Question

Romello Accounting LLP is a small CPA firm consisting of three partners and seven other professional staff. The firm offers full attestation and assurance services. Most of the work is for small and medium-sized nonpublic companies. The firm is registered with the PCAOB and does audits of about 30 penny stock or pink sheet companies and broker-dealers each year.

Tony Romello, the managing partner of the firm, has been the review partner on all audits for the last several years. Unfortunately, Tony encountered major health concerns in the last month and will not be available for the upcoming busy season. Michelle Thompson and Max King, the two remaining partners, are discussing staffing during the busy season.

“I am sorry that Tony is so ill, but I am concerned about our staff needs over the next three months. With two senior auditors and five staff auditors, we are all going to be very busy. I guess it is too late to hire experienced staff and get them trained quickly,” Michelle stated.

“Don’t forget that we will need a review partner,” Max mused. “Hey, I could be the review partner for your audits and you can be review partner on my audits.”

“I almost forgot that,” Michelle said. “But don’t we need to get a review partner who hasn’t worked on the audits the last two years? That would exclude both of us, since we are switching off audits every five years. . . . Hey, maybe we can get Tom Mullins, CPA, to be our review partner on a contract basis?”

Max immediately objected. “You know that, as a retired Big Four audit partner, he would eat up our slim profits with his contract rate. Let’s just make do this year and start planning to have a new partner by this time next year.”

“We can’t do that,” Michelle countered. “When we have the PCAOB inspections, we will get penalized. We would also be cited in our peer reviews. No, no, I’m not comfortable thinking of not having a review partner. Also, without Tony this year, you and I will be busy supervising the staff without the added responsibilities of being review partner.”

“Oh brother, you are such a rule follower!”

In a thorough response, identify the stakeholders of audits and their interests. Is there a difference between stakeholders and interests of public versus nonpublic companies?

Answer 1

The stakeholders of audits are the partner who has been assigned the work of audit by Audit recommending committee of the firm. All the responsibilities and authorities for the audit are put to the partner.

The interests of the partner who is the stakeholder of the audit are: 1) all the decisions regarding the audit would be taken through his/her approval. 2) He/She will assign works to the staff. 3)All the reports and statements must be processed under the stakeholder’s signature. 4) The stakeholder of the audit will represent the Audit Firm in all the meeting with the management. 5) There should not be any interruptions/disturbance from any other partner of the Firm. 6)His/Her decision regarding the audit will be final.

No, there is no difference between the stakeholders and interests of public versus nonpublic companies as under both categories of company, the partner and the audit team is been recommended by the Audit Committee and the partner has the same rights and duties in each category of companies.