Private Securities Reform Act of 1995 will potentially change auditors’ legal liability.

4-15 Identify five other ways in which the Private Securities Reform Act of 1995 willpotentially change auditors’ legal liability. Explain how each is of potential benefit to theauditor.4-171. Identify how the Sarbanes-Oxley Act of 2002 changed the audit environment forauditors.2. Identify and explain new liabilities for managements of public companies createdby the Sarbanes-Oxley Act of 2002.5-34 (Risk of material misstatement) Your client, a manufacturer of computer components,has experienced slowing demand for its product. Recently, it cut back from three shifts aday to two shifts a day, and the company has eliminated the backlog of orders that existedin prior years by providing financing to customers. Newspaper reports indicate thatcompetition has taken significant business away from the client because a large investmentin R&D has not resulted in improved products. Furthermore, a small handful of yourclient’s customers are experiencing financial difficulties because of slowing demand foryour client’s products.Required1. Consider the implications of the above information for revenues. What assertions,if any, are likely to be misstated? As a result, what accounts are likely to beoverstated or understated? Explain your reasoning.2. Consider the implications of the above information for inventory. What assertions,if any, are likely to be misstated? As a result, what accounts are likely to beoverstated or understated? Explain your reasoning.5-35 (Developing responses to assessed risks) Your client, General Television, Inc.manufactures televisions and during the current year acquired Micro Engineering, Inc.,which manufactured flat panel plasma screens for computers so that it could compete inthe market for flat panel televisions. Following is a list of several risks that have beenidentified in the audit of this television manufacturer.1. General Television has strong internal controls over the existence of inventory. Ithas a good perpetual inventory system and regularly compares inventory on handwith the perpetual records.2. Prices have been changing rapidly in General Television’s marketplace. Althoughthe marketplace is relatively stable for traditional televisions, the prices on flatpanel televisions have become much more competitive.3. General Television had to pay a premium to acquire Micro Engineering. GeneralTelevision had independent appraisals of the fair value of assets and hasdetermined that about 35 percent of the purchase price should be allocated togoodwill.