Reference no: EM133125376

Question - Sally Clark, owner of The Organic Warehouse (TOW), that sells organic household cleaning products to consumers, recently decided to change accounting firms. Her decision was based on an advertisement he read in a local newspaper. The advertisement suggested that Brock and Co., Chartered Professional Accountants, perform superior work in the areas of audit, accounting and tax, and that the firm guarantees a fixed fee for any potential client. This attracted Mrs. Clark whose company is facing cash flow problems and he felt that his current fee was too high.

Given TOW's poor operating results for the past two years, the bank has once again requested an audit for the year ended January 31, 2022. It is now February 5, 2022.

Mrs. Clark arranged to meet with Rebecca Betts, the sole partner of Brock and Co. Chartered Professional Accountants, late Monday afternoon. During the meeting, Mrs. Clark   stressed the need for a clean audit opinion to satisfy the bank. She also was hoping that Horwath and Co. could draft control procedures for a new sales system that AHG was acquiring as well as to install the system.  Rebecca agreed to have her staff begin the audit first thing the next day.

The next morning, Rebecca called two of his junior staff into her office to discuss his meeting with Sally Clark. She requested the juniors to begin the audit immediately and return in four weeks with a draft set of financial statements, including notes. The juniors, having had only limited auditing experience gladly accepted this new challenge. They were particularly excited about it as they felt it would help them in their preparations for the final CPA exams.

During the testing of inventory at January 31, 2022 several items in the sample were overstated due to errors in pricing and obsolescence but the combination of all errors in the sample were considered immaterial.  Accordingly, no extra testing was completed in the area of inventory.

It was decided that it was more efficient to perform 100% substantive testing on the five financial cycles rather than to rely on the controls.   There was no attempt to document the controls or test those controls considered strong.

Required -

A) Discuss the Rules of Professional Conduct violated and the nature of the violations. 

B) Discuss any actions taken during the audit that has resulted in the failure to comply with generally accepted auditing standards (the standards currently set out in CAS 200).