a) Explain the ethical problem in this case. Why is it a problem? (150 – 200 words) (b) What can be done about it?
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Liona is the managing partner of Ross and Associates, a small audit firm. Liona's role includes
managing the business affairs of the firm, and she is very worried about the amount of fees
outstanding from audit clients. Broomers Pty Ltd, one of the client of Ross and Associates, has
not paid its audit fees for two years despite numerous discussions between Liona, their audit
partner Ball, and the management of Broomers Pty Ltd. Broomers Pty Ltd's management has
promised the fees would have been paid before the audit report for this year has been
published, Liona rang Ball this morning to ensure that the audit report was not issued because
Broomers Pty Ltd had paid only 10 per cent of the outstanding account. She discovers that
Ball is about to sign the audit report.
4
Required:
(a) Explain the ethical problem in this case. Why is it a problem? (150 – 200
words)
(b) What can be done about it? (50 – 100 words)
Step by step
Solved in 2 steps
- Ginnian and Fitch, a regional accounting firm, performs yearly audits on a number of different for-profit and not-for-profit entities. Two years ago, Luisa Mellina, Ginnians partner in charge of operations, became concerned about the amount of audit time required by not-for-profit entities. As a result, she instituted a series of training programs focusing on the auditing of not-forprofit entities. Now, she would like to see if the training seemed to work. So, she ran a multiple regression on 22 months of data for Ginnian for three variables: the total monthly cost of audit professional time, the number of not-for-profit audits, and the hours of training in the audit of not-for-profit entities. The following printout was obtained: Required: 1. Write out the cost equation for Ginnians audit professional time. 2. If Ginnian expects to have 9 audits of not-for-profits next month and expects that audit professionals will have a total of 130 hours of not-for-profit training, what is the anticipated cost of professional time? 3. Are the hours spent auditing not-for-profit entities positively or negatively correlated with audit professional costs? Is percentage of experienced team members positively or negatively correlated with audit professional cost? 4. What does R2 mean in this equation? Overall, what is your evaluation of the cost equation that was developed for the cost of audit professionals?Liona is the managing partner of Ross and Associates, a small audit firm. Liona's role includesmanaging the business affairs of the firm, and she is very worried about the amount of feesoutstanding from audit clients. Broomers Pty Ltd, one of the client of Ross and Associates, hasnot paid its audit fees for two years despite numerous discussions between Liona, their auditpartner Ball, and the management of Broomers Pty Ltd. Broomers Pty Ltd's management has promised the fees would have been paid before the audit report for this year has beenpublished, Liona rang Ball this morning to ensure that the audit report was not issued becauseBroomers Pty Ltd had paid only 10 per cent of the outstanding account. She discovers thatBall is about to sign the audit report. Required:(a) Explain the ethical problem in this case. Why is it a problem?). (b) What can be done about it?Liona is the managing partner of Ross and Associates, a small audit firm. Liona's role includesmanaging the business affairs of the firm, and she is very worried about the amount of feesoutstanding from audit clients. Broomers Pty Ltd, one of the client of Ross and Associates, hasnot paid its audit fees for two years despite numerous discussions between Liona, their auditpartner Ball, and the management of Broomers Pty Ltd. Broomers Pty Ltd's management haspromised the fees would have been paid before the audit report for this year has beenpublished, Liona rang Ball this morning to ensure that the audit report was not issued becauseBroomers Pty Ltd had paid only 10 per cent of the outstanding account. She discovers thatBall is about to sign the audit report. 4Required:(a) Explain the ethical problem in this case. Why is it a problem? (b) What can be done about it?
- Liona is the managing partner of Ross and Associates, a small audit firm. Liona's role includes managing the business affairs of the firm, and she is very worried about the amount of fees outstanding from audit clients. Broomers Pty Ltd, one of the client of Ross and Associates, has not paid its audit fees for two years despite numerous discussions between Liona, their audit partner Ball, and the management of Broomers Pty Ltd. Broomers Pty Ltd's management has promised the fees would have been paid before the audit report for this year has been published, Liona rang Ball this morning to ensure that the audit report was not issued becauseBroomers Pty Ltd had paid only 10 per cent of the outstanding account. She discovers that Ball is about to sign the audit report. (a) What can be done about it?Liona is the managing partner of Ross and Associates, a small audit firm. Liona's role includes managing the business affairs of the firm, and she is very worried about the amount of fees outstanding from audit clients. Broomers Pty Ltd, one of the client of Ross and Associates, has not paid its audit fees for two years despite numerous discussions between Liona, their audit partner Ball, and the management of Broomers Pty Ltd. Broomers Pty Ltd's management has promised the fees would have been paid before the audit report for this year has been published, Liona rang Ball this morning to ensure that the audit report was not issued because Broomers Pty Ltd had paid only 10 per cent of the outstanding account. She discovers that Ball is about to sign the audit report. Required: (a) Explain the ethical problem in this case. Why is it a problem? (b) What can be done about it?Liona is the managing partner of Ross and Associates, a small audit firm. Liona's role includes managing the business affairs of the firm, and she is very worried about the amount of fees outstanding from audit clients. Broomers Pty Ltd, one of the client of Ross and Associates, has not paid its audit fees for two years despite numerous discussions between Liona, their audit partner Ball, and the management of Broomers Pty Ltd. Broomers Pty Ltd's management has promised the fees would have been paid before the audit report for this year has been published, Liona rang Ball this morning to ensure that the audit report was not issued because Broomers Pty Ltd had paid only 10 per cent of the outstanding account. She discovers that Ball is about to sign the audit report. Required: (a) Explain the ethical problem in this case. Why is it a problem? . (150 – 200 words)(b) What can be done about it? (50 – 100 words)
- Dave Czarnecki is the managing partner of Czarnecki andHogan, a medium-sized local CPA firm located outside of Chicago. Over lunch, he issurprised when his friend James Foley asks him, “Doesn’t it bother you that your clientsdon’t look forward to seeing their auditors each year?” Dave responded, “Well, auditingis only one of several services we provide. Most of our work for clients does not involvefinancial statement audits, and our audit clients seem to like interacting with us.”a. Identify ways in which a financial statement audit adds value for clients.b. List other services other than audits that Czarnecki and Hogan likely provides.c. Assume Czarnecki and Hogan has hired you as a consultant to identify ways inwhich they can expand their practice. Identify at least one additional service that youbelieve the firm should provide and explain why you believe this represents a growthopportunity for CPA firms.Tracy Smith, CPA, is in charge of the audit of Olympic Fashions, Inc. Seven young members of the public accounting firm's professional staff are working with Smith on this engagement, and several of the young auditors are avid skiers. Olympic Fashions owns two condominiums in Aspen, Colorado, that it uses primarily to entertain clients. The controller of Olympic Fashions has told Smith that she and any of her audit staff are welcome to use the condominiums at no charge any time that they are not already in use. How should Smith respond to this offer? Explain.Holly works for a firm of chartered accountants who specialise in external audit, tax advice, and retail systems. Most of your clients are small retail direct sales companies. A large national company, Rectic Plc, who operate in the same industry as several of your clients have approached you to work on their external audit after a disagreement and challenges faced with the previous auditor. They have offered a fee that would constitute 20% of the total revenue of your firm, but only on the condition that the work was completed within 2 weeks of their year end. Required: a) State and explain the 5 ethical principles outlined by the IESBA (International Ethics Standards Board for Accountants) with examples. b) If your firm accepts this engagement state five key points that must be covered by the engagement letter per ISA 210, then briefly explain the significance of the engagement letter. c) Discuss four potential ethical and other issues that your firm may face in the…
- Julia is a CPA employed by Super Great Value (SGV) and Co. Cecilia is a partner, and her cluster is engaged in an audit of the financial statements of Jellybean Fruits Corporation (JFC). During the preliminary conference with JFC's audit committee, one of the committee members made the following suggestions to Ms. Julia:That last year's audit was finished by SGV on time, but JFC is requesting for a shorter audit period this year.That last year's audit work be divided among more team members this year. Last year's audit involved three audit associates. For this year, four members should be included. JFC is willing to pay for any additional costs it may entail.That one associate should be working auditing current assets and current liabilities; another associate should focus on property and equipment and non-current liabilities; another associate should focus on the minutes of the board's meetings and the shareholders' equity accounts; and the last associate will audit the income and…Dave Czarnecki is the managing partner of Czarnecki and Hogan, a medium-sized local CPA firm located outside of Chicago. Over lunch, he is surprised when his friend Juarez Foley asks him, “Doesn’t it bother you that your clients don’t look forward to seeing their auditors each year?” Dave responds, “Well, auditing is only one of several services we provide. Most of our work for clients does not involve financial statement audits, and our audit clients seem to like interacting with us.” Identify ways in which a financial statement audit adds value for clients. List services other than audits that Czarnecki and Hogan likely provides. Assume Czarnecki and Hogan has hired you as a consultant to identify ways in which they can expand their practice. Identify at least one additional service that you believe the firm should provide and explain why you believe this represents a growth opportunity for CPA firms.Is it an entity inherent risk for the information below? Supervisors working at Marco Inc. interview all perspective employees for positions they supervise. In addition, at least one of the corporate officers also interviews each perspective employee. Most of the key employees, including the officers, have been with Marco for more than ten years. However, due to the high demand for accountants, Stephen Violet an accountant and most of the accounting staff have been employed at Marco for less than 3 years. While Marco checks references for any prospective employee, they do not check criminal records or perform other forms of background checks. If it is an inherent risk, what is the feature of the firm that will possibly affect inherent risk and explain how and why; that is whether it increases or decreases inherent risk. Please address a specific risk to the accuracy of the financial statements with the "how" and whether audit effort should be increased or decreased for specific…