a.Which of the eight GAAS was E&Y alleged to have violated? 1.General standard: E&Y failed to assign professionals with sufficient skills to adequately solve the problem. 2.Examination standard 1: According to the lawsuit, E&Y did very little planning in preparation to handle the financial recovery of the Merry Go Round company. 3.Examination standard 2: The professionals assigned to the Merry Go Round project obviously had very little knowledge of the environment that the company was in. As an example, the cost-cutting strategy only led to $11 million in savings, which us much lower than the projected loss of $200 million.
b. In the same way that an accounting firm must investigate the quality of a potential new client, it is the responsibility of the client to investigate the qualifications of a potential consultant. Setting standards for consultants would obviously help with verifying trustworthy service from a consultant. The challenge lies in finding an appropriate body of knowledge upon which to test and register the consultant. Often, there is an extreme wide range of skill sets that a consultant will bring to a situation based on their education and years of experience. How do you set a standard for what and how much knowledge a consultant should have?
If professional standards for independent auditors who consult existed, several advantages and disadvantages would result, including: Advantages:
1.Trustworthy licensed professional consultants.
2.Standards of procedure implemented across the industry will achieve a basic higher level of performance. 3.Registration and certification of consultants will encourage those professionals to perform their duties to the highest quality for fear of punitive action. 4.Standardization of industry rules and a code of conduct will dissuade consultant professionals from outlandish expense spending. 5.Black and white industry standardization will make the execution...