The auditor worked for this client for years. But before accepting or continuing with the client, What are the reasons the auditor or audit firm should or should not retain this existing client this time around using the information below about the client? What risks could the client, its business, and its environment pose to the auditor or audit firm? The client: Although client cash flows have been stable, the disruption caused by the 2020 global pandemic made it difficult for retail lessors to pay their rent on time. Due to the company's tenant-friendly approach, retail clients were allowed to renegotiate their lease and temporarily pause rent payments between June 2020 and July 2021, shifting those payments to the last 12 months. Most of these leases will expire in the next two years, including all retail companies unable to pay their rent. However, they estimate that they will receive all the lost cash flow from these tenants within a couple of years. Currently, the company is a privately held REIT that hopes to go public in the next six months. It follows Generally Accepted Accounting Principles (GAAP) and has a strong internal audit department. As a matter of fact, the Chief Financial Officer (CFO) previously led the Internal Audit department for the company before being promoted to CFO. While the company still needs to fill the position of Director of Internal Audit, the CFO still assists by reviewing the internal auditors' work. In addition to serving on the board, the former Director of Internal Audit is the chair of the board of directors. To keep audit costs low, the company (audit committee) must go out to bid for an audit every ten years.
The auditor worked for this client for years. But before accepting or continuing with the client, What are the reasons the auditor or audit firm should or should not retain this existing client this time around using the information below about the client? What risks could the client, its business, and its environment pose to the auditor or audit firm?
The client:
Although client cash flows have been stable, the disruption caused by the 2020 global pandemic made it difficult for retail lessors to pay their rent on time. Due to the company's tenant-friendly approach, retail clients were allowed to renegotiate their lease and temporarily pause rent payments between June 2020 and July 2021, shifting those payments to the last 12 months. Most of these leases will expire in the next two years, including all retail companies unable to pay their rent. However, they estimate that they will receive all the lost cash flow from these tenants within a couple of years.
Currently, the company is a privately held REIT that hopes to go public in the next six months. It follows Generally Accepted Accounting Principles (GAAP) and has a strong internal audit department. As a matter of fact, the Chief Financial Officer (CFO) previously led the Internal Audit department for the company before being promoted to CFO. While the company still needs to fill the position of Director of Internal Audit, the CFO still assists by reviewing the internal auditors' work. In addition to serving on the board, the former Director of Internal Audit is the chair of the board of directors. To keep audit costs low, the company (audit committee) must go out to bid for an audit every ten years.
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