On May 20, 2014, the US Securities Exchange Commission (SEC) issued an accounting and auditing enforcement release against two Canadian CPAs, Bryce Walker and Spence Walker, in relation to their performance of the 2007 to 2010 audits of Subaye Inc. Bryce and Spence were partners in DNTW Chartered Accountants LLP, an association of four local firms. The SEC's case against the pair came after Subaye Inc., a purported cloud-computing provider in China, collapsed amidst questions about its business. The SEC concluded that Bryce Walker, the engagement partner, failed to: properly supervise assistants; obtain sufficient competent evidence; properly perform the confirmation process; and act with due care. Regarding Spence Walker, the engagement quality control review partner, the SEC concluded that he failed to act with due care because he should have been aware of the shortcoming of the audit in obtaining sufficient competent evidence and he did not appropriately evaluate numerous significant risks.
REQUIRED
Access Accounting and Auditing Enforcement Release No. 3555 at www.sec.gov/litigation/admin/2014/ 34-72199.pdf and answer the following:
a. Summarize and explain how Bryce Walker failed to properly supervise assistants. What actions could Bryce had taken to ensure adequate supervision?
b. One area where there was significant shortcoming in the audit was the confirmation of accounts receivable. What "red flags" were documented in the file that should have increased Spence's skepticism?
c. Assume you were performing the engagement quality review; provide a list of questions you would have asked regarding the accounts receivable confirmations.
d. Given that Bryce and Spence were the only two partners in their office, do you think it was appropriate for Spence to perform the engagement quality control review? Explain.