Auditing principles and practices

¶ … quality control requirements and peer reviews take a dim view of these proceedings. They state that such requirements favor larger, national firms to the detriment of smaller firms. The article implies that such regulations should be left to the firms themselves, on an in-house and voluntary basis, rather than to the government. Self-policing goes on already, it is suggested, and the requirements merely force small firms to adapt a costly rather than a simple organizational structure, for what has always existed, at least informally, for quality firms.

Evaluate whether quality control requirements and peer reviews are worth their cost.

However, the alleged competitive pressures to do quality work, legal liability for inadequate performance, and a code of professional conduct requiring that CPA firms follow generally accepted auditing standards have not proven effective, despite the article's statement that they have. The article offers no hard evidence to back up such an assertion and moreover, it puts firms in the unfair and discomforting position of having to position themselves as both regulators and auditors, of overseeing their own staff as well as encouraging their staff to cut costs. Thus, the additional costs are indeed worthy for greater ethical stringency in the profession as a whole, generating more public trust, and reducing the potential for auditing mishaps and frauds by dishonest individuals in both large and small firms.

2A. What are the ethical implications of Rossi and Montgomery's accepting the engagement?

The ethical implications of the Mobile Home Manufacturing Company, as audited by Rossi and Montgomery, CPAs are that while Mobile Home ahs decided to issue stock to the public and wants Rossi and Montgomery to perform all the audit work necessary to satisfy the requirements for filing with the SEC, the CPA firm has never had a client go public before and thus may have an interest in buying stock in the company before it does. It must make sure that individuals in the company do not unfairly use such insider stock tips, or make use of confidential financial information to their own benefit or the auditing firm's benefit.