Henson, Davis & Co.

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Case 8-38

A. In our opinion, Henson, Davis & Co. did not comply with auditing standards by accepting McMullan Resources as a new client. Ms. Beales lack of quality control is clearly reflected within in this case. Ms Beales attempt to communicate with the previous accountant was inefficient as she never followed up with them. She relied heavily on information she received from the client.. This type of evidence is not the most reliable and may result in a huge problem. The information received could be incorrect if not further verified. Its safe to say that Ms. Beale and Mr. Black were very negligent in their approach to this engagement. AU 315 clearly outlines the requirement for communication between Predecessor and Successor Auditors. We believe that this guideline was not followed.

We believe that there are several exiting deficiencies. An issue exists regarding a contract between McMullan and a customer from Montreal. And also a contingency issue exists. These are two situations that could have had an affect on Henson, Davis & Co.’s decision to accept an engagement with McMullan. We think that these deficiences can be resolved by contacting the previous auditors and doing a thorough check to discuss any and all issues. Ms. Beale and Mr. Brown should then sit down and discuss strategies for dealing with the issues.. has already entered an engagement with the client; it would not be professional on their end to go back and try to get rid of the client. Because Henson, Davis & Co already accepted the engagement; it would not be appropriate or professional to nulify the engagement due to their own inadequate planning. The engagement will eventually involve more time and the extent of the work to be performed because of increased risk. We think Mr. Black was wrong for trusting so heavily on the opinion of Ms. Sarah Beale and believing that “he could recover from any problems during his end of audit review.” This is a big mistake that...
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