I was the audit senior manager on the pursuit team and ultimately, the engagement team of a new client. My team was excited about the win and because year-end was approaching fast; we started the audit within days of our appointment as the companys auditors. Initially, all went smoothly. We met our milestones and quickly developed an excellent working relationship with the companys CFO, who appreciated the quality of our work, our responsiveness, and the questions we asked about the business. Toward the end of the audit, a staff accountant drew my attention to a material reconciling item that lacked supporting documentation. The client contact responsible for providing the documentation had not responded to our requests for details, so I paid her a quick visit to find out what was causing the delay. She explained that the reconciling entry went back a number of years and was made up of mainly minor items and it grew slightly year by year. Exact details would take several days, she said, because shed have to go back years on some of the items. I explained that we would indeed need her help to explain these items even if it did take a few days for her to obtain the supporting documentation. When she still did not respond to our request, we knew we needed to elevate the matter, although we were not yet overly concerned. That afternoon, I joined the partner in charge for a status meeting with the CFO, since we were approaching the report date. He asked us what was still open to complete the audit. Were waiting for detail on one reconciling item, I told him. Thats about it. He promised that his team would provide the information and said hed get back to me. But he didnt get back to me. A few days before sign-off, the partner and I stopped by his office again. Great job, guys, he said with a smile, leaning back in his chair. But that one item well, we dont want to make a mountain out of a mole hill, do we? Its been a regular reconciling item forever. Our prior auditors never flagged it even once and it barely changes year to year. As you know, the audit report is due tomorrow, the CFO continued, and frankly, Id like us not to delay it by continuing to research that particular item. That OK with you guys?

Required:

Read the specific facts and circumstances of each case study, identify the key red flags (50)

that heighten professional skepticism and evaluate what you would do next. (40)