I have posted a spreadsheet file, which I refer to as a grading checklist, with this exam. That spreadsheet file shows you how I have allocated points to questions. When grading your exams, I will fill in a copy of this file for each student and return it with your graded exam. When I grade exams, I embed comments in the Word documents to explain why I am deducting points.This exam is an individual assignment. You are not to discuss it with anyone other than myself. It is also open book and open note. However, it is not a research assignment and I want you to base your answers to the questions on the material I have included in the exam, the text for the course, and the materials I have handed out in class.None of these questions has a style component, thus you dont have to write in complete sentences and well-formed paragraphs. You can use lists where appropriate if you want.1) You are a partner in a medium-sized, regional CPA firm and have been approached by XYZ, Inc., a relatively small, public company, to do their audit for next year. XYZ is registered with the SEC and has filed audited 10-Ks for the last 10 years since they went public. They havent indicated why they are switching auditors.XYZ specializes in developing shale gas using fracking technology. Fracking technology involves drilling wells into shale formations and injecting high pressure water containing special chemicals into the well to fracture the shale formation and release the trapped natural gas.You and your firm currently are members of the AICPA. All the partners and managers are licensed CPAs in the state of New Mexico and also members of the AICPA. Your firm has limited experience with oil and gas extraction and has no other fracking clients. However, your firm has offices that can cover the physical locations where the prospective client does business.iii) Issue 3 2) Describe how the following fit into an overall regulatory framework that guides external audits: the Auditing Standards Boards (ASBs) 10 Generally Accepted Auditing Standards, SAS (The ASBs Statements of Auditing Standards), PCAOB rules, and ISA (International Standards on Auditing). By fit into a regulatory environment I mean that I want to you cover the organizations that promulgates these standards, how those organizations and the standards relate to each other, and what types of audits they apply to.3) For of the following situations, indicate whether it violates the AICPAs Code of Professional Conduct. If it violates the Code, indicate the rule is most directly violated and explain why. That is, I want you to select the rule that is most clearly violated by the specifics of the case. If you dont think it violations a rule, explain why as well. Use the rule numbers cited in the text and not paragraph numbers from the codification. In all cases you are a CPA and member of the AICPA.4) For each of the following situations, describe how the auditor should modify the audit report for the firms financial statements and provide an explanation of why you made the choice you did. Just cover the report on the financial statements and ignore any reference to the report on internal controls. By modify the audit report, I mean what modifications the auditor would make to any paragraph of the report because of the information described. Make sure your answer either states clearly that no modifications to any paragraph are needed and explains why or describes what modifications would be needed to which paragraphs of the report and explains why.5) Your annual audit of OPQ, Inc. had the following issues:Answer the following questions and justify your answers with specific references to the appropriate laws and legal principles. Be thorough in covering all the issues concerning both if they bank will prevail.6) The following is a list of independent situations that may affect an auditors report on a firms internal controls under PCAOB rules for such reports. For each situation, describe how the auditor should modify the audit report for the firms internal controls and provide an explanation of why you made the choice you did. By modify the audit report, I mean what modifications the auditor would make to any paragraph of the report because of the information described. Make sure your answer either states clearly that no modifications to any paragraph are needed and explains why or describes what modifications would be needed to which paragraphs of the report and explains why. Note that the text isnt very clear on how to handle scope limitation in the internal control report. Modifications to the internal control report for scope limitations are the same as those required for scope limitations on financial statement audit reports.Questions 7 and 8 were taken from the CPA exam and reprinted in the text. My normal warnings about attempting to access the solutions apply. For each question, selected the best answer and then explain why it is better than all the alternatives. Your explanations should cover all the alternatives in the question and explain why each one of is not as good as the answer you select.7) Because of the risk of material misstatement due to fraud (fraud risk), an audit of financial statements in accordance with generally accepted auditing standards should be performed with an attitude of:8) Which of the following statements reflects an auditors responsibility for detecting fraud?