Acct

ACCT 4304, Fall 2015

Audit case

Read the attached audit case and answer all the questions that follow. A total of 90 points are available for the actual responses to the questions and 10 points are available for presentation, clarity and grammar. Total points for the assignment are 100.

Note: Answer the questions as comprehensively as possible. Reference to Auditing Standards, your textbook, and other relevant authoritative sources is expected where appropriate. Even where some of the questions are quite general, try as much as possible to relate your answer to the case.

1. Some of the members of Phar-Mor's financial management team were former auditors for Coopers & Lybrand.

(a) Why would a company want to hire a member of its external audit team? (3pts)

(b) If the client has hired former auditors, would this affect the independence of the existing external auditors? Explain. (3pts)

(c) How did the Sarbanes-Oxley Act of 2002 and related rulings by the PCAOB, SEC or AICPA affect a public company's ability to hire members of its external audit team? (3pts)

2 (a) What factors in the auditor-client relationship can put the client in a more powerful position than the auditor? (3pts)

(b) What measures has and/or can the profession take to reduce the potential consequences of this power imbalance? (3pts)

(c) Do you believe that in this Phar-Mor Case there was some power imbalance between the Coopers and Phar-Mor? Explain. (3pts)

3. (a) Is it appropriate for auditors to trust executives of a client? Explain (3pts)

(b) Identify 3 instances in the case where auditors apparently trusted the responses or explanations they were given by the client. For each instance, comment on whether or not it was appropriate to trust the client and if not, what the auditor could have done. (6pts)

(c) Do you think that auditors should have equal responsibility to detect material misstatements due to errors and those due to fraud? Why or why not? Hint: Think about...