Why would the owners of Lakeside as well as the company’s banks require that an independent CPA firm perform the annual audit? The reason that there needs to be an independent auditor is so that they can remain unbiased. It could potentially make them less independent if they are auditing both Lakeside and the bank in which Lakeside is taking loans from. The auditing firm needs to stay independent in mind and appearance and this may be an issue when auditing both.
This case implies that no auditor with the firm of Abernethy and Chapman has an in-depth understanding of the consumer electronics industry. Is a CPA firm allowed to accept an engagement without having established the necessary expertise to oversee the audit? The first general standard of Generally Accepted Auditing Standards is that the auditor must have formal education in auditing and accounting, adequate practical experience for the work being performed, and continuing professional education (Kursh, Lant, et Al, 2014, pgs. 32-33). Therefore they should not accept the engagement. Would the knowledge required to audit a consumer electronics company differ significantly from that needed in the examination of a car dealership? The knowledge required to audit a consumer electronics company is significantly different than that needed to audit a car dealership. Does the auditor have an obligation to discuss his lack of expertise, or his plans to obtain the expertise with the client? The auditor does have an ethical obligation to discuss his lack of expertise, as well as discussing if he plans on hiring someone with expertise specifically for this client.
Rogers wants Abernethy and Chapman to assist his company in developing new accounting systems. Does a CPA firm face an independence problem in auditing the output of systems that the same firm designed and installed? Yes, if a CPA firm were to develop new accounting systems specifically for the company then they would lack the independence...
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