Reference no: EM132700643

Pizza GO a mid-sized family owned but growing business has a $1 million lawsuit pending due to an angry customer consuming spoiled pizza. It is year end and financial statements are being prepared.GAAP - Loss must be accrued if loss is probable. Probable meaning more likely than not a loss will occur. (ie Odds of loss over 50%.) Several investors have expressed interest in injecting millions in expansion capital. The CEO very anxious to obtain the funding, as it may make or break the company. He needs to present the financial statements to Investors in a week.

Problem 1: You are a first year associate of a CPA firm that will be auditing Pizza Go. You have done tax preparation but never have done a financial audit. The Partner asks you to fully complete the revenue and accrual testing as he trusts you. What is the reason why you cannot accept the assignment?

A. Due care principle states engagements must be properly planned and supervised.

B. Investors are stakeholders of PizzaGo and an audit would conflict with their objectives.

C. Integrity principle states engagements must be done with staff knowledgeable to perform the work.

D. Due care standards specify that first year associates cannot conduct audits of high risk clients.