Which of the following factors most likely would cause a CPA not accept a new audit engagement?

Last Updated on February 3, 2022 by Admin 3

• AUD CPA : All Parts

• The prospective client has already completed its physical inventory count.
• The CPA lacks an understanding of the prospective client’s operations and industry.
• The CPA is unable to review the predecessor auditor’s audit documentation.
• The prospective client is unwilling to make all financial records available to the CPA. 

Explanation:

Choice “D” is correct. An auditor must consider the availability and adequacy of the client’s accounting records and the integrity of management in deciding whether or not to accept a new audit engagement. A prospective client that is unwilling to provide all financial records would give the auditor cause for concern about both of these issues.
Choice “A” is incorrect. The auditor may apply acceptable alternative procedures to audit inventory.
Choice “B” is incorrect. The auditor can accept the engagement and obtain an understanding of the client’s operations and industry after acceptance.
Choice “C” is incorrect. Inability to review the predecessor’s audit documentation means the auditor will expend greater effort auditing beginning balances. It does not mean the engagement should be declined.

• AUD CPA : All Parts

Last Updated on February 3, 2022 by Admin 3

• AUD CPA : All Parts

• The CPA’s lack of understanding of the prospective client’s internal auditor’s computer-assisted audit techniques.
• Management’s disregard of its responsibility to maintain an adequate internal control environment. 
• The CPA’s inability to determine whether related party transactions were consummated on terms equivalent to arm’s-length transactions.
• Management’s refusal to permit the CPA to perform substantive tests before the year-end.

Explanation: 
Choice “B” is correct. The control environment is the foundation for all other components of internal control. Management’s disregard of its responsibility to maintain an adequate internal control environment therefore compromises its ability to provide reasonable assurance regarding reliable financial reporting. The auditor may conclude that the risk of misrepresentation in the financial statements is great enough that an audit should not be conducted.
Choice “A” is incorrect. The CPA does not need to understand the internal auditor’s techniques in order to accept a new audit engagement.
Choice “C” is incorrect. Related party transactions (by definition) are not considered to be arm’s-length transactions, and evaluation of such transactions does not affect the CPA’s decision regarding acceptance of new clients.
Choice “D” is incorrect. Substantive tests are generally performed after year-end, since prior to that time the financial statements have not been finalized.

• AUD CPA : All Parts