Question

Read each scenario below. Describe the potential liability to the CPA and the firm. Then, offer a resolution. Once you've posted your initial responses, be sure to respond to at least two peers.

Scenario 1: Afer completing an audit of Tablewood Company, the audit firm Smith and Orange, LLP, received a subpoena for all documents related to the audit. The firm is refusing to respond, arguing that all documentation is privileged information between the firm and the client.

Scenario 2: Brenda Bookings, CPA, is the defendant in a lawsuit alleging that she should be held legally liable for gross negligence for a fraud in the financial statements of one of her clients. Bookings was unsure of how to establish valuation for securities included on the financial statement, so she relied on a price estimation provided by management.

Scenario 3: Frank Greene, CPA, is facing a lawsuit for constructive fraud in the audit of one of his clients. Greene reviewed all audit documentation and is convinced that he followed all appropriate procedures and complied with the standards of the profession. However, he is unsure of what to use as his primary defense tactic.

Answer 1

1. The firm should present the supporting document in court of law. This is ok if the document has the privilege information but the documents must be presented in court to define the audit. Hence the documents should be presented.
2. The management may sometimes shares wrong vales to increase the profits and hence considering the management decision to value the securities at the said price is not justified and the price should have been reasonably checked.
3. If standards of profession has been followed and all the audit procedures has been followed and since a constructive fraud had been committed than this is possible that the documents provided by the client is altered. Hence the primary defense will be the documents that has been provided by the client.