Bill Scollon is the owner of Microservices Ltd., (ML) a local retailer of computers and related products.
Question:
Bill Scollon is the owner of Microservices Ltd., (ML) a local retailer of computers and related products. Bill was not happy with the Public Accounting Firm who provided a qualified opinion on the October 31, 2022 financial statements. Based on an advertisement in the local newspaper Bill decided to hire the firm of Miles and Company LLP (MC) to conduct the audit of the company's financial statements for the year ending October 31, 2023. The advertisement suggested that MC, Chartered Professional Accountants, perform superior work in the areas of audit, accounting and tax. MC agreed to charge ML an audit fee based on what they paid last year (2022) less a first-year discount of 10%. This attracted Bill whose company is facing cashflow problems and he felt that his previous fee was too high.
Today is November 10, 2023. Bill arranged to meet with Rebecca Miles, the sole partner of MC, late Monday afternoon. During the meeting, Bill stressed the need for a clean audit (unqualified) opinion to satisfy the bank. She also was hoping that MC could draft control procedures for a new sales system that ML was acquiring as well as to install the system. Rebecca agreed to have her staff begin the audit first thing the next day.
The next morning, Rebecca called two of his junior staff into her office to discuss his meeting with Bill Scollon. 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 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 accounts receivable at October 31, 2023 one of the juniors noticed that there were a number of accounts receivable that were outstanding for more than 6 months. The junior spoke with ML's accountant who mentioned that while these customers were having financial difficulties, he was confident that the customers will pay off their accounts including any interest charges before year end. The junior concluded that no further was necessary.
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.
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 (the standards currently set out in CAS 200).
Auditing The Art and Science of Assurance Engagements
ISBN: 978-0133098235
12th Canadian edition
Authors: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Ingrid B. Splettstoesser