The 12 partners of a regional public accounting firm met in special session to discuss audit engagement efficien
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The 12 partners of a regional public accounting firm met in special session to discuss audit engagement efficiency. Jones spoke up, saying, “We all certainly appreciate the firmwide policies set up by Martin and Smith, especially in connection with the audits of the large clients that have
come our way recently. Their experience with a large public accounting firm has helped build our practice. But I think the standard policy of conducting reviews and tests of internal control on all audits is raising our costs too much. We can’t charge our smaller clients fees for all of the time the staff spends on this work. I would like to propose that we give engagement partners discretion to decide whether to do a lot of work on assessing control risk. I may be old-fashioned, but I think I can finish a competent audit without it.” Discussion on the subject continued but ended when Martin said, with some emotion, “But we can’t disregard generally accepted auditing standards like Jones proposes!”
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- The 12 partners of a regional public accounting firm met in special session to discuss audit engagement efficiency. Jones spoke up, saying, “We all certainly appreciate the firmwide policies set up by Martin and Smith, especially in connection with the audits of the large clients that havecome our way recently. Their experience with a large public accounting firm has helped build our practice. But I think the standard policy of conducting reviews and tests of internal control on all audits is raising our costs too much. We can’t charge our smaller clients fees for all of the time the staff spends on this work. I would like to propose that we give engagement partners discretion to decide whether to do a lot of work on assessing control risk. I may be old-fashioned, but I think I can finish a competent audit without it.” Discussion on the subject continued but ended when Martin said, with some emotion, “But we can’t disregard generally accepted auditing standards like Jones…Obtaining a “Sufficient” Understanding of Internal Control. The 12 partners of a regional public accounting firm met in special session to discuss audit engagement efficiency. Jones spoke up, saying, “We all certainly appreciate the firmwide policies set up by Martin and Smith, especially in connection with the audits of the large clients that have come our way recently. Their experience with a large public accounting firm has helped build our practice. But I think the standard policy of conducting reviews and tests of internal control on all audits is raising our costs too much. We can’t charge our smaller clients fees for all of the time the staff spends on this work. I would like to propose that we give engagement partners discretion to decide whether to do a lot of work on assessing control risk. I may be old-fashioned, but I think I can finish a competent audit without it.” Discussion on the subject continued but ended when Martin said, with some emotion, “But we can’t disregard…Your long-time client, Central Office Supply, has been rapidly expanding, and the board of directors is considering taking the company public.CEO Terry Puckett has heard that costs of operating a public company have increased significantly as a result of the Sarbanes–Oxley Act. Puckett is particularly concerned with reports that audit fees have doubled because of internal control provisions of the act and PCAOB Auditing Standard No. 2201. Puckett has asked you to explain the possible effects on the audit of complying with the requirements of Sarbanes–Oxley.Required:Draft a letter to Puckett outlining the changes in the company’s responsibilities for internal control and changes in the audit due to Sarbanes–Oxley and PCAOB Auditing Standard No. 2201.
- The public accounting firm of Hanson and Brown was expanding very rapidly. Consequently, it hired several staff assistants, including James Small. Subsequently, the partners of the firm became dissatisfied with Small’s production and warned him that they would be forced to discharge him unless his output increased significantly. At that time, Small was engaged in audits of several clients. He decided that, to avoid being fired, he would reduce or omit entirely some of the required auditing procedures listed in the audit plan prepared by the partners. One of the public accounting firm’s non-SEC clients, Newell Corporation, was in serious financial difficulty and had adjusted several of its accounts being examined by Small to appear financially sound. Small prepared fictitious working papers in his home at night to support purported completion of auditing procedures assigned to him, although he in fact did not examine the Newell adjusting entries. The public accounting firm rendered an…You are a CPA and you are the CFO (Chief Financial Officer) of USB Computer Technologies Inc., a company that specializes in customized business software. You have been requested by the board of directors of the company to attend its meeting. During the meeting, one of the directors asked you, "Why audits of our company performed by different auditors (internal, external, government). Before you could answer question, another direfctor mentioned "it would be more cost-efficient if our internal auditors will performed all the audits. " Requirements. Write down your reply to each question of the members of the board of directors. In relation to your answer in number 1, identify the issues that must be explained to the Board.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.
- You are meeting with executives of Cooper Cosmetics Corporation toarrange your firm’s engagement to audit the corporation’s financial statements for the year ending December 31. One executive suggests the audit work be divided among three staff members. One person would examine asset accounts, a second would examine liability accounts, and the third would examine income and expense accounts to minimize audit time, avoid duplication of staff effort, and curtail interference with entity operations.Advertising is the corporation’s largest expense, and the advertising manager suggests that a staff member of your firm whose uncle owns the advertising agency that handles the corporation’s advertising be assigned to examine the Advertising Expense account because the staff member has a thorough knowledge of the complex contact between Cooper Cosmetics and the advertising agency. Required:a. To what extent should auditors follow the client’s suggestions for the conduct of an audit? Discuss.b.…The manager Concerned about her current customer base, manager Andersen started to think of factors that might affect the attractiveness of an auditing firm. Of course, the service quality provided and the fees charged by the auditor seem two important factors. Next, she decides that the reputation of the auditing firm also needs to be included in the framework as an independent variable. As illustrated by the dramatic effects of recent auditing scandals, reputation seems especially important for large auditors (i.e., auditing firms that are large in size). Finally, manager Andersen also thinks that the proximity of the auditing firm to the customer is another variable to be included as an independent variable. Proximity very likely affects the possibility for the client to personally meet with the auditors on a regular basis and she knows from her own contact with customers that they perceive personal interactions as quite important. Required: Identify variables (IV, DV, Moderating…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.
- You are a senior manager in the audit department of Raven & Co. You are reviewing three situations which have arisen in respect of audit clients, which were recently discussed at the monthly audit managers' meeting:Grouse Co is a significant audit client which develops software packages. Its managing director, Max Partridge, has contacted one of your firm's partners regarding a potential business opportunity. The proposal is that Grouse Co and Raven & Co could jointly develop accounting and tax calculation software, and that revenue from sales of the software would be equally split between the two firms. Max thinks that Raven & Co's audit clients would be a good customer base for the product. Plover Co is a private hospital which provides elective medical services, such as laser eye surgery to improve eyesight. The audit of its financial statements for the year ended 31 March 2012 is currently taking place. The audit senior overheard one of the surgeons who performs laser…For each of the following situations involving relations between auditors and the companies they audit, indicate whether it violates IFAC’s Code of Ethics for Professional Accountants and the rationale for the applicable guideline. Paul Asante, CPA, discloses confidential information in a peer review of the firm’s quality control procedures. Frank Smith, CPA, is auditing a company in Ghana, which has offered to send him and his wife on a holiday in Hawaii for two weeks. Tabula Gonzales, CPA, says in an interview in the local paper that Emilio Rios, CPA, misleads his clients about the quality of his audit work.You are a Senior Manager in Federer & Co, a firm of Chartered Certified Accountants offering audit and assurance services mainly to large, privately-owned companies. The firm has suffered from increased competition, due to two new firms of accountants setting up in the same town. Several audit clients have moved to the new firms, leading to loss of revenue, and an overstaffed audit department. Ann Agassi, one of the partners of Federer & Co, has asked you to consider howthe firm could react to this situation. Several possibilities have been raised for your consideration: 1. Federer & Co is considering expanding the provision of non-audit services. Maria Williams, a Senior Manager in Federer & Co, has suggested that the firm could offer a recruitment advisory service to clients, specializing in the recruitment of finance professionals. Federer & Co would charge a fee for this service based on the salary of the employee recruited. Maria Williams worked as a…
