An Auditing Firm Has a Standard Fee Policy That It

question 29

Multiple Choice

An auditing firm has a standard fee policy that it maintains internally and uses in bidding on auditing projects.However,in preparing bids,it increases its audit fee by up to 20% for corporate audit clients that have December 31 fiscal year-ends and lowers its audit fees by up to 30% for government entities that have fiscal years that end during the summer months.The auditing firm justifies this pricing practice by noting that its personnel are overwhelmed with work during the end-of-year "busy season," but often are idle during the summer months.This auditor:

• A) Does not have a conflict of interest
• B) Has a dual-client conflict of interest
• C) Has an accountant-client conflict of interest, even if this pricing differential is cost-justified
• D) Is not acting with integrity, unless it discloses this pricing policy to all affected clients

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Definitions:

Straight-Line Method

An accounting method for allocating the cost of an asset evenly over its useful life.

Cost of Capital

The obligatory profit percentage a corporation needs to achieve on its investments to keep its market share and attract investors.

IRR

Internal Rate of Return; a financial metric used to evaluate the profitability of investments, representing the discount rate that makes the net present value (NPV) of all cash flows equal to zero.

Net Cash Flows

The difference between a company's cash inflows and outflows during a specific period, representing its ability to generate value.