Question

E-mail from the Partner:

Hi Team,

I hope all is well. Sorry, I couldn’t be there but I have a number of client meetings today and over the next few months that prevent me from being there in person. Prof. Qamar will be working with you throughout the audit to help you reach the right conclusions.

Remember this is a new client and we want to keep them happy but also want to complete an audit in accordance with PCAOB regulations, and not sacrifice audit quality. Our audit firm is subject to PCAOB inspection and we could be inspected at any time including this audit. Regardless our firm is always dedicated to customer service and quality. Also, remember to reach out to the prior auditor and review their work papers from the prior year.

Technology Inc. Is a company founded in 1999. They are a technology company that has thrived in recent years by focusing on products related to physical and IT service. They are part of a larger umbrella organization called Global Technology Group. The parent owns more than 50% of the Stock but the company’s remaining ownership shares are traded on the NYSE.

The company is a new tech company under a new law that allows them not to have an audit of internal controls under SOX (so we will just be performing a FS audit), also the company is currently exempt from paying income taxes but this will expire next year. We should make sure that this has not changed.

The CEO, Hamid Abdullah, is a former Google executive a smart guy but also very impatient when it comes to questions from auditors. The CFO is Mikael Yahyah who graduated from Baruch with an MBA and has one year of work experience at Deloitte & Touche as an associate before starting with the Company. Mikael is the CEO’s cousin. The CEO founded the company with his brother and best friend in the late 1990’s. The company sputtered along until 2010 when the company gained some large customers like Sears and Tesla. In 2011 The Company was acquired by the Global Technology Group and became part of the current organization we know. Although it is a partially owned subsidiary the Parent who is located in India is very hands-off and management basically runs it like an independent company.

The BOD (Board of Directors) is made up of 12 people which include– The CEO, CFO, the CEO’s brother Musa Abdullah, and the CEO’s father Adam Abdullah. The remaining board members are set by the Parent and a few independent directors elected by shareholders. The Parent owns about 51% and the CEO owns about 20% of the company.

The company is almost 20+ years old but still runs like a start-up in many ways. The manuals and policies haven’t been reviewed or changed in 10 years or so (since the financial crisis). They have outsourced payroll to ADP, but they still handle account receivables and sales in the house through their website and APP. They have been known to bill customers incorrect amounts, or send bills to the wrong customers sometimes. The company did have a big IT breach a few years ago and recently settled a related lawsuit. The company has 50-100 full-time employees and many contractors on a part-time basis. The company has a small production facility in the US and another small R&D facility in India. The company shares headquarter space with the parent in NYC near time square. The company purchases PP&E but also makes some unique production parts. The company focuses primarily on corporate accounts but also is trying to grow its consumer business.

Frankie Georgiou | Partner
Queens College Auditors LLP
65-30 Kissena Blvd. Flushing, NY 11367

1. Should the CFO or employees in the department be fired? Why or why not? [Read the intro e-mail above to learn more about the CEO’s experience.]

Please answer the question according to the email above. Thank you

Answer 1

No,CFO or employees in the department should not be fired,

The PCAOB is required to establish or adopt, or both, auditing, quality control, ethics, independence, and other standards relating to the preparation of audit reports for public companies, in accordance with Section 103 of the Sarbanes-Oxley Act of 2002. All of the PCAOB's standards and rules go through the following process:

• First, a proposed standard or rule is adopted by the PCAOB typically after a public comment period.
• Second, the standard or rule is sent to the SEC for approval.

The SEC's approval process also typically involves a public comment period. PCAOB rules do not take effect unless approved by the SEC.

Hence the email will not be sufficient to fire CFO or Employees.

The following are links to PCAOB rules and standards:

• Rules of the Board

• Standards & Related Rules
  • Auditing (Standards & Interim Standards)
  • Ethics & Independence (Rules & Interim Standards)
  • Quality Control (Interim Standards)
  • Attestation (Interim Standards)
  • Superseded  

The PCAOB Standing Advisory Group (SAG) is a group whose purpose is to advise the PCAOB on the establishment of auditing and related professional practice standards. The SAG is composed of highly qualified persons representing the auditing profession, public companies, investors and others. Access SAG meeting summaries and meeting materials at the respective link.