John Anders, CPA, Has Worked Three Years for a Regional

question 9

Essay

John Anders, CPA, has worked three years for a regional CPA firm. His responsibilities have been limited primarily to working on retail store audits and their related tax problems. Due to the resignation of several staff members during the year and the addition of several new clients, the firm is badly understaffed.
John's firm is asked on December 10 to do the audit of a construction company for the year ending December 31. The president of the construction company, who is under indictment for income tax fraud, apologized for the late timing of the invitation. He explained that another CPA firm had been fired on December 9 due to sloppy work and incompetence. The client states that it must have the audit report for the annual meeting of stockholders on January 25.The managing partner of the firm decides to accept the engagement. A major factor in the decision is that the firm does not have any clients in the construction industry and this will provide valuable experience. He promptly calls the president and accepts the audit.
The managing partner assigns John to the audit with instructions to start immediately and do the best possible job within the specified time constraints. By working alone for long hours and weekends, John completes the audit on January 23 and submits his working papers and audit report to the managing partner for review. The partner carefully reads the audit report and congratulates John on a job well done.
REQUIRED:
A.What steps in accepting the engagement were violated? Explain.
B.What auditing standard (s) was (were) violated in performing the audit? Explain.

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Definitions:

Overapplied

A situation where the allocated or applied costs exceed the actual expenses, often relating to overhead costs in manufacturing processes.

Underapplied

Refers to a situation where the actual manufacturing overhead costs are more than the allocated overhead costs to products or services.

Cost of Goods Sold

The total cost directly tied to the production of the goods sold by a company.

Job-Order Costing System

A cost accounting system that assigns manufacturing costs to an individual product or batches of products, often used when products are distinctly different.