Cheng,, a recently qualified PA, has been assigned by his firm, Liu & Liu LLP, to serve as the senior auditor in charge of the fieldwork on a new audit engagement. The client is a medium-sized credit union that is heavily involved as a mortgage lender in the local real estate market. This is the first credit union that Liu & Liu is auditing. Cheng has not previously been involved in audits of financial institutions. The credit union’s predecessor auditors resigned unexpectedly during the current fiscal year, and they have not responded to Liu & Liu’s request for information for over one month. Liu & Liu has agreed to perform the engagement since the financial statement audit needs to be completed.
The client has provided Liu & Liu with the predecessor audit firm's unqualified opinion on last year’s financial statements. The engagement partner tells Cheng to concentrate her efforts on understanding the client’s business and internal control environment, including the credit union’s internal control systems, but not to rely upon internal controls. Then, Cheng is to perform extensive tests on the key balance sheet asset and liability accounts, such as mortgage loans receivable. Cheng performs the audit as instructed, finds no material misstatements, and Liu & Liu issues an unqualified opinion on the financial statements.
REQUIRED
State whether or not the PA has violated generally accepted auditing standards. Justify your response.