Problem 1:

Ann Donnelly is a senior audit manager in an East Coast officer of a public accounting firm. Her prospects for promotion to partner are excellent if she continues to perform at the same high-quality level as in the past. Ann was recently married, and she and her husband bought a large home in a prestigious neighborhood. Ann just returned from vacation and was immediately called into audit partner's office for a discussion related to one of her publicly traded audit client. This audit engagement, which had been completed with an audit report issued several months prior, had been selected for a PCAOB inspection and the partner is concerned. PCAOB inspections can be stressful for the primary engagement partner and often result in the identification of audit deficiencies by the PCAOB, which are then discussed with the audit firm. The partner is concerned he will look bad and may even face penalties from the firm if there are serious deficiencies identified.

Under PCAOB auditing standards, all working paper documentation for an audit of a publicly traded client should be completed within 45 days of the audit report release date. Any working papers added to the file after that date should be dated accordingly, signed by the preparer, with a note as to the purpose of the added working paper. The audit engagement team is not allowed to modify or delete original documentation included in the working papers.

In the current meeting between Ann and the partner, the partner on the audit engagement feels they need to provide further support for one of the judgmental audit areas on the audit engagement in order to avoid scrutiny from the PCAOB, and that they also need to go through the working papers and ensure that all work was appropriately signed off by the manager and partner. The partner suggest to Ann that she include an additional memo to support their conclusion on the judgmental audit area in question and that she date this memo to support their conclusion on the judgmental audit area in question and that she date this memo as if she completed it she completed it at the time she and the staff originally did the work, and that she ensure all required signatures are in the working papers. Ann reminds the partner this is in violation of the PCAOB auditing standards; however, the partner assures Ann that no one will know and they can avoid possible penalties that would result if they do not ensure that their audit engagement will pass inspection. "After all," the engagement partner reminds Ann, "you will soon be considered for promotion to partner and you would not want a negative inspection outcome on a prior engagement to stand in your way of making partner."

Required:

Use the six-step approach discussed in the book to resolve the ethical dilemma.