1.Susan Harris recently joined the CPA firm of Spark, Watts, and Wilcox. She quickly established a reputation for thoroughness and a steadfast dedication to following prescribed auditing procedures to the letter. On her third audit for the firm, Sharpe examined the underlying documentation of 200 disbursements as a test of purchasing, receiving vouchers payable, and cash disbursement procedures. In the process, they found twelve disbursements for the purchase of materials that had no receiving reports documentation. She noted the exceptions in the working papers and called them to the attention of the in-charge accountant. Relying on prior experience with the client, the in-charge accountant disregard Tan's comments. Nothing further was done about the exceptions.

Subsequently, it was learned that one of the client's purchasing agents and a member of its accounting department were engaged in a fraudulent scheme to divert the receipt of materials to a public warehouse while sending the invoices to the client. When the client discovered the fraud, the conspirators had diverted approximately P70,000 in materials, P50,000 of it after the completion of the audit.

Required:

a.Discuss the legal implications and liabilities to Spark, Watts & Wilcox as a result of these facts.

b.Discuss the legal implications and liabilities to Spark, Watts & Wilcox if the CPA firm is a limited liability partnership.