Reference no: EM133126205
Question - Josh, CPA, conducted an audit of a small business client, Small, Inc. The Board of Directors is not happy with Josh. They believe Josh conducted the audit without due care and was unprofessional because fraud was later found at the company. The receiving manager was stealing inventory and writing it down at an incorrect value. The company is considering going out of business or filing for bankruptcy because of heavy losses. Either way, the company has informed their bank, Big Bank, that they will default on the bank loan. Now Big Bank is suing Josh and claiming that Josh conducted the audit negligently by not discovering the fraud with the inventory. Big Bank also had an investigator discover that the accounts receivable was overstated in the audit. The investigator found that Small falsified the accounts receivable confirmations for the audit by sending intercepting them and having them sent to a PO Box, and confirming the balances themselves.
1. Evaluate this case using the integrated ethical framework on page 84. And the 4 steps.
2. Determine if Josh, CPA liable to either Small or Big Bank. If so, explain why or why not.
3. Determine what defenses Josh has against Small and Big Bank.
4. Do you believe Josh, the auditor is liable to either party? If so, why?
5. What are the auditor's responsibilities regarding inventory and accounts receivable according to GAAS?
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