Question

The owner of a small company asked a CPA to conduct an audit of the company's records. The owner of the company told the CPA that the audit was to be completed in time to submit audited financial statements to a bank as part of a loan application. The CPA immediately accepted the engagement and agreed to provide an auditor's report within three weeks. The owner agreed to pay the CPA a fixed fee plus a bonus if the load was granted. The CPA hired two accounting students to conduct the audit and spent several hours telling them exactly what to do. The CPA told the students not to spend time reviewing the internal controls but instead to concentrate on proving the mathematical accuracy of the ledger accounts and summarizing the data in the accounting records that supported the company's financial statements. The students followed the CPA's instructions and after two weeks gave the CPA the financial statements which did not include any footnotes. The CPA reviewed the statements and prepared an unmodified auditor's report. The report did not refer to GAAP or to the consistent application of GAAP. Briefly describe at least three principles underlying AICPA auditing standards and indicate how the actions of the CPA resulted in a failure to comply with each principle.

Answer 1

The owner of a small company asked a CPA to conduct an audit of the company's records. The owner of the company told the CPA that the audit was to be completed in time to submit audited financial statements to a bank as part of a loan application.