Solution Manual with All Cases for Contemporary Auditing
7th Edition by Michael C. Knapp – Complete Case
Solutions | 2026–2027
This document contains:
❖ Contemporary Auditing 7th Edition
❖ Contemporary Auditing 7th Edition Solution Manual
❖ Contemporary Auditing 7th Edition Solution
❖ Contemporary Auditing 7th Edition Answers
❖ Auditing Problems and Solutions
❖ 2026–2027 Auditing Study Guide
,SOLUTION MANUAL WITH ALL CASES FOR n n n n n
Contemporary AuditingUniversity OfSouthernIndiano 7thEditionMichaelC.Knap n n n n n n n n n n
Case 1-8 with all section n n n n
CASE 1.1 to Case 1.11 n n n n
CASE 2.1 to Case 2.8 n n n n
CASE 3.1 to Case 3.6 n n n n
CASE 4.1 to Case 4.9 n n n n
CASE 5.1 to Case 5.6 n n n n
CASE 6.1 to Case 6.7 n n n n
CASE 7.1 to Case 7.9 n n n n
CASE 8.1 to Case 8.11 n n n n
CASE 1.1 n
ENRONCORPORATION n
Synopsis
Arthur Edward Andersen built his firm, Arthur Andersen & Company, into one of the largest and
n n n n n n n n n n n n n n n
most respected accounting firms in the world through his reputation for honesty and integrity.
n n n n n n n n n n n n n n
—Think straight, talk straight‖ was his motto and he insisted that his clients adopt that same attitude when
n n n n n n n n n n n n n n n n n
preparing and issuing their periodic financial statements. Arthur Andersen‘s auditing philosophy
n n n n n n n n n n n
was not rule-based, that is, he did not stress the importance of clients complying with specific
n n n n n n n n n n n n n n n n
accounting rules because in the early days of the U.S. accounting profession there were few formal rules
n n n n n n n n n n n n n n n n n
and guidelines for accountants and auditors to follow. Instead, Andersen invoked a substance-over-
n n n n n n n n n n n n n
form approach to auditing and accounting issues. He passionately believed that the primary role of the
n n n n n n n n n n n n n n n
auditor was to ensure that clients reported fully and honestly to the public, regardless of the
n n n n n n n n n n n n n n n n
consequences for those clients.
n n n n
Ironically, Arthur Andersen & Co.‘s dramatic fall from prominence resulted from its n n n n n n n n n n n
association with a client known for aggressive and innovative uses of —accounting gimmicks‖ to
n n n n n n n n n n n n n n
window dress its financial statements. Enron Corporation, Andersen‘s second largest client, was
n n n n n n n n n n n n
involved in large, complex transactions with hundreds of special purpose entities (SPEs) that it used to
n n n n n n n n n n n n n n n n
obscure its true financial condition and operating results. Among other uses, these SPEs allowed Enron
n n n n n n n n n n n n n n n
to download underperforming assets from its balance sheet and to conceal large operating losses.
n n n n n n n n n n n n n n
nDuring 2001, a series of circumstances, including a sharp decline in the price of Enron‘s stock, forced
n n n n n n n n n n n n n n n n
the company to assume control and ownership of many of its troubled SPEs. As a result, Enron was
n n n n n n n n n n n n n n n n n n
forced to report a large loss in October 2001, restate its earnings for the previous five years, and,
n n n n n n n n n n n n n n n n n n
ultimately, file for bankruptcy in December 2001.
n n n n n n n
During the early months of 2002, Andersen became the focal point of attention among law n n n n n n n n n n n n n n
enforcement authorities searching for the parties responsible for Enron‘s sudden collapse. The
n n n n n n n n n n n n
,
, 2 Case 1.2 Just for Feet, Inc.
n n n n n n n n
accusations directed at Andersen centered on three key issues. The first issue had to do with the scope
n n n n n n n n n n n n n n n n n
of professional services that Andersen provided to Enron. Critics charged that the enormous consulting
n n n n n n n n n n n n n n
fees Enron paid Andersen impaired the audit firm‘s independence. The second issue stemmed from
n n n n n n n n n n n n n n
Andersen‘s alleged role in Enron‘s aggressive accounting and financial reporting treatments for its
n n n n n n n n n n n n n
SPE-related transactions. Finally, the most embarrassing issue was the massive effort of Andersen‘s
n n n n n n n n n n n n n
Houston office to shred Enron audit documents, which eventually led to the demise of the firm.
n n n n n n n n n n n n n n n n
1
Enron Corporation--Key Facts n n
1. Throughout Arthur E. Andersen‘s life, —Think Straight, talk straight‖ served as a guiding n n n n n n n n n n n n
principle for himself and Arthur Andersen & Co., the accounting firm that he founded.
n n n n n n n n n n n n n n
2. Arthur Andersen‘s reputation for honesty and integrity resulted in Arthur Andersen & Co.
n n n n n n n n n n n n
gaining stature in the business communityand growing into one of the nation‘s leading accounting firms
n n n n n n n n n n n n n n n n
by the time of his death in 1947.
n n n n n n n n
3. Leonard Spacek succeeded ArthurAndersen as managing partner ofArthurAndersen & Co. in 1947
n n n n n n n n n n n n n n
and continued Andersen‘s legacy of lobbying for more rigorous accounting, auditing, and ethical
n n n n n n n n n n n n n
standards for the public accounting profession.
n n n n n n
4. When Spacek retired in 1973, Arthur Andersen & Co. was one of the largest and, arguably, the most
n n n n n n n n n n n n n n n n n
prominent accounting firm worldwide
n n n n
5. The predecessor of Enron Corporation was an Omaha-based natural gas company created in
n n n n n n n n n n n n
1930; steady growth in profits and sales and numerous acquisitions allowed Enron to become the
n n n n n n n n n n n n n n n
largest natural gas company in the United States by the mid-1980s.
n n n n n n n n n n n
6. During the 1990s, Kenneth Lay, Enron‘s CEO, and his top subordinate, Jeffrey Skilling,
n n n n n n n n n n n n
transformedthecompanyfrom aconventionalnaturalgas supplierintoan energytrading company.
n n n n n n n n n n n n n n
7. Lay and Skilling placed a heavy emphasis on —strong earnings performance‖ and on increasing
n n n n n n n n n n n n n
Enron‘s stature in the business world.
n n n n n n
8. Enron executives used hundreds of SPE‘s (special purpose entities) to arrange large and complex
n n n n n n n n n n n n n
related party transactions that served to strengthen Enron‘s reported financial condition and operating
n n n n n n n n n n n n n
results.
n
9. During 2001, Enron‘s financial condition deteriorated rapidly after many of the company‘s SPE
n n n n n n n n n n n n
transactions unraveled; in December 2001, Enron filed for bankruptcy.
n n n n n n n n n
10. Following Enron‘s collapse, the business press and other critics began searching for parties to hold
n n n n n n n n n n n n n n
responsible for what, at the time, was the nation‘s largest corporate bankruptcy.
n n n n n n n n n n n n
7th Edition by Michael C. Knapp – Complete Case
Solutions | 2026–2027
This document contains:
❖ Contemporary Auditing 7th Edition
❖ Contemporary Auditing 7th Edition Solution Manual
❖ Contemporary Auditing 7th Edition Solution
❖ Contemporary Auditing 7th Edition Answers
❖ Auditing Problems and Solutions
❖ 2026–2027 Auditing Study Guide
,SOLUTION MANUAL WITH ALL CASES FOR n n n n n
Contemporary AuditingUniversity OfSouthernIndiano 7thEditionMichaelC.Knap n n n n n n n n n n
Case 1-8 with all section n n n n
CASE 1.1 to Case 1.11 n n n n
CASE 2.1 to Case 2.8 n n n n
CASE 3.1 to Case 3.6 n n n n
CASE 4.1 to Case 4.9 n n n n
CASE 5.1 to Case 5.6 n n n n
CASE 6.1 to Case 6.7 n n n n
CASE 7.1 to Case 7.9 n n n n
CASE 8.1 to Case 8.11 n n n n
CASE 1.1 n
ENRONCORPORATION n
Synopsis
Arthur Edward Andersen built his firm, Arthur Andersen & Company, into one of the largest and
n n n n n n n n n n n n n n n
most respected accounting firms in the world through his reputation for honesty and integrity.
n n n n n n n n n n n n n n
—Think straight, talk straight‖ was his motto and he insisted that his clients adopt that same attitude when
n n n n n n n n n n n n n n n n n
preparing and issuing their periodic financial statements. Arthur Andersen‘s auditing philosophy
n n n n n n n n n n n
was not rule-based, that is, he did not stress the importance of clients complying with specific
n n n n n n n n n n n n n n n n
accounting rules because in the early days of the U.S. accounting profession there were few formal rules
n n n n n n n n n n n n n n n n n
and guidelines for accountants and auditors to follow. Instead, Andersen invoked a substance-over-
n n n n n n n n n n n n n
form approach to auditing and accounting issues. He passionately believed that the primary role of the
n n n n n n n n n n n n n n n
auditor was to ensure that clients reported fully and honestly to the public, regardless of the
n n n n n n n n n n n n n n n n
consequences for those clients.
n n n n
Ironically, Arthur Andersen & Co.‘s dramatic fall from prominence resulted from its n n n n n n n n n n n
association with a client known for aggressive and innovative uses of —accounting gimmicks‖ to
n n n n n n n n n n n n n n
window dress its financial statements. Enron Corporation, Andersen‘s second largest client, was
n n n n n n n n n n n n
involved in large, complex transactions with hundreds of special purpose entities (SPEs) that it used to
n n n n n n n n n n n n n n n n
obscure its true financial condition and operating results. Among other uses, these SPEs allowed Enron
n n n n n n n n n n n n n n n
to download underperforming assets from its balance sheet and to conceal large operating losses.
n n n n n n n n n n n n n n
nDuring 2001, a series of circumstances, including a sharp decline in the price of Enron‘s stock, forced
n n n n n n n n n n n n n n n n
the company to assume control and ownership of many of its troubled SPEs. As a result, Enron was
n n n n n n n n n n n n n n n n n n
forced to report a large loss in October 2001, restate its earnings for the previous five years, and,
n n n n n n n n n n n n n n n n n n
ultimately, file for bankruptcy in December 2001.
n n n n n n n
During the early months of 2002, Andersen became the focal point of attention among law n n n n n n n n n n n n n n
enforcement authorities searching for the parties responsible for Enron‘s sudden collapse. The
n n n n n n n n n n n n
,
, 2 Case 1.2 Just for Feet, Inc.
n n n n n n n n
accusations directed at Andersen centered on three key issues. The first issue had to do with the scope
n n n n n n n n n n n n n n n n n
of professional services that Andersen provided to Enron. Critics charged that the enormous consulting
n n n n n n n n n n n n n n
fees Enron paid Andersen impaired the audit firm‘s independence. The second issue stemmed from
n n n n n n n n n n n n n n
Andersen‘s alleged role in Enron‘s aggressive accounting and financial reporting treatments for its
n n n n n n n n n n n n n
SPE-related transactions. Finally, the most embarrassing issue was the massive effort of Andersen‘s
n n n n n n n n n n n n n
Houston office to shred Enron audit documents, which eventually led to the demise of the firm.
n n n n n n n n n n n n n n n n
1
Enron Corporation--Key Facts n n
1. Throughout Arthur E. Andersen‘s life, —Think Straight, talk straight‖ served as a guiding n n n n n n n n n n n n
principle for himself and Arthur Andersen & Co., the accounting firm that he founded.
n n n n n n n n n n n n n n
2. Arthur Andersen‘s reputation for honesty and integrity resulted in Arthur Andersen & Co.
n n n n n n n n n n n n
gaining stature in the business communityand growing into one of the nation‘s leading accounting firms
n n n n n n n n n n n n n n n n
by the time of his death in 1947.
n n n n n n n n
3. Leonard Spacek succeeded ArthurAndersen as managing partner ofArthurAndersen & Co. in 1947
n n n n n n n n n n n n n n
and continued Andersen‘s legacy of lobbying for more rigorous accounting, auditing, and ethical
n n n n n n n n n n n n n
standards for the public accounting profession.
n n n n n n
4. When Spacek retired in 1973, Arthur Andersen & Co. was one of the largest and, arguably, the most
n n n n n n n n n n n n n n n n n
prominent accounting firm worldwide
n n n n
5. The predecessor of Enron Corporation was an Omaha-based natural gas company created in
n n n n n n n n n n n n
1930; steady growth in profits and sales and numerous acquisitions allowed Enron to become the
n n n n n n n n n n n n n n n
largest natural gas company in the United States by the mid-1980s.
n n n n n n n n n n n
6. During the 1990s, Kenneth Lay, Enron‘s CEO, and his top subordinate, Jeffrey Skilling,
n n n n n n n n n n n n
transformedthecompanyfrom aconventionalnaturalgas supplierintoan energytrading company.
n n n n n n n n n n n n n n
7. Lay and Skilling placed a heavy emphasis on —strong earnings performance‖ and on increasing
n n n n n n n n n n n n n
Enron‘s stature in the business world.
n n n n n n
8. Enron executives used hundreds of SPE‘s (special purpose entities) to arrange large and complex
n n n n n n n n n n n n n
related party transactions that served to strengthen Enron‘s reported financial condition and operating
n n n n n n n n n n n n n
results.
n
9. During 2001, Enron‘s financial condition deteriorated rapidly after many of the company‘s SPE
n n n n n n n n n n n n
transactions unraveled; in December 2001, Enron filed for bankruptcy.
n n n n n n n n n
10. Following Enron‘s collapse, the business press and other critics began searching for parties to hold
n n n n n n n n n n n n n n
responsible for what, at the time, was the nation‘s largest corporate bankruptcy.
n n n n n n n n n n n n
