Al Baker, owner of Visions Electronics Ltd. (VEL), an electronic retail outlet, recently decided to change accounting firms. His decision was based on an advertisement he read in a local newspaper. The advertisement suggested that Winters & Co., Chartered Professional Accountants perform superior work in the areas of audit, accounting and tax, and that the firm guarantees a fixed fee for any potential client. This attracted Mr. Al Baker whose company is facing cashflow problems and he felt that his current fee was too high.

 

Given VEL's poor operating results for the past two years, the bank once again requested an audit for the year ended January 31, 2021. It is now February 5, 2021.

 

Mr. Baker arranged to meet with Ann Winters, the sole partner of Winters & Co., Chartered Professional Accountants, late Monday afternoon. During the meeting, Mr. Baker stressed the need for a clean audit opinion to satisfy the bank. Ann agreed to have her staff begin the audit first thing the next day. 

 

The next morning, Ann called two of his junior staff into her office to discuss his meeting with Al Baker. She requested the juniors to begin the audit immediately and return in four weeks with a draft set of financial statements, including notes. The juniors, having had only limited auditing experience in the retail industry gladly accepted this new challenge. They were particularly excited about it as they felt it would help them in their preparations for the final CPA exams.

 

During the testing of inventory at January 31, 2021 several items in the sample were overstated due to errors in pricing and obsolescence but the combination of all errors in the sample were considered immaterial.  Accordingly, no extra testing was completed in the area of inventory.

 

It was decided that it was more efficient to perform 100% substantive testing on the five financial cycles rather than to rely on the controls.  There was no attempt to document the controls or test those controls considered strong.  

 

Required:

Discuss the Rules of Professional Conduct violated and the nature of the violations. In addition discuss any actions taken during the audit that has resulted in the failure to comply with generally accepted auditing standards- (principles underlying the statement audit - standards currently set out in CAS 200)? Provide your answer?

Answer rating: 100% (QA)

Based on the information provided in the scenario several Rules of Professional Conduct were violated during the audit engagement The following are th... View the full answer