Question: Read the PCAOB enforcement case against Christopher E Anderson PCAOB

Read the PCAOB enforcement case against Christopher E. Anderson (PCAOB Release No. 105-2008-003, available at Among the PCAOB's findings is that the audit partner, Anderson, changed materiality during the engagement.
In part, the enforcement case notes that Anderson was a Deloitte audit partner on the NFC audit engagement. Another Deloitte audit team was responsible for auditing NFC's parent company, NIC. In planning the audit of NFC, Anderson had set, at $4.1 million, the quantitative threshold used by the engagement team to, among other things, determine whether to treat a misstatement in NFC's financial statements as material. However, shortly after misstatements were discovered, Anderson accepted a decision, made at Deloitte's NIC engagement team level, that the materiality threshold for the NFC audit should be increased to $6.1 million.
Anderson accepted that decision even though he had final responsibility for the NFC audit, believed that the original materiality threshold remained appropriate, and understood that the increased threshold would make it easier to treat known misstatements as immaterial. As a result of applying the 50% higher threshold, Anderson was able to treat a $4.5 million overstatement as immaterial on a quantitative basis.
a. When is it appropriate to change materiality amounts during an engagement and why would the PCAOB have been concerned about Anderson's actions related to changing the materiality amount? Identify instances in which Anderson did not employ an appropriate level of professional skepticism.
b. Using the framework for ethical decision making presented in Chapter, assess the actions of Anderson. Recall that the steps in that framework are as follows:
(1) Identify the ethical issue(s);
(2) Determine who are the affected parties and identify their rights;
(3) Determine the most important rights;
(4) Develop alternative courses of action;
(5) Determine the likely consequences of each proposed course of action;
(6) Assess the possible consequences, including an estimation of the greatest good for the greatest number, and determine whether the rights framework would cause any course of action to be eliminated;
(7) Decide on the appropriate course of action.

View Solution:

Sale on SolutionInn
  • CreatedSeptember 22, 2014
  • Files Included
Post your question