Question

You own an accounting firm. Your firm assists medium sized businesses with their more complex accounting transactions (leases, pensions, stock options) and processes such as establishing internal controls and creating reporting policies. You are investigating a company to determine its acceptability as a new client. You learn that the accounting staff at this entity is “overworked”. What concerns, if any, would this raise?

What about if you learn that this potential client has a high turnover rate of employees in top accounting and finance positions?

Answer 1

Answer)

Here,two concerns arise when we learnt that accounting staff is 'Nenu worked'.The first one is that whether they are concealing any sophisticated fraud or so.The second one is that they are trying make the internal controls effective than what they actually are.

Here,If we learnt that this client has high turnover rate of employees in top accounting and Financial position,I think there is more chance for potential material mistatements.This is because the top accounting and Financial employees will be responsible in providing reasonable assurance and also solving our queries amoun financial statements. If there is high employment turnover rate at that level, the new employees may not be able to help us in solving our queries due to lack of adquate knowledge on accounting(like they may not be able to explain the reasons for certain accounting treatments which happened before they taking charge and so on).Moreover, it opens the doors for lower level accounting and Financial employees to commit fraud as the newly appointed employees may not have the awareness about the weak areas.