Question

Client continuance- Star Software is a client of Jones & Parker, LLP. Star has experienced increased competition in its industry that has resulted in decreased profits over the last three years. In an effort to stay financially sound, Star is considering employee layoffs to decrease expenses. Star is planning significant layoffs in the accounting and finance department and within the internal audit function. Star management feels that internal controls are well established and fewer employees are needed to monitor the internal control system. Also, since the accounting function is heavily dependent on IT, fewer employees are needed to keep track of the company’s accounting data.

Question- What issues should Jones & Parker consider when deciding whether to continue the client relationship with Star Software? If Star were your client, would you continue to be the auditor? Explain.

Answer 1

If there is less employees in the accounting and financing department and within the internal audit function, then the business lose their efficiency in internal control. Jones & Parker does'nt continue client relationship with Star Software. Because, they lose their confidence in the quality of internal control of star software because of reduced number of employees and high dependance on IT.

If I am the auditor of star software, I never willing to continue client relationship with them. Quality of internal audit and internal control will be highly depends on the employees of the organsiation. If the number of employees will be less, then there is a chance of inefficiency because of work overload, more time etc. Accounting functions of vouching, posting, ledgering, journalising, balancing, totalling etc are done by different employees in the organisation. If the number of employees is getting reduced, then these functions are vested with less number of employees. There is a chance of misappropriation, conflicts, omission etc. If the accounting and financing works are highly depends on IT, there occure some problems like failure of the system, power break-down, malwares etc. So, it is better to rely on employees rather than IT.