Case 4-4 A Potential Threat to Professional Judgment? Katy Carmichael was just promoted to audit manager in the technology sector at PwC. She started at PwC six years ago and has worked on a number of the same client audits for multiple years. She prefers being placed on client audits year over year as she believes her knowledge about the client grows each year, resulting in a better audit. Public Accounting Firms, like PwC, do this as it provides continuity between the firm and the client and often results in a more efficient (less costly) audit as well. Katy was thrilled to learn that she would be retaining three of her prior audit clients, including what she considers her favorite client (DGS- Drako Gaming Solutions) to audit. While she has not developed true friendships with the employees at those three clients, she does consider them good people. If she were not their auditor she would be very pleased to call them her friends. In fact, she greatly respects the senior management at DGS and likes the company enough that she has thought of going to work there on a number of occasions if she were ever to leave PwC. In describing the management of DGS to a friend, she stated they are as dedicated to their employees and minimizing their impact on the environment as they are to increasing shareholder value. She likes their culture, their people, and the games they produce and believes it would be a great place to work. The audit planning for DGSs next audit is about to begin. As is common practice with all audits, each member of the PwC audit team is asked to fill out a questionnaire about any type of relationship (personal, business, or financial) they might have (or any other member of the engagement team might have) with the client company, any of their customers, suppliers, employees, or direct family members of their employees. There is no direct question which specifically addresses Katys feelings toward the client and their management. As manager, Katy will be meeting with the PwC compliance partner assigned to DGS to go through the completed questionnaires to ensure there were no threats to independence and objectivity thereby hopefully ensuring no subordination of judgment would occur on the audit.

Questions

Identify any potential threats to judgment you think could exist based on the facts of the case?