Question

SCENARIO 2 THE NEW PARTNER How do you make yourself look good? The Situation A new partner in an acco seller was a long-time for acquisition represent artner in an accounting firm was put in charge of an acquisition audit. The a long-time friend of a name partner in the accounting firm. The n represented the end of a long-time business rivalry between seller and buyer. About two months after the deal closed, the buyer sent a claim to the seller, og that the financial statements had been manipulated, with the result that the seller overpaid by about $3 million. The buyer insisted that the seller remit the difference. Even before this claim had arrived, the new partner who was in charge of the audit had suspected that a lawsuit might be in the works. The reason is that, a couple of weeks before the buyer's claim arrived, he had received a request from the buyer to examine the work papers for the audit. Specifically, the buyer was interested in the representation of the collectibility of accounts receivable and the potential impact of this on historic and projected cash flows. The partner was confident that the buyer's claim was spurious and that, if necessary, the firm should be able to defend against it successfully in trial. This became clear to him in his own review of the work papers, which he undertook when he became aware of the buyer's complaint. However, when he was carrying out that review, he also noticed that the work papers had been prepared in a very sloppy manner. In fact, their sloppiness was such that, just conceivably, they could be subject to misinterpretation, and taken to reflect deceit, incompetence or bias. It was not that the sloppiness could be translated directly into a manipulation of the financials, but rather that it would make the financials more difficult to defend. The firm was therefore unnecessarily exposed to risk. Furthermore, the partner was concerned about the sloppiness, because he recognized that, if he had exercised proper due diligence as being in charge of the audit, he would have discovered it earlier. Question As the partner was reviewing the work papers, various courses of action occurred to him. Which do you think is best? Which must be excluded? How would you rank the permissible courses of action?

Answer 1

1 option is best, because it is the most suitable decison

3 and 4 options can be avoided, because it is not fair or suitable