand
Duchess bought a villa in Florence, and spent there a great part of the year,
surrounded by artists and indulging in her taste for painting and sculpture.
She had been elected President of the Academy of Arts in St. Petersburg,
and her efforts were certainly directed towards the development of artistic
activity in her native country. She died in Russia, whither she had wished to
be brought back when it became evident that she was attacked by an
incurable disease. By her first husband she left two daughters and four sons,
one of whom was killed during the Turkish campaign. By her second
marriage she had one daughter, called Hélène, who was the favourite of the
present Dowager Empress; she was twice married, first to a Colonel
Scheremetieff, and secondly to an officer named Miklachevsky, and died
not long ago. She bore an extreme likeness to her grandfather, the Emperor
Nicholas I., and, though a very great lady in manner, was not a favourite in
St. Petersburg Society, which found her haughty and stiff.
The magnificent palace of the Grand Duchess Marie Nicolaievna, which
had been given to her as a wedding present by her father when she was
united to the Duke of Leuchtenberg, was sold to the Crown by her children
after her death. It is at present the seat of the Council of the Empire, and
except the walls nothing is left to remind one of the lovely woman who was
once the mistress of it, nor of the festivities of which it was the scene for so
many long years.

CHAPTER IV
THE INFLUENCE OF THE GRAND DUCHESS HÉLÈNE PAVLOVNA
Among the remarkable women whom it has been my fortune to meet, the
Grand Duchess Hélène Pavlovna certainly holds the first place. For a long
series of years she was the most important member of the Russian Imperial
family, and her influence was exercised far and wide, and even outbalanced
that of the reigning Empress. She was not only a leader of society, but a
serious factor in both foreign and home politics. It was she who gave to her
nephew, the Emperor Alexander II., the first idea of the emancipation of the
serfs, and more than that, it was she who gave him the first hint as to how
this reform could be accomplished. Assisted by the advice of several
remarkable men, such as Nicholas Milioutine, Prince Tcherkassky, and
others, she gave their liberty to the peasants of her property of Karlovka in
the Government of Poltava. This event sounded the first knell of the old
regime, and it is to the everlasting honour of the Grand Duchess that it came
to be heard through her generous initiative.
She was no ordinary person then, this Princess, who, after a childhood
spent at the small Court of Stuttgart, was suddenly introduced to all the
splendours of that of St. Petersburg. Left a widow at a comparatively early
age, she could not, so long as her brother-in-law the Emperor Nicholas
reigned, aspire to a political rôle. Yet her serious mind was tired of the vain
and empty life she was condemned to lead, so she contrived to make her
palace the centre of artistic and literary Russia. Every author, painter or
sculptor was welcomed there, and every politician too. It was murmured,
and even related, that the report of the liberty which was indulged in the
conversations held at these gatherings reached the Emperor himself, who
once remonstrated with his sister-in-law on the subject and received from
her the proud reply: “Il vaut mieux pour vous, Sire, qu’on cause chez moi
tout haut, plutôt que de conspirer chez les autres tout bas.”
Nevertheless, she was obliged to restrain herself in the expression of her
opinions after these remarks were made to her, and it was not until her
nephew ascended the throne that she began to play an open part in politics,
and to acquire real influence in that direction. Her palace soon became a

centre of Liberalism, as it was understood at the time, and it is certain that
her evening parties, to which everyone of importance in Russia, with or
without Court rank, was invited, were of great use to Alexander II., who
found it convenient to meet at his aunt’s house people whom it would have
been next to impossible for him to see anywhere else.
The Grand Duchess Hélène, among her great qualities, possessed the
rare one of being able to discover and appreciate people of real merit. “Elle
se connait en hommes,” was the judgment passed upon her by Bismarck,
who also knew how to judge the merits of individuals. Her clear brain was
unaffected by prejudice, although she appreciated the important part it plays
in the judgments of the world. She was altogether superior to these
judgments, even when they were passed upon herself. Thus she never
wavered in her friendship for Nicholas Milioutine, who, in spite of the cruel
insinuations that were made in St. Petersburg Society regarding that
friendship—insinuations that the high moral character of the Princess ought
to have preserved her from.
Strange to say, the person who most warmly defended the Grand
Duchess against these calumnies was the Empress Marie Alexandrovna
herself. She did not like her aunt, nor sympathise with her opinions, but she
had a strong sense of justice, and, moreover, felt that, as the first lady in the
Empire, it was her duty to protect the second one from unmerited disgrace.
She therefore consented to meet Milioutine one evening, and after he had
been presented to her she received him with kindness, and even discussed
with him a few points concerning the emancipation of the serfs that was
then the topic of the day, and the mere suggestion of which had brought
such a storm about the heads of those who were in favour of it. It was upon
that occasion that the Empress expressed the judgment which was
considered so true at the time, and sounds so strange to-day: “Il m’a
toujours semble que ces grands mots de conservateurs, de rouges, de
revolutionnaires n’avaient pas de partis.” Poor Empress! Subsequent events
were to afford a terrible contradiction!
So long as the Liberal reforms were on the tapis, the salon of Hélène
Pavlovna retained its importance. People used to try their utmost to be
received by her, because they knew that it offered them the possibility of
meeting and even speaking with the Sovereign. All the Ministers of
Alexander II., General (afterwards Count) Milioutine, M. Abaza, M.
Valouieff, the famous Samarine, were habitués of her evening parties. It was

at her instigation that the question of compulsory military service was first
mentioned to the Emperor. It was during a dinner which she gave to Prince
Tcherkassky, before the latter’s departure for Poland, that the reform of the
Legislative Code was first discussed, and the introduction of the juges de
paix, in imitation of those of France, was decided.
Whenever a step was made in the road of progress and Liberalism, it was
the Grand Duchess Hélène who was the first to notice it, and to show her
appreciation of it. Ofttimes she carried her enthusiasm too far, and harmed
instead of doing good to the causes which she had taken to heart.
Gossip began to accuse her of intrigues, which, if the truth be said, were
not absolutely foreign to her nature. She liked to make herself important, to
be thought the principal personage in Russia, to be considered as the person
who had the greatest influence over her nephew Alexander II. It was a very
innocent little weakness, but it made her sometimes ridiculous, and
certainly her opinions would have had greater weight had she not talked so
much, and especially restrained her friends from talking so much, about her
influence and her importance. She aspired to the position of a Richelieu,
and did not realise that it was rather as that of his councillor, the famous
Père Joseph, she could have attained more easily her goal, which was that
of governing and reforming Holy Russia.
With all this, however, she exercised a great influence on St. Petersburg
Society; she was a really great lady, a princess of the old style, pure and
proud, who looked upon the world from an ivory chair, who never allowed
herself any meanness, any petty vengeance, or forgetfulness of the position
she filled in the world. She was an incomparable hostess, though her
evening parties were thought dull by those whose powers of conversation
were limited, or who cared only for small talk. No one knew better than she
how to receive her guests or to put them at their ease, and though slander or
gossip were excluded from her conversation, yet she sometimes unbent, and
would relate with much spirit anecdotes concerning her arrival in Russia,
and the first years of her married life. This reminds me of one occasion
when she told us the following amusing story of the Emperor Nicholas’s
sternness in all questions of military service. It was so funnily related that I
entered it in my diary as soon as I got home, and I will repeat it now, as I
heard it from her lips on that day. The conversation had centred by accident
on the Emperor, and someone said that he had been capable of very cruel
things. The Grand Duchess instantly protested with energy.

“The Emperor was not cruel,” she said; “he punished when it was
necessary, but I never remember his punishing anyone unjustly, or having
done any really cruel act. He was, with all his severity, the kindest of men.
The only time that I have heard of his having been cruel was on one
occasion”—and she smiled at the remembrance of what she was going to
relate—“and that was as follows: The Emperor very often used to drive out
quite alone through the streets of St. Petersburg to see what was going on.
At that time there was a guard-house close to the Alexander Nevski
Convent. Now it was the custom when the Emperor—and for the matter of
that any member of the Imperial Family—happened to pass there, for the
guard to come out and present arms, and if the officer in command had been
obliged for some reason or other to remain indoors, the senior non-
commissioned officer came out in his place. Now on that particular
occasion the officer on guard happened to be a certain Captain K——, who,
thinking that no one would ever hear about it, had simply undressed and
gone to bed, leaving his subordinate to see to things during the night. The
Emperor had slept badly, and went out at the early hour of six o’clock.
When he passed the guard-house and saw that the officer did not come out,
he had his carriage stopped, and inquired where the officer was. Upon
receiving the reply that he was indoors, the Emperor went in. The first sight
that met his eyes was Captain K——, sleeping upon the camp bed which
was reserved for the officer in case of need, and completely undressed. The
Sovereign shook him by the arm. One can fancy the feelings of the
unfortunate man when he saw who it was that was awakening him. ‘Get
up,’ said the Emperor, ‘and follow me. No; don’t dress yourself—come as
you are.’ And he dragged him as he was, without even the most
indispensable garment on, and ordered him to sit beside him in his carriage.
Thus, completely undressed, he brought him back to the Winter Palace,
whence he ordered him to be sent, still undressed, to the Caucasus, where
he was degraded to the rank of a common soldier. That was the only cruel
deed I knew the late Emperor to do,” added the Grand Duchess, “and then
he very soon pardoned Captain K—— and restored him to his favour. It is
certain that the captain would in time have made a career, in spite of this
unfortunate incident, had he not been killed during the Hungarian
campaign.”
I repeat this story to afford some idea of the conversation at these
celebrated evening parties at the Palais Michel, as the home of the Grand

Duchess Hélène was called, and to show that, with all her reputation of a
blue-stocking, she was not above repeating a funny anecdote to amuse her
guests. It is therefore a mistake to say that her conversation was pedantic,
and that outside of politics nothing ever amused her. She could laugh, in
spite of her stiffness, which was more apparent than real, and her
ceremonious manners proceeded rather from her education than from the
haughtiness with which she was credited.
After the Polish mutiny of 1863, the importance of the Grand Duchess
Hélène decreased. A certain reaction had already set in, after the enthusiasm
which had accompanied the manifesto of February 19th, 1861, granting
liberty to the serfs, and the old Conservative party had succeeded in proving
to the Emperor that he had underestimated the difficulties of the reform,
especially in its connection with the agrarian question. At the same time the
disappointment which attended the essay in constitutional government in
Poland by the Grand Duke Constantine was causing acute irritation. It had
been whispered at these weekly gatherings at the Palais Michel that if the
Emperor’s brother succeeded in Warsaw something of the same kind might
be tried in St. Petersburg, and a responsible Cabinet instituted on the lines
of those of Western Europe. The attempt having failed, its discredit fell on
the promoters of it, primarily on the Grand Duke and his aunt, whose advice
he had been credited with following. Several councillors of the Emperor,
like old Count Panine, represented to him that too much latitude had been
allowed the Grand Duchess Hélène, and that she ought to be reminded that
in Russia it was not allowed to discuss the actions of the Sovereign, and still
less to disapprove of them. After this a certain coolness existed between
aunt and nephew, and the journeys abroad of the Grand Duchess became
longer and more frequent; but when she was in St. Petersburg she did not
change her habits, and continued to receive her friends, to give her parties,
and to express her opinions. Gradually, however, the tone of her salon
changed, and artistic matters were more to the front than had been the case
before. She also gave her attention to charitable and scientific institutions,
and the hospital of experimental medicine which bears her name testifies to
the present day of the interest with which she followed the progress of
medical science. She died at a relatively advanced age, in the beginning of
the year 1873.
Her daughter, the Grand Duchess Catherine, tried to follow in the
footsteps of her mother, but though kind-hearted, she had not the brilliancy

of the Grand Duchess Hélène, and so did not succeed in replacing her. Her
dinners and parties, even when the same people attended them, lacked the
animation, and especially the ease, which had distinguished the former
gatherings at the Palais Michel.
The Grand Duchess Hélène had as friend and helper her lady-in-waiting,
the Baroness Editha Rhaden. Just as remarkable a person in her way as her
august mistress, she was the life of the Palais Michel. Extremely clever, and
still more learned, she made it her business to read everything that was
worth reading, to know everybody worth knowing, and to study every
question worth studying. She was also the channel through which news of
the outside world and the opinions of the various political circles of the
capital used to reach the Grand Duchess. She attended to her
correspondence, and often replied to the letters which the latter received or
transmitted her orders to those who looked to the aunt of the Sovereign for
direction in matters of State. A curious note sent to Nicholas Milioutine
testifies how thoroughly the Baroness Rhaden was identified with the
aspirations of the party which had put its hopes under the patronage of the
Grand Duchess Hélène. It was written in the month of October, 1860, just at
the time when the commission which was elaborating the project of the
emancipation of the serfs was bringing its work to a close, and when
unexpected difficulties had suddenly cropped up. I give it here in its
original French, together with a translation:—
“Je suis chargée de vous annoncer une bonne nouvelle, secrète encore,
c’est que le grand duc Constantin est nommé president du grand comité, et
qu’à son retour l’Empereur présidera lui-même. Avais-je raison ce matin de
croire à une Providence spéciale pour la Russie, et pour nous tous?”
(I have been asked to give you some good news, which is as yet secret,
and that is that the Grand Duke Constantine has been appointed President of
the Grand Committee, and that after his return here the Emperor will
himself preside. Was I not right this morning in thinking that there existed a
special Providence for Russia, and for us all?)
Editha Rhaden was a charming person, rather given, perhaps, to
exuberant enthusiasm, which prevented her from appreciating the real
worth of things as well as of people, but with real intelligence, sound
principles, and brilliant conversational powers. She was perhaps slightly
poseuse and rather given to exaggerate both her own and her Imperial

mistress’s importance. A great stickler for etiquette, she contrived to give a
ceremonious appearance to the smallest gathering, and she was famed for
the magnificence of her curtseys whenever a crowned head came into a
room. She lived only within the atmosphere of a Court, and when absent
from it seemed lost and utterly out of her element; but she was thoroughly
genuine, incapable of a mean act, and very much liked even by those who
smiled at her innocent foibles. After the death of the Grand Duchess
Hélène, whom she did not survive very long, she continued to receive those
who had been habitués of the Palais Michel, and held a small Court of her
own, whose importance she overvalued. When she died she was generally
regretted, for she had tried to do all the good she possibly could, and no one
could reproach her with a bad action or a bad use of the influence which at
one time she unquestionably possessed.
Another important member of the Imperial Family was Prince Peter of
Oldenburg, the cousin of the Emperor. His entire existence was given up to
deeds of charity, or to questions of education. He was the founder of a
school which has given to Russia some of its most distinguished citizens,
and which to this day is considered to be one of the best in the Empire. The
Mary Magdalen Hospital was also due to his initiative. He was almost
venerated by all classes of society, and when he died even the cab-drivers of
St. Petersburg were heard to mourn him as one of their best friends. His
son, Prince Alexander, married the Princess Eugénie of Leuchtenberg, the
daughter of the Grand Duchess Marie Nicolaievna by her first husband, the
son of Eugène de Beauharnais, of Napoleonic fame. He is also a very
distinguished man.

CHAPTER V
THE REFORMS OF ALEXANDER II. AND HIS MINISTERS
When Alexander II. ascended the Throne, it was known—and, what is
more, it was felt—that by the force of circumstances alone his reign was
bound to be one of serious reforms. It was known also both at home and
abroad that these reforms would be strenuously opposed by all his father’s
friends, Ministers, and advisers. People wondered whether the young
Sovereign would prove to have sufficient energy to change an order of
things which it was to the interests of many old servants of the Imperial
regime to retain as they were. Public opinion, however, was soon
enlightened as to the intentions of the Emperor, because when he received
deputations of the nobility, on the occasion of his Coronation, he publicly
declared to them his intention to grant liberation to the serfs. His
announcement caused a great sensation, but as time went on and the great
reform, though discussed everywhere, was delayed, it was thought that the
Government and Alexander himself feared the consequences of such a
revolutionary measure. The problems which it raised were of the most
serious character and threatened to shake the very foundations of the
empire. The matter was especially complicated in its agrarian aspect, for the
very right of property, as it had hitherto been understood in Russia, was
jeopardised. One cannot wonder, therefore, that even a Liberal monarch
hesitated before making the fateful stroke of his pen that would irrevocably
settle the matter.
As is usual in Russia, a committee was appointed to study the question,
and, thanks to the efforts of Prince Gortschakov, who was one of his
strongest supporters, Nicholas Milioutine was appointed, under General
Lanskoi, to bring into order the different propositions submitted to the
committee; he was to endeavour to evolve a scheme that would be
acceptable both to the enthusiastic supporters and the indignant opponents
of the reform, the principle of which, nevertheless, the latter felt could not
be avoided any longer.
It is not within the limits of this book to deal with the individuality of
Milioutine, nor of the influence exercised by him during the eventful years

which followed the accession of Alexander II. to the Throne. He was a most
remarkable man, both as regards intellect and character, but he was one of
the most disliked personages in Russia. By a strange stroke of destiny, after
having borne the reputation of being an extreme Radical, and being under
suspicion of the Emperor himself, who for a long time refused to employ
him, Milioutine, thanks to the protection of the Grand Duchess Hélène and
of Prince Gortschakov, found himself called to collaborate with the
Sovereign in the most important act of his reign. Later on, as soon as the
reform over which they had both worked had become an accomplished fact,
Milioutine fell once more under his Sovereign’s displeasure and was rudely
dismissed before he had been able to show what he could do towards
regulating the machine which he had set in motion.
The dismissal of Milioutine was typical of Alexander II. and of the
indecision which was one of the defects in his character. He never had the
patience nor the necessary endurance to wait for the natural development of
events and for the consequences of his actions; he considered that they were
bound to be successful, simply because he wished them to be so. His was a
nature that expected praise and gratitude not only from individuals but from
nations. He had nursed big dreams of glory, and would have been perfectly
happy had the enthusiasm with which he was greeted by his subjects on that
eventful day of February 19th, 1861, lasted for ever. That it did not do so
made him angry, all forgetful of the fact that the brightest day is sometimes
followed by the blackest night.
Alexander, indeed, had a great deal of childishness in his character. As a
child breaks his playthings, so he would treat people who had ceased to
please him; and this fatal trait of character, which so often made him
withdraw to-day what he had given yesterday, was one of the many causes
that shattered the popularity which at one time seemed so deep and lasting.
No one who was in St. Petersburg at the time of the emancipation of the
serfs will ever forget the morning of that great day in February, 1861. The
excitement in the capital was intense. Up to the last moment people had
doubted whether the Sovereign would have the courage to put his name to
the measure. Even the most Liberal among the upper classes, those who for
a long time had wished for the day when slavery would be abolished, were
fearful of the manner of its accomplishment. It must not be supposed that
the old Russian nobility were entirely against the emancipation. What they
objected to was the lines upon which the Emperor wanted it to be brought

about, and the forced expropriation of what belonged to the landlords in
order to give it to the peasants. Those who knew these peasants well felt
how very dangerous it was to imbue these ignorant people with the idea that
the Sovereign could take from his nobles lands to give to the peasants.
Events have proved that these adversaries of the great reform were right; it
was this fatal mistake that spoiled the great work which, conducted
differently, would have immortalised Alexander II. not only as a humane,
but also as a wise Sovereign.
All this was discussed on the eve of that February 19th, and everybody
knew that frantic efforts were being made on both sides to delay or to
hasten the important decision. It was said that some of the promoters of the
projected reform, in order to break down the last hesitations of the
Sovereign, had tried to frighten him with the threat of an insurrection of the
masses if it was not promulgated. A curious note from the Grand Duchess
Hélène to Milioutine shows us the apprehensions felt in high quarters as to
what might follow a deception of the hopes raised among the peasant class.
“I think it right to warn you that my servants have told me that if there
was nothing for the 19th, the tchern (populace) would come before the
Palace and ask for a solution. I think one ought to pay some attention to that
piece of gossip, because at the present moment a demonstration would be
fatal for our hopes.”
As a matter of fact, no demonstration was ever planned, or could have
taken place in view of the precautions taken by the police; but this
apprehension of the Grand Duchess was typical of the nervous excitement
among the upper classes at the time.
The Emperor, however, had made up his mind, though it seems that at
the very last moment some kind of fear had taken hold of him. On February
18th, the anniversary of his father’s death, he had driven to the fortress and
for a long time prayed at his father’s tomb. Did he remember then the words
spoken by the dying Nicholas when, with that sense of prophecy given to
people at their last hour, he had told his son that if he brought about all the
Liberal measures of which he was dreaming he would not die in his bed?
On his return to the Winter Palace, however, Alexander II. seemed
unusually grave and silent.
Whether he slept or not no one knows, and the next morning was
brought to him the famous manifesto composed by the Metropolitan of

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