Ethics Essay

Assignment Description:

Marvin Carson, managing partner of your office, and Steven Allison, president of Allison, Inc. are close friends. They were raised in the same neighborhood, attended college together, and had been closely associated in civic affairs. They also play in a weekly golf foursome and both belong to the local community choral group. Although Allison's banker has recommended repeatedly that his business be audited annually by a CPA, Allison has refrained. In connection with making the arrangements to work with a new supplier, the supplier mentions to Allison that he desires audited statements as a basis for credit and implies arrangements cannot be completed without such statements. Allison, therefore, decides an audit is necessary, which also gives him an opportunity to refer the work to his good friend. Hence, he asks your office to perform an audit of his company's financial statements.

Can Carson accept the engagement and perform the audit in accordance with GAAS?

Roland Company, a retail store, has utilized your services as independent auditor for several years. During the current year the company opened a new store; in the course of your annual audit, you verify the cost of the fixtures installed in the new store by examining purchase orders, invoices, and other documents. This review brings to light an understated invoice nearly a year old in which a clerical error by the supplier, Western Showcase, Inc., caused the total to the invoice to read $18,000 when it should have been $81,000. The invoice was paid immediately upon receipt without any notice of the error, and subsequent statements and correspondence from Western Showcase, Inc., showed that the account with Roland Company had been "paid in full." Assume that the amount in question is material in relation to the financial position of both companies.

Required:

a. If the client should decline to take any action in the matter, would you insist that the unpaid amount of $63,000 be included in the liabilities shown on the balance sheet as a condition necessary to your issuance of an unqualified audit report?

b. Assuming that you were later retained to audit Western Showcase, Inc., would you utilize the information gained in your examination of Roland Company to initiate a reopening of the account with the company?