Approximately a decade ago, the following comments appeared in the The Wall Street Journal. In the article, the participants were talking about users expecting the auditors to do a better job of finding fraud.

Comment 1: (An accounting professor at Dartmouth College):"The very time an auditor should be the most cynical about a company is when his client is applying the most pressure."

Comment 2: (An attorney representing shareholders): "Auditors can close their eyes to danger signs." I have found that lower-level accountants had discovered signs of fraud or impropriety but were ignored by their superiors. The higher-ups at the accounting firms usually seem to be willing to give management a chance to get its house in order.

Comment 3: (An attorney for a large national CPA firm): "Accounting firms check out suspicions of lower level staffers even if the partner in charge of the audit doesn't agree. "But more often than not, these suspicions don't prove to be true. In one instance, we even spent

$40,000 of our own money for a second review, and no problem was found."

Comment 4: (Same attorney at CPA firm):"I concede that auditors sometimes can be guiled if they don't take that extra step needed when they suspect fraud. For example, the chief executive of one company insisted that he paid for spare parts in cash-practice apparently common in his industry. In reality, the cash was used to bribe the buying agents of several large customers. But the auditor didn't check to see whether the spare part inventory was increasing during that period."

Required

a. How does a public accounting firm in a competitive environment walk the fine line between developing a skeptical attitude toward the possibility of fraud and working with the client's management to help the firm grow-and as it grows, help the CPA firm's fees grow? Support your answer.

b. What kinds of pressure might management apply to a CPA firm to lead the auditors to be less skeptical?

c. How does an auditor decide that a situation merits special investigation? Many additional investigations are dead ends, but in some cases enough is not done.