Any elements of the Framework that were exhibited?

How should the Framework have been utilized?

Any specific or general traps and biases that were at play?

In mid-February, BDO was conducting the year end audit field work on MSP Inc. MSP manufactures and sells computer components to some of the largest computer manufacturers (Lenovo, HP, etc.). Some facts: The audit is on an accelerated deadline this year MSP annual revenue is $250M. Warranty claims are typically less than 1% of total sales and the warranty accrual is only $2.5M. PM is $3M. "There have been no changes to the warranty terms or calculation in the year under audit." Who are the engagement players? Jesse- Experienced Associate Jan - Audit Senior Cade - Audit Manager Mary-Audit Partner James- MSP Controller Frank- MSP CEO In reviewing the warranty calculation, Jesse noted that there was a new line item for "adjusted warranty terms." When Jesse asked about this item, James explained that HP requested some revised warranty terms in one of their contracts. Per James the sales director reviewed the contract and there are no concerns with the terms. Jesse was satisfied with the explanation but asked Jan if the team needed to do any additional procedures, such as read the contract. As Jan was new to the engagement this year, she deferred the question to Cade. Cade explained there was nothing to worry, we know the client really well and the warranty are always immaterial. On February 27th, Mary called together the engagement team. The financial statements are to be issued the next day, and she wanted to review the audit file with the team. Upon reaching the warranty section, Mary told Cade that she did not review it very closely since it was consistent with the prior year and asked Cade i there is anything they needed to discuss. Cade replied that it is all "normal" with the warranty accrual. On April 15th, Frank scheduled a meeting with Mary to discuss the HP warranty claims, which had grown significantly. Before the meeting, Mary discussed the claims with the team and was surprised to find out that the team was aware of new warranty terms but did nothing to review or test them further. In the meeting, Frank explained first quarter HP claims related to the contract were $2.5M and there could be as much as $10M in exposure. Frank was very concerned that no one brought the new contract or the change in terms to his attention, including the audit team. Frank and Mary concluded that the financial statements would likely need to be restated and MSPs loan may be called. By June 15th, the situation had continued to evolve and get worse. Mary received a call from Frank informing her that the board has decided to terminate BDO as MSPs auditor. Furthermore, MSP and/or the bank will likely be entering into litigation against BDO In mid-February, BDO was conducting the year end audit field work on MSP Inc. MSP manufactures and sells computer components to some of the largest computer manufacturers (Lenovo, HP, etc.). Some facts: The audit is on an accelerated deadline this year MSP annual revenue is $250M. Warranty claims are typically less than 1% of total sales and the warranty accrual is only $2.5M. PM is $3M. "There have been no changes to the warranty terms or calculation in the year under audit." Who are the engagement players? Jesse- Experienced Associate Jan - Audit Senior Cade - Audit Manager Mary-Audit Partner James- MSP Controller Frank- MSP CEO In reviewing the warranty calculation, Jesse noted that there was a new line item for "adjusted warranty terms." When Jesse asked about this item, James explained that HP requested some revised warranty terms in one of their contracts. Per James the sales director reviewed the contract and there are no concerns with the terms. Jesse was satisfied with the explanation but asked Jan if the team needed to do any additional procedures, such as read the contract. As Jan was new to the engagement this year, she deferred the question to Cade. Cade explained there was nothing to worry, we know the client really well and the warranty are always immaterial. On February 27th, Mary called together the engagement team. The financial statements are to be issued the next day, and she wanted to review the audit file with the team. Upon reaching the warranty section, Mary told Cade that she did not review it very closely since it was consistent with the prior year and asked Cade i there is anything they needed to discuss. Cade replied that it is all "normal" with the warranty accrual. On April 15th, Frank scheduled a meeting with Mary to discuss the HP warranty claims, which had grown significantly. Before the meeting, Mary discussed the claims with the team and was surprised to find out that the team was aware of new warranty terms but did nothing to review or test them further. In the meeting, Frank explained first quarter HP claims related to the contract were $2.5M and there could be as much as $10M in exposure. Frank was very concerned that no one brought the new contract or the change in terms to his attention, including the audit team. Frank and Mary concluded that the financial statements would likely need to be restated and MSPs loan may be called. By June 15th, the situation had continued to evolve and get worse. Mary received a call from Frank informing her that the board has decided to terminate BDO as MSPs auditor. Furthermore, MSP and/or the bank will likely be entering into litigation against BDO