Question

Principles of Financial Accounting (ACCI Grace Period: 12 days leftI Registe Kimmel, Financial Accounting, Be Assignment Gradebook ORION Downloadable eTextbook ent CALCULATOR ULLSORIIN PRİNİR VIRSION 4BACK Suppose you were a CPA and you had invested in 1BM when IBM was not one of your firm's dients. Two years later, after IBM's stock price had fallen considerably, your firm won the IBM audit contract. You ill be involved in working with the 1BM audit. You know that your firm's rules require that you sell your shares immediately. If you do sell immediately, you will sustain a large loss. Do you think this is fair? What would you do? Why do you think PricewaterhouseCoopers took such extreme steps in response to the SEC investigation? alt

Answer 1

These following matters need to be evaluated in the specific context of the potential engagement, and should be fully documented.

Once a client has been accepted, the firm should consider the suitability of the specific engagement it has been asked to perform. In particular there may be ethical threats which mean that the engagement should not be accepted, in particular whether there are any threats to objectivity. Potential threats could arise for example, if members of the audit firm hold shares in the client or there are family relationships. If threats are discovered, it may not mean that the client must be turned down, as safeguards could potentially reduce the threats to an acceptable level.

Different types of potential engagement will give rise to different matters that should be evaluated.