1. From an ethical perspective, why do auditors evaluate business risk before deciding whether to accept a new client?
2. Integrity is an essential element in the relationship between client management and the auditor. Evaluate the issue of integrity from the perspective of possibly taking on Jost Furniture as a new client. Use Josephson’s Six Pillars of Character to support your decision whether to submit a bid for the Jost Furniture audit.
3. Some CPA firms have started to add an indemnification clause to their engagement letters that provides that the client would release, indemnify, defend, and hold the auditor harmless from any liability and costs resulting from knowing misrepresentations by management. Would inclusion of such an indemnification clause in engagement letters impair independence? Why or why not? What if, as a condition to retaining an auditor to perform an audit engagement, a prospective client requests that the firm enter into an agreement providing that the firm indemnify the client for damages, losses, or costs arising from lawsuits, claims, or settlements that relate, directly or indirectly, to client acts. Would entering into such an agreement impair independence?