North Face case solution
1. Should auditors insist that their clients accept all proposed audit adjustments, even those that have an “immaterial” effect on the given financial statements? Defend your answer.
The auditors should not insist that their clients accept all proposed audit adjustments. The auditor’s main duty is to provide reasonable assurance to verify the accuracy and compliance of client’s financial statements, to ensure that it conveys data and information of events occurred within the accounting period. When a misstatement is found, the auditor should decide whether the misstatement is material, considering both amount and quality perspectives. If it is a material misstatement, the auditor should mainly insist in making proper adjustments, because the misstatement will have a direct effect on financial statements and thus affect decisions of people who rely on it. However, if it is an immaterial misstatement, auditors should provide client with reasons of making adjustments. Since the immaterial misstatement will not have a direct effect on financial statements and thus will not affect people’s decision related to the financial statements, the auditor can appreciate management’s reasons and respect client’s decision.
2. Should auditors take explicit measures to prevent their clients from discovering or becoming aware of the materiality thresholds used on individual audit engagements? Would it be feasible for auditors to conceal this information from their audit clients?
Auditors should take explicit measures to prevent client from discovering the materiality thresholds used on individual audit engagements. If unethical management or employee of client finds out the materiality thresholds, they will understand auditors’ intention and get chances to manipulate accounts and records. It may results in concealed material misstatements and difficulties in auditing.
It is difficult for auditors to conceal the materiality thresholds from clients, because auditors usually
The auditors should not insist that their clients accept all proposed audit adjustments. The auditor’s main duty is to provide reasonable assurance to verify the accuracy and compliance of client’s financial statements, to ensure that it conveys data and information of events occurred within the accounting period. When a misstatement is found, the auditor should decide whether the misstatement is material, considering both amount and quality perspectives. If it is a material misstatement, the auditor should mainly insist in making proper adjustments, because the misstatement will have a direct effect on financial statements and thus affect decisions of people who rely on it. However, if it is an immaterial misstatement, auditors should provide client with reasons of making adjustments. Since the immaterial misstatement will not have a direct effect on financial statements and thus will not affect people’s decision related to the financial statements, the auditor can appreciate management’s reasons and respect client’s decision.
2. Should auditors take explicit measures to prevent their clients from discovering or becoming aware of the materiality thresholds used on individual audit engagements? Would it be feasible for auditors to conceal this information from their audit clients?
Auditors should take explicit measures to prevent client from discovering the materiality thresholds used on individual audit engagements. If unethical management or employee of client finds out the materiality thresholds, they will understand auditors’ intention and get chances to manipulate accounts and records. It may results in concealed material misstatements and difficulties in auditing.
It is difficult for auditors to conceal the materiality thresholds from clients, because auditors usually