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Audit Case: Jaimica Water Properties

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Sam Li
Case: Jamaica Water Properties
1. Place yourself in David Sokol’s position. After discovering the suspicious items in JWP’s accounting records, would you have taken a different course of action than he did? Why or why not?
I doubt if I can reach the position that David Sokol had in my career’s life. However, let say that if I was in David Sokol’s position, I would probably do the same thing David had done. I believe the proper working ethics are accountability, professionalism and integrity. As a COO, I should monitor the daily operation of the company and report the strong and weakness of internal control to the CEO. I should be accountable and professional for these responsibilities as David Sokol did. “If you ever …show more content…

Ref: AICPA rule of Professional Conduct, rule 101, SEC rule
The accounting firm should avoid the close personal relationships between client personnel and members of an audit engagement team because of the requirement of independence rule in the audit engagement. There are some examples as followed:
a) Whether a covered member or partner have direct or material indirect financial interest in the client.
b) Whether a covered member formerly employed by or associated with a client.
c) Whether a covered member’s immediate family was/is employed, or associated with a client.
d) Whether a covered member’s close relatives was/is employed, or associated with a client.
In addition, SEC rules suggests that
a) The lead and engagement quality review partners should not provide a audit services to a company for more than 5 years.
b) A one-year “cooling-off” period is required if a member of auditing team is hired by the client in a “financial reporting oversight role.”
c) An audit partner cannot receive compensation based on selling engagements to the client for services other than audit, review, and attest services.
5. Do you believe the 1988 “retention agreement” that Ernst & Young made with JWP was appropriate? Defend your answer.
I think the 1988 retention agreement between Ernst & Young and JWP is inappropriate. The

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