Question

Collins & Harper, LLC serves as the independent auditor for Springfield Spirits, Inc ("Springfield"). Springfield has request the firm's assistance with its payroll processing function. Collins & Harper is being asked to perform this service while continuing to serve as Springfield's auditor.

Can Collins & Harper perform this nonattest service for Springfield? What considerations should Collins & Harper's management keep in mind when accepting and performing this service?

Answer 1

The outside, independent auditor is engaged to render an opinion on whether a company’s financial statements are presented fairly, in all material respects, in accordance with financial reporting framework. For a clear picture of the role of external auditors, it helps to understand what you should not expect auditors to do. The emphasis is on “independent.”

Collins and Harper, LLC who acts as an independent auditor to Springfield Spirits Inc. has been asked to assist with payroll operations. Independent auditors are not expected to establish or assist with internal controls of an organization. Assistance with payroll functions would mean direct engagement of the firm with the internal controls of the company. As a firm, Collins and Harper could give advices and observations if there are any discrepancies in the system through the use of reports. But they cannot assist in establishing any operational activity. Thus, it can be said that Collins & Harper cannot perform this non-attest service for Springfield.

Other considerations that Collins & Harper should keep in mind that they should not do the following:

• Authorize, execute or consummate transactions on behalf of a client
• Prepare or make changes to source documents
• Assume custody of client assets, including maintenance of bank accounts
• Establish or maintain internal controls, including the performance of ongoing monitoring activities for a client
• Supervise client employees performing normal recurring activities