Phar-Mor
1a) External auditors obviously know what to look for in an audit, it’s what they do for a living. Having your company’s external auditor work for your company instead can give insight as to what they look for when doing an audit and therefore make it easier for a company to commit fraud.
1b) A client hiring former auditors may or may not affect the independence of current external auditors. It may affect their independence if they would rather work for the client; they could think that if they “look the other way” that the client may hire them next. On the other hand, it may not affect their independence if they like their current job and could not care less about the other auditors transferring to the client.
1c) The Sarbanes-Oxley Act of 2002 require current auditors to wait at least one year pass since they were involved in the auditing of a client before they are able to accept an employment offer in certain designated positions. They also require that auditors report any employment offer or intention to seek employment with an audit client, after which they are removed from all engagements until they either reject the offer or are no longer seeking other employment. At which time the accounting firm should determine if any additional measures need to be taken to ensure that reasonable assurance can be given that the work of that specific CPA had been objective and with integrity.
1d) No, it is not appropriate for auditors to trust executives of a client. If an auditor trusts the executives of a client, the auditor’s independence is compromised. Auditors are supposed to look for fraud, errors, and problems; they are to expect them until they can prove that there is a reason not to. If they trust them, they will not expect or be looking for fraud or errors, they will assume that everything is correct because of their trust.
2a)
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3a) Yes, I would pursue legal action against the auditor in this situation. The basis of my claim would be similar to
1b) A client hiring former auditors may or may not affect the independence of current external auditors. It may affect their independence if they would rather work for the client; they could think that if they “look the other way” that the client may hire them next. On the other hand, it may not affect their independence if they like their current job and could not care less about the other auditors transferring to the client.
1c) The Sarbanes-Oxley Act of 2002 require current auditors to wait at least one year pass since they were involved in the auditing of a client before they are able to accept an employment offer in certain designated positions. They also require that auditors report any employment offer or intention to seek employment with an audit client, after which they are removed from all engagements until they either reject the offer or are no longer seeking other employment. At which time the accounting firm should determine if any additional measures need to be taken to ensure that reasonable assurance can be given that the work of that specific CPA had been objective and with integrity.
1d) No, it is not appropriate for auditors to trust executives of a client. If an auditor trusts the executives of a client, the auditor’s independence is compromised. Auditors are supposed to look for fraud, errors, and problems; they are to expect them until they can prove that there is a reason not to. If they trust them, they will not expect or be looking for fraud or errors, they will assume that everything is correct because of their trust.
2a)
2b)
3a) Yes, I would pursue legal action against the auditor in this situation. The basis of my claim would be similar to