Ann Donnelly is a senior audit manager in an East Coast office ofa public accounting firm. Her prospects for promotion to partner are excellent if shecontinues to perform at the same high-quality level as in the past. Ann was recentlymarried, and she and her husband bought a large home in a prestigious neighborhood.Ann just returned from a vacation and was immediately called into an audit partner’soffice for a discussion related to one of her publicly traded audit clients. This auditengagement, which had been completed with an audit report issued several monthsprior, had been selected for a PCAOB inspection and the partner is concerned. PCAOBinspections can be stressful for the primary engagement partner and often result in theidentification of audit deficiencies by the PCAOB, which are then discussed with the auditfirm. The partner is concerned he will look bad and may even face penalties from the firmif there are serious deficiencies identified.Under PCAOB auditing standards, all working paper documentation for an audit of apublicly traded client should be completed within 45 days of the audit report release date.Any working papers added to the file after that date should be dated accordingly, signedby the preparer, with a note as to the purpose of the added working paper. The auditengagement team is not allowed to modify or delete original documentation included inthe working papers.In the current meeting between Ann and the partner, the partner on the auditengagement feels they need to provide further support for one of the judgmental auditareas on the audit engagement in order to avoid scrutiny from the PCAOB, and that theyalso need to go through the working papers and ensure that all work was appropriatelysigned off by the manager and partner. The partner suggests to Ann that she include anadditional memo to support their conclusion on the judgmental audit area in questionand that she date this memo as if she completed it at the time she and the staff originallydid the work, and that she ensure all required signatures are in the working papers. Annreminds the partner this is in violation of the PCAOB auditing standards; however, thepartner assures Ann that no one will know and they can avoid possible penalties thatwould result if they do not ensure that their audit engagement will pass inspection. “Afterall,” the engagement partner reminds Ann, “you will soon be considered for promotion topartner and you would not want a negative inspection outcome on a prior engagement tostand in your way of making partner.”Use the six-step approach discussed in the book to resolve the ethical dilemma.
Ann Donnelly is a senior audit manager in an East Coast office of
a public accounting firm. Her prospects for promotion to partner are excellent if she
continues to perform at the same high-quality level as in the past. Ann was recently
married, and she and her husband bought a large home in a prestigious neighborhood.
Ann just returned from a vacation and was immediately called into an audit partner’s
office for a discussion related to one of her publicly traded audit clients. This audit
engagement, which had been completed with an audit report issued several months
prior, had been selected for a PCAOB inspection and the partner is concerned. PCAOB
inspections can be stressful for the primary engagement partner and often result in the
identification of audit deficiencies by the PCAOB, which are then discussed with the audit
firm. The partner is concerned he will look bad and may even face penalties from the firm
if there are serious deficiencies identified.
Under PCAOB auditing standards, all working paper documentation for an audit of a
publicly traded client should be completed within 45 days of the audit report release date.
Any working papers added to the file after that date should be dated accordingly, signed
by the preparer, with a note as to the purpose of the added working paper. The audit
engagement team is not allowed to modify or delete original documentation included in
the working papers.
In the current meeting between Ann and the partner, the partner on the audit
engagement feels they need to provide further support for one of the judgmental audit
areas on the audit engagement in order to avoid scrutiny from the PCAOB, and that they
also need to go through the working papers and ensure that all work was appropriately
signed off by the manager and partner. The partner suggests to Ann that she include an
additional memo to support their conclusion on the judgmental audit area in question
and that she date this memo as if she completed it at the time she and the staff originally
did the work, and that she ensure all required signatures are in the working papers. Ann
reminds the partner this is in violation of the PCAOB auditing standards; however, the
partner assures Ann that no one will know and they can avoid possible penalties that
would result if they do not ensure that their audit engagement will pass inspection. “After
all,” the engagement partner reminds Ann, “you will soon be considered for promotion to
partner and you would not want a negative inspection outcome on a prior engagement to
stand in your way of making partner.”
Use the six-step approach discussed in the book to resolve the ethical dilemma.
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