Phar-Mor Inc

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Assignment 1: Phar-Mor Inc
By: Rich Allen
SID: 250421110
Date: July 18th, 2013
Prof: M. TeKare

1a). A company would want to hire a member of its external audit for a number of reasons. The external auditor would have extensive knowledge of how the company works due to analyzing statements and performing many audit procedures and tests on the company and therefore would reduce time in order to become effective as an employee. The company would know the former auditor personally and have a good idea of how they would fit in with the existing staff. The former auditor could prepare working papers and assist with the auditors to reduce the time and cost of the audit. However, the former external auditor would know what the existing
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If these standards are not followed there are strict consequences that could cause the loss of designation and even criminal charges. Also, small accounting firms with few clients that make up a large percentage of their income may face an even greater power imbalance between client and auditor. Recommendations such as rotating audits periodically or rotating partners within a firm every 5 years have suggested as ways of keeping independence and ensuring that the auditors are focused on job quality versus keeping the audit and getting paid. However, the best method would be if a special board were set up to investigate why auditors have been fired. If during the investigation it is revealed that disagreement occurred between management and auditors over financial statements and presentation then a third party should be involved. Although there are new accounting policies and bodies in place to restrict this power imbalance; it will never be fully eliminated.

7a). There are many factors that would have contributed to a high inherent risk assessment. First, the nature of the client’s business would increase the risk for specific accounts such as inventory levels because of it being a retail company. The fact that they were experiencing excessive growth in a very competitive industry would increase the risk. Monus and management’s approach to do anything they could to increase profits and continue this growth could lower their

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