Question: Refer to the Auditing in Practice feature PCAOB Fines Ernst

Refer to the Auditing in Practice feature, "PCAOB Fines Ernst & Young for an Issue Involving Accounting Estimates."
a. Auditors are required to provide reasonable assurances regarding accounting estimates. How did the Ernst & Young partners fail in this regard?
b. Based on the facts in the case, it appears that high-level Ernst & Young partners also were concerned that the financial accounting and disclosure policy for Medicis was improper. Yet, the partners on the actual Medicis engagement went ahead and issued an unqualified audit report anyway. What factors might have caused the engagement partners to fail to exercise professional skepticism?
c. To understand the pressure to maintain the company's stock price, access Yahoo finance or another similar online source for historical stock prices. What was the approximate stock price for Medicis from 2005 through 2007? What happened to the stock price leading up to the restatement in November 2008? (Hint: Look at the stock prices from about June 2008 to early December 2008). How has the stock price changed since that time?
d. What are the most important client continuance risks that Medicis would present to an audit firm following the restatement? Access Medicis' most recent 10K on the SEC's Website.
Who is their current auditor? What is the audit fee? Be prepared to discuss your opinions about these facts.

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  • CreatedSeptember 22, 2014
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