AUDITING THEORY WEEK 5 ARTICLES

RUFIN, MA. URIKA C. 2007103114 ACT-4

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6.7 HAMILTON WONG, IN-CHARGE ACCOUNTANT

QUESTIONS: 1. What measures can accounting firms take to ensure that time budgets do not interfere with the successful completion of an audit or become dysfunctional in other ways? As a safeguard to the occurrence of this incident, there must be a strict monitoring of the performance of the auditors. Someone should be in charged in seeing whether employees are complying with the set standards. Being faced with time constraints and loads of work to accomplish, a firm should allot sufficient time for work completion. 2. Place yourself in Hamilton Wongs position. Would you report all of your time worked on the Wille & Lomax audit? Why or why not? Do you believe that Lauren Hutchinson behaved unethically by underreporting the time she worked on that engagement? Defend your answer. Yes. As an auditor engaging in public practice, it is just and appropriate that the auditor will be remunerated based on the tasks s/he performed and the effort s/he exerted in the engagement. This is stated on The Code of Ethics under professional fees. Yes, Hutchinson behaved unethically for her motive of underreporting was a self-serving reason to get promoted. In performing our work, we have to exercise compliance, transparency, and fair disclosure of the facts related including the time spent on accomplishing the task. The time spent for the completion of audit will be the basis for allocating or budgeting time for the next engagements. Hence, it is a must that the time required in completing the engagement is reported. 3. What measures can accounting firms take to reduce the likelihood that personal rivalries among auditors of the same rank will become dysfunctional? A workplace is a very competitive environment. Everyone is doing his or her best to excel and get promoted. Therefore, it will be very difficult for the organization to eliminate rivalries emanating from competition. However, this can be minimized through uplifting the professional attitude by eliminating preferential treatment, favoritism and bias. This initiative must come from those with superior positions. This will give employees the idea that they are given equal opportunities and thus, will result to healthy competition.

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4. Academic research suggests that underreporting time on audit engagements is a common practice. What are the key objectives of tracking hours worked by individual accounts or assignments on audit engagements? What implications does the underreporting of time have for individual auditors, their colleagues, and the overall quality of independent audits? Time is an important and limited resource. Therefore, it must be accounted properly. In the corporate world, particularly the Accounting field, there are a lot of requirements yet professionals are faced with time constraints. They have to be remunerated according to the level of training and experience required, difficulty of tasks, and time required to successfully accomplish the engagement. The time is monitored because it will serve as basis for allocating time for similar engagements. Underreporting of time will result to improper remuneration from the companies being audited. Also, it will affect the similar succeeding engagements for the underreported time will serve as the basis for budgeted hours. If practiced continuously, it may be a detriment to the company in the long run. The budgeted hours will not be sufficient to successfully complete the audit engagement; hence, in order to meet the deadline, the auditors may be forced to under audit, affecting the quality of the audit report which may tarnish the reputation of the firm.

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7.1 PRICEWATERHOUSECOOPERS SECURITIES, LLC

QUESTIONS: 1. In your opinion, is it appropriate for accounting firms to offer financial services, such as investment banking, that have historically been provided by other professionals? Defend your answer. Our group believes that there is nothing wrong if the auditing firm expands to a professional services firm increasing the scope of their service offerings. Thus, performing other financial services to the same companies they audit for as long as it does not sacrifice the level of independence required in audit engagements and the nature of the service is not viewed as self-review. 2. Do you believe that accounting firms could feasibly use value-added fee arrangements? Why or why not? No. It is not viable for accounting firms to use value-added fee arrangements because it is tantamount to contingent fees that may result to the impairment of the CPAs independence and objectivity. It may give rise to self-interest conflicts that may affect the veracity of the audit reports. However, if it is allowed by the courts or other public authorities then, it can be practiced but stringent safeguards must be established to assure that the practitioner is performing his or her duties bias-free. 3. Do you believe the SECs punishment of PwC and PwCs was appropriate in this case? Defend your answer. Yes. The PwC acted in bad faith. They are not oblivious of the fact that contingencies are banned. They have created permissible value-added fee arrangements but issued side letters or entered into oral understandings that created forbidden contingent fees arrangements. The issuance of two letters contradicts their claim regarding contingent fees. They are trying to protect themselves from liability by informing their clients about the prohibition of the said fees, but in reality, they are

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not acting in accordance with representation. They are estopped. And they should be punished for their irresponsible acts.