Joe a Senior Manager for a small CPA firm, had not been able to sleep through the
Question:
Joe a Senior Manager for a small CPA firm, had not been able to sleep through the night in weeks. Due to economic hard times, and unexpected turnover, the firm was understaffed and overworked with the busy season approaching. Joe was responsible for standard managerial duties such as scheduling and budgeting, but had recently taken over several other roles because of the turnover, so he felt pressure from a lot of angles to fulfil all his responsibilities. Sena Bhd had been a client for seven years and it was the first client to the firm’s Partner. Partner’s wife is recently been appointed as secretary to Sena Bhd. Sena Bhd is a company that supports environmental conservation by offering products made of 100% recyclable materials. During the decline, Sena Bhd was still able to provide job opportunities, and offered continuous support to the community. Sena Bhd was important to the CPA firm not only because of the Partner, but also because the client provided 30% of the firm’s income. Joe thinking about the potential issues that could arise during Sena Bhd audit. Last year, there was a meeting regarding inventory. Sena Bhd stored its raw materials inventory in heaps. The Engagement team disagreed with the way Management measured and valued the raw materials, and they proposed an adjustment to inventory at year-end. After a lot of argument, Sena Bhd agreed to the adjustment. But following this agreement, the CFO left and has since been replaced. In the last six years Joe had been on the audit, the company had four CFOs and three Controllers come and go. The turnover rate concerned Joe. However, he reminded himself that economic decline was affecting his firm, and that could be the case with Sena Bhd as well. He closed his eyes finally and put his worries to rest. The planning phase of the audit passed by quickly and Joe felt confident transitioning into fieldwork. He met with Sena Bhd’s Management to arrange when his firm would be on site again and scheduled to return several months later. When Joe and the Engagement team returned, Sena Bhds’ issues from the past appeared to be back. Most of the information Joe’s team needed from Management was not readily available, and if it was, it contained errors. During cut-off testing for inventory, inventory that was received after year-end was included in the detailed listing for the current year. As a result of the work not being prepared correctly, adjustments needed to be made, which Management was not fond of doing. The audit faced several problems due to these issues. Because Management did not have the work completed, the Engagement team could not get the evidence needed for testing in a timely manner. Management apologized and blamed the delay on the unanticipated turnover. Joe met once more with the CFO and Controller to discuss the state of the audit. Joe explained the major errors found above scope and that the Engagement team had to lower the scope and do further testing, which would extend the finish date of the audit. The audit deadline was approaching and Joe was not confident that his team could outrun the timing issue. Surprisingly Joe was offered as Financial Controller in Sena Bhd based on his experience auditing the company with double of his pay in CPA’s firm. Management was very firm during the meeting that Sena Bhd must receive a clean opinion to receive funds and grants from the government, which benefit the community as well as the company. Sena Bhd uses Joe’s firm in every line of service, and he knows what losing this account would mean.. Joe feels conflicted and wants peace of mind.
Referring to the above case:
1. Verify the stakeholders in the situation above.
2. Review the issues in the scenario and the fundamental principles related to the issue.
3. Propose the best solution to Joe.
4. Conclude the problem above to integrity of auditors and social responsibility.
Advanced Accounting
ISBN: 978-0538480284
11th edition
Authors: Paul M. Fischer, William J. Tayler, Rita H. Cheng