1. Big 4 versus non-Big 4 assurance providers Economic changes can affect how clients select their assurance providers. Required a. In times of economic recession, would you expect the demand for audits to increase or decrease? b. Would you expect clients to shift from large (Big 4) auditors to mid-tier auditors, or from mid-tier auditors to Big 4 auditors in times of economic recession? Why or why not?
2. You have recently graduated from your university and started work with an accounting firm. You meet an old school friend, Kim, for dinneryou haven't seen each other for several years. Kim is surprised that you are now working as an auditor because your childhood dream was to be a ballet dancer. Unfortunately, your knees were damaged in a fall and you can no longer dance. The conversation turns to your work and Kim wants to know how you do your job. Kim cannot understand why an audit is not a guarantee the company will succeed. Kim also thinks that company managers will lie to you to protect themselves, and as an auditor you would have to assume that you cannot believe anything a company manager says to you. Required Compose a letter to Kim explaining the concept of reasonable assurance, and how reasonable assurance is determined. Explain why an auditor cannot offer absolute assurance. Describe the concept of professional skepticism and how it is not the same as assuming that managers are always trying to deceive auditors. Explain to Kim why her perceptions are a perfect example of the expectations gap.