ACC 411 Project One Audit Team Due Diligence Professional Care Checklist Template

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School

Southern New Hampshire University *

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411

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Accounting

Date

Jan 9, 2024

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docx

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ACC 411 Project One Audit Team Due Diligence Professional Care Checklist Template Directions Assess your audit team to ensure the team is qualified to perform the audit. Once your checklist is complete, you will communicate any findings from this assignment within the Client Risk Profile Template. Consult the PCAOB Auditing Standards AS1005, AS1010, and AS1015 for guidance. Complete this template by replacing the bracketed text with the relevant information. Scenario For whatever company you choose to analyze, assume you are the audit partner responsible for assigning staff to work on that audit. Review the following facts and then assess if any of the information raises potential red flags that might impair objectivity and independence if you assigned that person to the audit. Document your analysis in the categories below including what action should be taken. Staf Robert Woods is an audit senior and a CPA. Robert is also on the board of directors of several charities, where he interacts with some of the businesspeople in the area. One of the people he routinely works with is the CFO of the company you are going to audit. In addition, the CFO used to work for your audit firm within the audit practice before leaving to work for your potential client. Alma Sanchez is targeted to be the audit manager on the engagement. Her husband, Tyr, while not directly working with the company you are going to audit, holds a majority stake in that company. The firm’s policy is that any person working on the engagement cannot have a direct investment, of any size, in any audit client of the firm. Further, the person cannot have a material indirect investment in the audit client. Rancel Dumari is targeted to be the lead auditor on the engagement but has only worked on small, nonprofit clients. The audit of this client requires extensive specialized knowledge of chemical manufacturing. No other team members understand the industry and its unique accounting standards and regulations. Technical competency The technical competency of Rancel Dumari raises concerns, especially in relation to his potential role as the lead auditor. Although he demonstrates proficiency in comprehending accounting and auditing issues concerning small, local nonprofits, his expertise falls short when it comes to the complexities of accounting, internal control, and auditing matters within large, technology-oriented companies. Considering that Digital Turbine, Inc. operates primarily online as a SaaS company, it is unrealistic to expect Rancel to perform the audit with the necessary level of professional competence and due care. Consequently, it is advisable to assign this responsibility to an auditor who possesses greater experience in this industry. Independence (lack of bias) The section defines independence as the judicial impartiality of the company to conduct a factual, legal, transparent, and thorough audit. Without independence, the public cannot trust the company, and the client's confidence in us will be lost. To be independent, the auditor must be intellectually honest and free from any obligation or interest in the client, its management, or its owners. Robert Woods and Alma's

relationships with the CFO and the client's significant stakeholder, respectively, would compromise their findings' impartiality. Alma must excuse herself from the engagement as per the firm's policy on direct investments. Rancel's independence in this matter is not in question. Professional skepticism Professional skepticism is a fundamental principle that follows the concept of due professional care in the PCOAB's AS1015. Due professional care pertains to the actions of auditors and their proficiency in performing their duties. While auditors are responsible to their employers for any negligence, bad faith, or dishonesty, they are not held liable for losses resulting from mere errors in judgment (PCAOB, 2022c). Professional skepticism emphasizes the exercise of due professional care through objective evaluation. It entails auditors utilizing their inquisitive nature to diligently verify the accuracy of data, operating under the assumption that management may have inherent dishonesty. The auditing team could consider replacing the current auditors with professionals who have no personal or financial interest in the client and possess extensive auditing experience with large, technological companies. Despite Rancel's emphasis on the client's need for chemical industry knowledge, his expertise lies in small, nonprofits, and therefore, he should also be replaced. In the event that no one in the audit company has chemical industry audit experience, it would be advantageous to hire a seasoned auditor with experience in large, public companies and compensate them for the necessary research and training to meet the chemical industry standards. References

PCAOB. (2002a). AS 1005: Independence . Www.pcaobus.org. https://pcaobus.org/oversight/standards/auditing-standards/details/AS1005 PCAOB. (2002b). AS 1010: Training and Proficiency of the Independent Auditor . Default. https://pcaobus.org/oversight/standards/auditing-standards/details/AS1010 PCAOB. (2002c). AS 1015: Due Professional Care in the Performance of Work . Default. https://pcaobus.org/oversight/standards/auditing-standards/details/AS1015

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