Question

1. Assuming that you have found some problems after reviewing the workpapers conducted by the auditors and requesting additional work would have the risk of significantly running over the original time budget approved by the audit engagement manager based on the engagement letter. Spending more time on the audit engagement would potentially reduce the profitability of the audit firm, which will displease the audit manager and the engagement partner. Using the professional ethics framework, decide what you would do. Explain your rationale. How can you do what you think is the right thing without undermining your manager’s confidence in your ability to get a job done?

Describe all 3 approaches with your words (Utilitarian theory, Rights based approach, justice based approach)

Choose one approach that you would like to build your opinion.

Apply the situation based on your chosen approach.

Answer 1

During audit engagement, the cost and time to complete audit is an important consideration. Audit managers may face the issue of finding it difficult to complete the audit within stipulated time period and cost structure which may be profitable to the firm at the same time.

The utilitarian approach to audit tells that the audit shall be done considering the net benefit and cost to all the stakeholders involved. It takes into account both the perspectives of client and audit firm.

The rights based approach on the contrary tells that the audit shall be completed considering what is right to do rather than the net cost and benefit. It may involve more cost to certain stakeholders.

The justice based approach is a mixed approach and considers what may be justified from all the stakeholders perspective.

In the current situation, the utilitarian approach would be the best to adopt. Under this approach, we will perform additional audit procedures to reduce audit risk and obtain sufficient and appropriate audit evidences to reach to audit conclusion. Example of additional audit procedures may be obtaining Management Representation Letter for certain audit matters, applying analytical procedures over certain line items of financial statements etc. These procedures can be justified in terms of time and cost involved in performing such procedures.