Case Scenario:
Audit Client Considerations
The case involves various employees of a registered CPA firm by the name Cardinal & Coyote, based in Phoenix, Arizona. Yancy Corliss is the firm’s newest auditing employee. In the course of her duty she is summoned into the office of Sharon Rules who is the firm’s managing partner. Sharon Rules explains to Yancy that a certain entity under the name Jost Furniture International wants to enter into an auditing contract with Cardinal & Coyote provided that they table with them a reasonable bid. Sharon Rules tasks Yancy Corlis with conducting a comprehensive background check on the furniture company in order to evaluate the risk of having the company as their client. Yancy agrees to conduct the research but has been given a limited period of three days because the bid is likely to close faster. To carry out the background check, Yancy decides to include Lanny Beaudean as part of his research team together with Vinnie Gabelli and Jacki Oloff who are not from Arizona. Each member is given a task in the background review process and at the end of the day the team meets to discuss their findings regarding Jost Furniture International.
The audit assessment provided Lanny with an opportunity to advance his career if he followed all the regulations for conducting background review on the client company. However the nature of the auditing process requires high ethical standards from Lanny Beaudean despite the fact that he worked for the client company a few years ago. Beaudean faces the challenge of providing impartial financial statements of the company. Various ethical issue face Beaudean because he has a responsibility of acting with integrity especially for public purposes. If he finds faults in the financial documents of Jost Furniture, he has to report it and not shield the company because of the fact that he was once their employee. Lanny Beaudean risks his job if he fails to articulate impropriety in financial records and books of the client company. If Beaudean choses to report discovered illegality in the client firm, he faces the risk of violating confidentiality agreements with the firm. Clients trust will be damaged and also the auditor risks litigation.
Objectivity should be the guiding principal in ethical decision making of the auditors. The auditor needs to make an appropriate assessment of the firm without being influenced by factors such as personal interests or coercion from peers. The auditor needs to be guided by integrity when it comes to assessing the firm and he should also be able to value the information that he or she receives from the company. Certain information is crucial and it would be wrong to reveal the firm’s information without authorization from an appropriate body. Ethical decision making in this content should be supported by skill knowledge and also experience.
To solve the situation in this case, it would be best to hire an impartial auditor who has never had any association with the client company. This would reduce chances of concealing relevant information crucial for Cardinal & Coyote to enter into the bid. If I was in such a situation, I would first conduct an extensive assessment of the client company public record together with their financial ratings. This would provide relevant information on the company’s overall record. I would also interview particular employees of the entity who were tasked with accounting and tax functions in order to evaluate the firm’s record keeping practices and their opinion on control environment.