You are meeting with executives of Cooper Cosmetics Corporation to arrange your firm’s engagement to audit the corporation’s financial statements for the year ending December 31. One executive suggests the audit work be divided among three staff members to minimize audit time, avoid duplication of staff effort, and curtail interference with company operations. One person would examine asset accounts, a second would examine liability accounts, and the third would examine income and expense accounts. Advertising is the corporation’s largest expense, and the advertising manager suggests that a staff member of your firm, whose uncle owns the advertising agency handling the corporation’s advertising, be assigned to examine the Advertising Expense account.
The staff member has a thorough knowledge of the rather complex contact between Cooper Cosmetics and the advertising agency.
a. To what extent should a PA follow the auditee management’s suggestions for the conduct of an audit? Discuss.
b. List and discuss the reasons why audit work should not be assigned solely according to asset, liability, and income and expense categories.
c. Should the staff member of your PA firm whose uncle owns the advertising agency be assigned to examine advertising costs? Discuss.