Question

ABC Inc. formerly operated successfully as a proprietorship owned by Ms. Zhu. She has built the business herself by being a hands-on owner, involved in all aspects of the business. The business has never had any debt and this allowed the business to remain profitable even when the economy slowed down 3 years ago. Ms. Zhu has contacted a CPA firm to request an external audit. She has maintained a good relationship with her bank of several years, as the business has been successful and generates sufficient cash flow to meet the needs for operating, financing, and investing activities.

Required

a. Explain why you think that ABC Inc. does (or does not) require an external audit.
b. Ignore your answer to part a) and assume that the audit firm’s decision was that ABC Inc. does not

require an external audit. Explain whether the auditor’s responsibility as a CPA is to provide the audit services as the client requests, or to advise that an audit is not required.

Answer 1

ABC Inc.

A.)
ABC Inc. formerly operated successfully as a proprietorship owned by Ms. Zhu. She has built the business by herself & involved in all aspects of the business. The business has never had any debt and this allowed the business to remain profitable even when the economy slowed down 3 years ago. She has maintained a good relationship with her bank of several years, as the business has been successful and generates sufficient cash flow to meet the needs for operating, financing, and investing.
A  Certified Public Accountant, is a trusted financial advisor who helps individuals, businesses, and other organisations plan and reach their financial goals. Proper & Accurate Auditing is one of the indicator of business concern. It plays ais very crucial part in growth & expension of the entity. There are two kind of auditor every business concern have Internal Auditor & External Auditor. There work differ from each other Internal auditors will examine issues related to company business practices and risks, while external auditors examine the financial records and issue an opinion regarding the financial statements of the company. Internal audits are conducted throughout the year, while external auditors conduct a single annual audit. As external CPA are independent accountant; they perform their duties in accordance with specific laws & rules. They are not connected to any business org. & thus the chance of manipulation, fraud, internal cheats & misrepresentation can be eliminated. They perform their task independently for the accuracy and completeness of the client's accounting records. An external CPA of ABC Inc. owned by Ms. Zhu will provide various services which can be help in growth and expension of their entity like :-

1. the statements present fairly in all material respects
2. Audit plan, financial reporting, governance matters
3. Eliminates Misrepresentation & fraud with valid document proof
   
   

B.)
As She is being away from all short of frauds or illegal trade practices and been paying all dues &taxes. If her internal audit work is maintained properly and with accuracy. In that case, She doesn't require any Certified Public Accountant for external. As CPA's is a trusted financial advisor who helps individuals, businesses, and other organisations plan and reach their financial goals. If one has faith over their internal employees regards to task performance of business concern faithfully. & believes they are loyal to their work can eliminate the risk of doubt of internal management. As well as if one is clear enough about their goals and have better understanding about the market & its equivalent then it doesn't require any CPA. Only in case of less understanding of dynamic market & have low knowledge of accounts of their fund flow requires an auditor.