Question $2(14$ marks$)$

Susan Maskens is the owner of iEat Inc., $($EI$)$ a private company that designs and installs interactive computer display terminals in coffee shops and restaurants, recently switched auditors and hired her brother in law James Boone, CPA, to perform the company$$s annual financial statement audit. EI has a bank loan with the General Bank and certain covenants need to be met each year otherwise the loan becomes payable on demand. The bank requires an annual audit to be completed each year. Susan Maskens was not happy with her previous audit firm Brady and Co$.,$ Chartered Professional Accountants and as a result she decided to look for another auditor to provide an audit opinion on EI$$s financial statements for the year ending January $31,2024.$

James Boone offered Susan a family discount and promised to perform the audit for $15$ percent less than Brady and Co$$s audit fee. James did contact the previous auditor in order to review their working papers for the year audit ending January $31,2023.$

Susan Maskens arranged to meet with James Boone, the sole partner of Boone and Co$.,$ Chartered Professional Accountants, late Monday afternoon. During the meeting, Susan Maskens mentioned that she also was hoping that Boone and Co$.$ could draft control procedures for a new sales system that EI was acquiring as well as to install the system. It is now February $15,2024$ and James agreed to do the audit have his staff begin the audit first thing the next day.

The next morning, James called two of his junior staff into his office to discuss his meeting with Susan Maskens. He requested the juniors to begin the audit immediately and return in four weeks with a draft set of financial statements prepared by EI including the notes to the financial statements. 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. James mentioned to the juniors that he had reviewed the working papers of the previous auditor and noticed that last year$$s risk assessment was considered moderate and that this same assessment should be used for this year$$s audit. He also felt that last year$$s materiality could be used again for this year$$s audit.

During the testing of inventory at January $31,2024$ 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 a financial statement audit as set out in CAS $200).$ Clearly mention what the auditor should have done to comply with either the Rules of Professional Conduct or generally accepted auditing standards.