Steve, an audit partner at a medium-sized CPA firm has been assigned the task of mentoring Barbara,
Question:
Steve, an audit partner at a medium-sized CPA firm has been assigned the task of mentoring Barbara, a newly promoted audit senior. One day at lunch, Steve and Barbara are discussing the topic of taking on new clients and retaining existing ones. Barbara is having a hard time understanding why once an auditor has accepted a client, the decision would be reevaluated at future points.
Steve's best response to Barbara's question is to explain that because the auditor is reliant on its own reputation to both obtain future clients and maintain existing ones, the auditor must carefully assess the client's risk profile to make sure audit risk can be eliminated. to respond that from a financial standpoint, the auditor owes a duty to itself to reevaluate its ongoing client relationships, as it may be able to adjust the cost and pricing of the audit in response to client changes. This strategy helps the auditor maximize profitability. to advise Barbara that in order to effectively mitigate risk, the audit firm regularly reviews its ongoing client relationships, and attempts to only transact business with clients for which the risk of material misstatement is higher. to explain that because a major part of what the auditor provides is credibility, it is both prudent and appropriate for the auditor to carefully reevaluate clients and the risk they may represent to the auditor's reputation.
Auditing Cases An Interactive Learning Approach
ISBN: 9780134421827
7th Edition
Authors: Mark S Beasley, Frank A. Buckless, Steven M. Glover, Douglas F Prawitt