PA has been engaged by Pinto Inc. for several years. His work involves compiling the monthly financial reports for Pinto’s management and providing advice to Pinto’s president on cost controls, taxes, and other financial reporting matters. PA has also performed a review engagement on the annual GAAP financial statements that are provided to the company’s shareholders and its banker. As Pinto’s business was growing rapidly, two years ago it hired a full-time CFO to handle the expanding accounting and reporting requirements. The CFO is a former banker who was laid off by the bank and was recommended for the job by Pinto’s COO, an old school friend, even though he had never previously worked as a CFO. Over the two years that CFO has held the position, he has sought advice from PA on many accounting, tax, and reporting issues.
At first, PA thought the CFO was learning the job by asking all these questions. However, after two years, the P began to realize that the CFO was merely implementing whatever PA suggested, without questioning it. When PA insisted that the CFO complete various accounting and tax analyses for the current-year financial statements on his own, the CFO stalled at first and then finally admitted that he could not do the analyses. PA needed to work over the weekend to provide the required information so the company could file its tax returns and payroll tax information forms on time. As a result of these events, PA has become concerned that Pinto’s management does not know enough about its own financial statements to take primary responsibility for them. Just prior to the current year-end, the Pinto shareholders met to approve the appointment of PA as the company’s independent accountant for another year. Pinto has three shareholders who each own 30% of the common shares, while 20 current and former employees own the remaining 10%. At this meeting, some of the shareholders expressed concern about the financial management at Pinto, and demanded that PA be engaged to audit the company’s financial statements rather than just doing a review.

Required:
Discuss the professional issues raised in the above case. Assess whether or not PA should accept the audit engagement, and recommend an appropriate course of action for PA.