Smith & Jones Audit Firm Is Determining Whether to Accept

question 26

Essay

Smith & Jones audit firm is determining whether to accept an audit engagement with Simple Things Ltd. As this would be a new engagement the audit firm sought the client's permission to contact the current auditor. The client did not give their permission, explaining that they did not want the current auditors to know they were thinking of changing.
Recently Simple Things Ltd had been in the media for management not disclosing an environmental disaster that occurred at one of their plant sites. The incident is still under investigation but if the company is found to be at fault then they may be subject to numerous lawsuits from the many private landholders near the plant.
From the information provided above, identify any reasons for not accepting the audit engagement with Simple Things Ltd.

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Definitions:

Representativeness Heuristic

A mental shortcut used for making decisions or judgments, where the likelihood of an event is estimated based on how much it resembles the typical case.

Mental Set

A predisposition to approach a problem in a particular way, influenced by past experiences and learning.

Belief Perseverance

The tendency to hold onto one's beliefs even after they have been proven wrong.

Overconfidence

The phenomenon where an individual's confidence in their judgments and abilities is greater than the accuracy of those judgments.