KBC Solutions Accounting Paper Discussion

 KBC Solutions Accounting Paper Discussion

Instructions/Descriptions

 KBC Solutions Accounting Paper Discussion

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After reading Case 4-1: KBC Solutions, post your responds to the student following the answer questions.

Use the KPMG Professional Judgment Framework to critically evaluate the judgments made by Grace as the senior auditor in charge of the engagement.

The KPMG Professional Judgment Framework explains that there are four common judgment tendencies that are applicable to audit professionals: the availability tendency, the confirmation tendency, the overconfidence tendency, and the anchoring tendency.

The availability tendency is when an auditor, like Grace, uses accessible information to make a judgement. Grace did this repeatedly, relying on the past information from accrued expenses and last year’s work papers to determine the proper allowance for uncollectible over a year later. While it is helpful to relate to older information gained, auditors cannot take the easy way out and not verify original information.

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The confirmation tendency is to put weight on beliefs that are consistent with their own. Grace will accept client’s explanations if it aligns with her own desires to not do further work. She will confirm everything that aligns with her needs.

The overconfidence tendency is when they overestimate their own abilities. Grace pursued her own self-interest and failed to look at contradictory evidence. She realized issues existed, and still does, but she is continuing to deny them.

Lastly, the anchoring tendency is when an auditor anchors to a piece of information. Grace did exactly this. She gathered last year’s audit and chose to just accept all of its information.

Did Grace violate any rules of conduct in the AICPA Code? Explain.

Grace violated several rules of conduct in the AICPA Code.

The first is competence under 1.300.010. Grace must be competent to hold her position as a senior auditor in charge of a larger client. She even doubts her abilities and whether she is experienced enough for this position as a leader.

Acts Discreditable is 1.400.001, which explains that an auditor must look for threats and safeguard the audit from conflicts. Grave knows that this is a problem. She knows the threats this could create against the auditing firm. She did not put up a single safeguard to help the organization.

Also, there is compliance with standards 1.310.001, which says a CPA must apply the conceptual framework approach to mitigate threats. By choosing not to investigate further or do her own judgments, she is non-compliant.

Does Rick have any ethical obligations in this matter? Explain.

Rick has ethical obligations in this matter as well, just as Grace does. Rick is the individual who has the final signing for approval of the audit. As the person signing the audit, this means that he approves of all actions and review done by the auditing team. If Rick approves this audit, he is non-compliant as well, especially since he knows the threats. He would be breaking the public trust.

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What should Rick do about sign off on the audit? Why?

Rick should not sign off on this audit. He needs to instruct Grace to begin her own investigations and calculate the true current estimations for accrued expenses and the proper allowance for uncollectible during the year. He should also make sure that Grace gets the underlying documentation and can adequately argue why it supports the new acquisition of plant and equipment. Only then can he sign off.

 KBC Solutions Accounting Paper Discussion

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