Question

A&A, CPAs, is a regional firm with 20 offices located in large cities throughout the Midwestern United States. You have worked as an audit senior in A&A, CPAs for three years and have mastered your job. Your manager is impressed by your performance and ask you to assist in making a decision on whether to accept a re-audit for a well-respected regional company, B.

You just left a meeting with B Company. You were asked whether your firm would be willing to re-audit the previous years’ financial statements and, subsequently, conduct an audit of the current years’ financials. This is the first time you have been asked to conduct a re-audit, although you realize it has become more common as a result of problems like Enron and WorldCom experienced. Some companies switching audit firms have elected to have the new audit firm re-examine prior-period financial statements because of concerns about the quality of the earlier audit.

On your way back to the office, you call your brother Matthew, who is a manager at another audit firm in the same town, to share your good news. You tell him that doing the audit work for the two years will increase your firm’s revenue by 10%. Matthew is taken aback by the news. The new client was a client of Mathew’s firm. He did not know the firm had lost the client and it might be picked up by A&A, CPAs.

Please preview Professional Code of Conduct and answer the following questions:

1. What issues should be of concern to you in deciding whether B company should accept the re-audit engagement? (PLO 4-1)
2. What are Matthew’s ethical obligations in this matter? Should he discuss the situation with you? (PLO 4-1)Discuss matthew’s ethical obligation based on three theories of ethical behavior utilitarian theory, rights-based approach, the justice-based approach and Discuss Matthew’s ethical obligation in light of Aicpa 1.110.001 integrity and objectivity rule (refer to .10 adverse interest threat).
3. Regardless of your answer to 2, what inquiries should you make of the predecessor auditor? (PLO 4-1)
4. Assume A&A, CPAs discover undetected fraud in the previous years’ financial statements, what should you do? Research, cite, and summarize applicable Professional Conduct as they relate to the auditors’ responsibilities. (PLO 4-1)

Answer 1