An individual from the East Coast obtains his business degree and works for many years as a
Question:
An individual from the East Coast obtains his business degree and works for many years as a salesman {"Salesman") for IBM.
• Salesman inherits a lot of money, takes some courses, passes the CPA exam, moves to Chicago and uses some of his inheritance to purchase a relative's Chicago area CPA firm. The CPA firm has 100% privately held clients.
• The Salesman's philosophy (as well as his CPA Firm's philosophy) is that the "customer is always right."
• One of the Salesman's large Audit clients has a CFO who although not a CPA is an extreme bully who is prone to having temper tantrums and insists upon having his way.
• The CFO tells the Salesman he wants to observe the physical inventory at June 30th and do a roll forward for 6 months to the December 31st year-end.
• The Salesman's Technical Audit Manager researches whether a 6 month rollforward is permissible under GAAS. After extensive research and consultation, the Manager concludes & documents that although this is a grey area, in practice the longest roll forward period anyone ever uses is 3 months (i.e. September 30th). The reason is that the longer the period between the physical inventory observation and year-end, the more risk exists that a material error could occur and not be detected.
• The Salesman ignores the Technical Audit Manager's conclusion & sides with the CFO bully because "there is nothing in the literature that expressly states his client cannot observe the physical inventory 6 months before year-end."
Questions:
1 What do you think of the Salesman CPA's method of operation? Has he complied with GAAS?
2. What kind of role model is Salesman setting for young CPAs on his staff?
3. Is the self-regulation for CPA firms that have exclusively privately held clients sufficient?
Expert Answer:
