Question

1) Identify audit tests that may be used as alternative audit procedures when a response is not received for a positive confirmation request. Compare and contrast the quality of audit evidence yielded by these procedures with that produced by audit confirmation procedures.

2) Is it appropriate for audit firms to sharply discount their professional fees for development stage companies? Why or why not? What problems, if any, may this practice pose for audit firms?

3) Should audit firms accept “ethically challenged” companies and organizations as audit clients? Defend your answer.

Answer 1

1.If the auditors are unable to confirm accounts receivable, their backup auditing technique is to verify that customers have paid the invoices, for which they will want to review check copies and trace them through your bank account.

However confirmation given by an external party is more reliable than information provided internally be the company

2.Despite GAAS doesn't  state the professional fees standard for developmental stage companies, i believe certain professional auditing standard request same level of audit fees. The auditors have to fully maintain GAAS and cannot survive on discounted audit fees.The biggest problem that pops in my mind is that, without enough payment of audit fees, professional audit level or standard would be lower than usual. Because managers in audit firms are afraid of cost being higher than discounted audit fees

3.The Audit firms may accept ethically challenged companies,however the audit should resign is the company request the auditor to act unethically or if he/she gathers evidence of illegal operations of the company during the normal course of audit