A LOOK INSIDE Audit FIRM The audit firm of Abernethy and Chapman is located in the central portion of Virginia. This partnership began operations in 1969 and now employs 145 accountants out of a main office in Richmond and three branches in nearby Virginia cities. The Richmond office has 87 professionals: 10 partners, 14 managers, 21 senior and 42 staff auditors. Eleven members of this group concentrate in tax consultation while another seven offer a variety of consulting services to the firm's clients. The others spend a majority of their time performing audits and related activities. During busy periods, individuals occasionally have to move from one area of the firm to another. Eighteen additional employees comprise the secretarial and clerical staff of the Richmond office. In hiring professionals, the firm considers only college graduates with a major in accounting and requires that each employee sit for the CPA exam within one year of employment. Once employed, all accountants in the firm must complete at least 40 hours per year of continuing education. Promotions within the firm are guided by seniority and technical competence. For example, for a staff auditor to be promoted to senior auditor, he or she must have been with the firm at least two years, must have passed the CPA exam, and must have demonstrated outstanding competence in job performance. DeAnna Malott, a partner in the Richmond office, monitors the quality control standards and the employee policies of the firm. One of Ms. Malott's responsibilities is to conduct training seminars for new professionals regarding the policies of the firm. Under these policies, employees must sever all financial ties to audit clients. Another of Ms. Malott's duties is to assign personnel to the various audit engagements of the firm. In making these assignments, she considers the employee's experience with the client's business, as well as his or her technical training. For audit engagements, firm policy requires the assignment of a consulting partner, as well as a partner-in-charge of the engagement. The partner-in-charge of the audit heads the engagement team, while the consulting partner advises and reviews the final work of the team. The audit engagement team consists of a partner-in-charge, a manager, a senior auditor, and one or more staff auditors. The partner-in-charge of the engagement has the definitive responsibility for decisions made during the audit, even though he or she does not normally carry out the major activities of the audit. The manager, senior auditor, and staff auditors perform the majority of the procedures required by an audit. The assignment of an engagement team, as well as a consulting partner, is to ensure not only that audits are appropriately supervised but also that there is complete objectivity and competence in conducting each audit. Abernethy and Chapman as a firm, and the Richmond office, has experienced considerable growth over the past five years. The partners believe that a good marketing strategy and a continuing emphasis on high-quality auditing and accounting services have generated the increase in revenues. During the most recent fiscal year, the Richmond office totaled over $2,500,000 in gross revenues while earning nearly $900,000 in net income. Profits accruing to individual partners ranged from $75,000 to $300,000. Traditionally, 60% of the firm's income has been derived from audit engagements with tax services providing another 25% of the total. Remaining revenues are generated by attestation functions other than audits (e.g., reviews), accounting and bookkeeping services (e.g., compilations), and consulting services. The partners agree that assurance services, attestation services (including the audit function), and consulting services offer the greatest potential for expanding the fim's income and have constantly stressed the growth of these services. At present, Abernethy and Chapman have a number of large clients in the Richmond area: a small hotel chain, a group of furniture stores, several large car dealerships, and three of the local banks. Recently, the firm decided to seek additional clients. Therefore, within the last 18 months, a series of advertisements has been published in local newspapers as well as in several prominent Virginia periodicals. In addition, a monthly newsletter describing current accounting and taxation changes is distributed to clients and local business leaders. This marketing strategy was created by a Richmond advertising agency and has stressed the theme "We Are Here to Help Your Business." The entire campaign cost the firm approximately $70,000 and has just recently begun to generate additional revenues. Case questions to answer: Answer all of the following questions in your final report. Answers MUST be clear with full discussions and explanations 1. What are the main duties of the auditor in charge in the Abernethy & Chapman (A&C) audit firm? 2- What is the purpose of having both a partner in charge and a consulting partner on each engagement? 3- Can an accounting firm perform marketing campaigns, yes, or no? What are the prohibited marketing acts and activities according to rules of the professional code of conduct? 4. What are the duties of the professional in accounting firm who is responsible for engagements quality control? 5. Given the Professional Code of Ethics for the Auditing profession, evaluate the degree to which you think this firm has complied or violated any of the rules of code of ethics in any of its plans and services provided Rubrics and Report: A. For the grading rubric, see the rubric for ethical reasoning uploaded to the Bb project folder. B. Report of the case guidelines and requirements: The final report must be written in appropriate professional format and language. It must contain the following: 1- Cover page containing: a. title of the project, b. Course, section, and term specifications, c. Instructor's name and title, d. Group members' names and IDs. 2- Table of contents with detailed sections and questions page numbering. 3- Case Facts: about the company's history, activity, business model and format. 1 4. Case Subject Matter: what the case is about within the auditing profession (to understand this you need to understand the whole process of the audit engagement and its different phases). 5- You need to relate this case to the audit engagement framework you studied in the course. 6- Answer the questions one by one in an organized full way. Always give support to your answer form the case facts or from the various parts of auditing code of professional conduct. 7- If you use references, you must follow the proper citation rules in detail to avoid being charged with plagiarism. 8- If you have questions about the case, ask me or send me an email. 9- I advise you to start writing your reports NOW. 10- Regarding the report format, use font size 12, Times New Roman with 1.5-line space. Headings must not exceed font 14