John Smith CPA was the predecessor auditor for Trailblazers, Inc. Smith was told that the firm was terminated, and Trailblazers was to retain Mary Apple CPA. Mary Apple contacted John Smith in order to have a predecessor-successor conversation. John Smith indicated that Trailblazers was a longtime client of the firm and that the dispute which led to the termination of its services significantly revolved around audit fees. Smith indicated that management put unusual time deadlines on the CPAs, and they sometimes felt rushed to complete the audit.

1. What step did Mary Apple fail to perform?
2. Mary Apple appears to have asked John Smith about management integrity, disagreements with management, and the reason for the auditor change. What did Mary Apple fail to ask John Smith?
3. What should Mary Apple do with the information about the unnecessary time pressure?
4. When do successor auditors need to communicate with predecessor auditors?
5. What happens if predecessor auditors refuse communication?

2. Section 301 of the Sarbanes-Oxley Act requires that public companies have an audit committee. Independent auditors are increasingly involved with audit committees.

1. Explain who is on an audit committee and their responsibilities.
2. Explain why an audit committee is formed.