Which of the following factors most likely would cause a CPA to decline to accept a new audit engagement?
A. The CPA is unable to review the predecessor auditor’s working papers.
B. The CPA does not understand the entity’s operations and industry.
C. Management is unwilling to permit inquiry of its legal counsel.
D. Management acknowledges that the entity has had recurring operating losses.
Last Updated on February 3, 2022 by Admin 3
- 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