ACQUIRING GOOD ETHICAL JUDGMENT SCENARIO 10 Y MANY ENTTTIES DO YOU NEED TO LOOK THROUGH? didn't look before, but maybe you need to look now The Situation h Investments is an investment advisory firm investment funds for various local labor unions-welfare funds, health funds, and soon. The funds vary from S50 million to $200 million in capital. Roughly 25% of each fund (the exact percentage varies from fund to fund) is invested in Mortgage Equity, a related entity, which generates private equity mortgages which manages Your firm, Danvers Accounting LLP, audits three of these funds. You are the r responsible for these audits, and this is your second year doing so. The partner nds are relatively easy to audit and involve minimal risk. They have almost no debt; they show limited activity and carry few expenses. You need to confirm through the report of an actuary, that what the funds are obligated to pay out is validity and value of the assets that the fund invests in. You need to verify that Starburgh is properly carrying out its fiduciary responsibility, by investing in a manner consistent with the charters set down by the union directors of the various funds. And you need to obtain a SAS 70 review of the holder of the securities (a group employed by Starburgh), to confirm that the securities actually held represent the securities owned. These audits, then, are overall fairly low-risk engagements, since you are relying on reports of the relevant experts at nearly every point. In the course of the audit, the audit manager approaches you and asks whether your firm should seek an independent valuation of the funds' investments in Mortgage Equity. You are caught off guard by the question, because Danvers has not once in the last twenty years sought such a valuation. Generally, mortgages are not a particularly risky investment, since they have real estate as collateral Moreover, the funds' investments in Mortgage Equity have been scrutinized and approved by the directors of the three union funds. You are unaware of GAAS requiring an independent valuation in such circumstances; in fact, you are fairly confident that it does not. And besides, each year Starburgh provides a valuation of those investments, produced by its own expert. So for all these reasons an You recognize, of course, that Starburgh would have an incentive to hide a problem in those investments, since they might be fired as fund managers if those investments implied a substantial overall loss. Also, the union directors have an incentive to ignore problems that might arise. The reason is that some of the union independent valuation looks completely unnecessary to you