Name: Siqi Zhao
To: A424 Case 1.2
Subject: Case Questions
1. Since E&Y performs its auditing duties merely as an external auditor for Lehman, the scope of auditing work should be based on the audit needs from Lehman. On the other hand, it is very important for external auditors to keep the independent and objective standpoint in order to ensure their auditing opinions are effective. E&Y did not have a responsibility to be involved in the development process of new accounting policy otherwise the independence may be impaired. The role audit firms should play is to provide quality assurance and external assessment on the compliance and management control within the scope defined by clients and their internal auditors themselves.
2. One essential purpose for developing accounting rules is to ensure the interest parties, such as investors, governments, and companies obtain accurate and efficient financial information, which should reflect the true underlying economic conditions. Any intents of embellishing financial information by ambiguously applying accounting rules will impair the accuracy and authenticity of information, which causes bias impressions and conclusions from interest parties, and hurts underlying economy in the long term.
3. If these important transactions are within the scope of auditing work, auditors have the responsibility to assess whether they are “accounting-motivated”, since it may bring potential risks and exposure to clients.
4. I believe Schlich or one of his subordinates should have reviewed that letter for the whistle blower. As the information stated, Schlich and Hillary Hansen have conducted the interview with the author of the whistleblower letter. It is very likely that both of them know the content of letter, and Lehman also has asked E&Y to be involved in investigating the issue in that letter. For the multinational auditing practice, the basis for allocating audit...
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