Professional Standards of Auditing According

Professional Standards of Auditing

According to AICPA - rule 102 (1999) and IFAC (2007), the signing, allowing or directing someone else to sign a document that contains false or misleading information qualifies as knowing misrepresentation and its implications refer to the loss of the auditor's credibility. Indirectly it has a serious impact on his or her firm with respect to integrity, independence and objectivity, which are essential in this line of work.

Courses of action. The first step is to inform the client's management about the discrepancy, which in our case already happened. However, since nothing changed, the problem has to be addressed to a high level of authority. All the implications have to be clearly explained so that the client understands the necessity having the $50,000 reflected in the company's financial statement. At this point the auditor should also start documenting the discrepancy and explain the client the possible outcomes of such a document. In case there will be an external audit resulting in identifying the same discrepancy and the fact that it hasn't been solved despite the auditor's advice, the consequences will more than offset the value of the illegally transferred funds. The last step suggested by AICPA has to do with taking action and expose the discrepancy to the state authorities since it is considered illegal. In our case, since the law is very strict about these issues, the auditing company may be seriously affected, not necessarily on the legal standing point, but it may lose a number of clients due to the loss of credibility. On the other hand, Enormo Corp is a big client for CPA, and exposing its case to authorities, would mean losing it.

As an alternative, CPA can refuse to work with Enormo Corp in this case and Enormo would be forced to resort to a different auditing company.