Reference no: EM133228783

Audit

BSG Auditors

Case Facts

Jim Moggeler was a national audit partner in the New York office of BSG Auditors, a regional public accounting firm. Jim was approached by a Taiwanese auditing firm about working together on several audit engagements for companies that were headquartered in China. Because the companies' stocks were listed on public exchanges in the United States, the companies were required to file financial statements with the SEC. Therefore, the two audit firms entered into an agreement wherein the Taiwanese auditing firm would perform all of the field work while BSG, which was registered with the PCAOB, would oversee the work and issue the audit report.

Because he lacked experience auditing public companies under PCAOB auditing standards, did not speak or read Chinese, and had never performed an internal control (SOX 404) audit, Jim failed to provide adequate oversight of the audit engagements. In late October 2011, Jim learned that the PCAOB would be performing an inspection of the 2010 fiscal year audit of one of these Chinese clients. The audit report had been issued for this engagement on March 28, 2011. Jim immediately emailed the audit partner from the Taiwanese audit firm and requested that they translate and provide to BSG the work papers from the "critical" and "most important" areas of the audit. Up to that point, BSG had not seen these work papers. Early in January 2012, the Taiwanese audit firm provided the translated documents to BSG. These work papers were added to the work papers already in Jim's possession as if they had been there all along.

In addition to the translated documents, Jim added or modified many other documents and added them to the documentation as if they had been there all along. First, he added handwritten notations to audit work papers, which he backdated to March 2011. Jim also created an undated memo that sought to memorialize the planning process for the audit. All of the documentation was provided to the PCAOB inspectors late in January as they carried out their inspection of this audit client.

1. What concerns, if any, do you have with respect to BSG's agreement to issue audit opinions for the clients based in China?

2. Study PCAOB's Auditing Standard Number 1215 (AS No. 1215). What are the purposes of audit documentation?

3. How long are auditors given to finalize their audit documentation following the audit report date? Once audit documentation is completed, are auditors permitted to add to or take away from the documentation? Explain.

4. What did Jim do wrong with respect to the additions made to the audit documentation? Was Jim's behavior unethical? Was it fraudulent?

5. What special documentation requirements exist in this case due to the fact that other auditors performed part of the work? Does it appear that Jim complied with these additional requirements?