Sandra Is a New Partner at a PA Firm

question 77

Essay

Sandra is a new partner at a PA firm.Sandra recently signed a new contract with Gretchen Fabrics to become its auditor.In the process of accepting the client and planning the first year's audit,Sandra did the following:
- Sandra contacted the previous auditor to enquire if there were any reasons not to accept the audit of this client.Unfortunately,the previous auditor was on vacation and did not respond to Sandra before she accepted the client.
- Upon his return,the previous auditor did communicate with Sandra and indicated that the client had aggressive expense deferral policies that they disagreed on.Sandra asked to review the working papers of the previous auditor with regards to these expenses and found them to be right below the materiality threshold.
- Gretchen Fabrics imports most of its fabrics and has two production facilities in Asia.The company therefore has a complex tax structure and many import duties.Since this is not the area of expertise of Sandra,she asked another auditing firm to provide the required audit procedures for the international taxes and duties expense.When selecting the other audit firm,Sandra researched the firm online.She also ensured that they had their professional designation and enquired with the CPA and provincial association if the firm had any complaints or litigation outstanding for malpractice.
- Since the bidding process took time,Sandra had to start the audit almost right after learning she had the winning bid.She did not prepare an engagement letter before starting the work.She does not see this as being a problem since waiting until the audit has begun will provide her with a better idea of what work has to be done and what the engagement letter should include.
Required:
Identify the good and bad steps that Sandra has undertaken in reducing her exposure to legal liability.

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