You are the partner on the audit of Datasave, Inc., a small publicly held corporation that manufactures high-speed disk drives for the computer industry. The audit of Datasave had been progressing satisfactorily until you were about a month away from issuing your opinion.
Suddenly, and quite mysteriously, Carl Wagner, the financial vice president, resigned. John Ross, who had been a manager with a large CPA firm, was quickly hired to replace Wagner.
Although the change in Datasave’s chief financial officer caused some disruption, the audit was completed on a timely basis.
As the last step in the audit process, you have prepared the representation letter for signing. You wanted the letter to be signed by William Cox, the president; Robert Star, the controller; and Wagner, who occasionally came to the company’s offices to resolve matters regarding his past compensation. The signatures of Cox and Star were obtained, and you approached Wagner for his signature. In response to your request, Wagner replied, “I no longer am employed with this crazy company. Why should I take any responsibility for the financial statements?” Despite your attempts to persuade him, Wagner refused to sign the letter. Wagner also refused to discuss the reasons for his resignation, other than to say the reasons were personal.
When you discussed the problem of Wagner’s refusal to sign with Cox, he indicated that there was no problem because Ross would sign the letter. You see this as a possible solution, but you are aware that Ross knows very little about the financial statements for the year under audit. Also, you are still somewhat concerned about the reasons for Wagner’s resignation.

a. Describe fully the alternatives that are available to you in this situation.
b. Express your personal opinion as to the appropriate course of action and provide reasoning to support your opinion.

  • CreatedOctober 25, 2014
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