LO 5 E16-46. On an audit engagement, there are three primary staff assigned at the levels of manager, audit senior, and staff 1. The audit manager has 10 years of experience with the firm and has been working on an audit en- gagement for a particular client for four consecutive years. The three most recent audits of this client have been clean; i.e., the audit opinion was unmodified and your assessment of the internal controls has suggested that with the exception of a problem with segregation of duties, internal controls ap- pear adequate 2. The audit senior is new to this client, and her experience on her most recent engagement was not positive. The previous client was new to the firm, and the senior discovered that the accounting manager who had been employed by the client for 20 years had some unusual spending habits for an individual at that pay grade. With an annual salary of S75,000, the unmarried accounting manager purchased a home for $650,000 and a 2018 BMV M4 convertible with a retail price of $70,000. Nothing unusual in the accounting records was noted by the audit team, until the audit manager visited during fieldwork and discovered that receivables were overstated. The audit manager then led efforts that revealed skimming of receivables by the accounting manager, and the skimming was determined to have been ongoing for at least five years. As the audit senior on that engagement, she felt ashamed that her efforts did not reveal the fraud in the current year or in the prior three years that she was assigned to that client. 3. The staff auditor just graduated from college with a master's degree two months ago and did not participate in an internship in his undergraduate or graduate programs. His only prior work experi- ence is working as a server at a bar and grill, where he interacted with business professionals and those interactions were generally positive. In fact, the CFO of the current audit client was a regular customer at the restaurant where he worked. The CFO was jovial and tipped well. Required: 1. Explain how System 1 and System 2 thinking as well as the four cognitive decision-making biases may apply to each of the individuals assigned to the audit engagement 2. What steps could each of the individuals apply in mitigating cognitive decision-making biases that are present in this case? LO 5 E16-46. On an audit engagement, there are three primary staff assigned at the levels of manager, audit senior, and staff 1. The audit manager has 10 years of experience with the firm and has been working on an audit en- gagement for a particular client for four consecutive years. The three most recent audits of this client have been clean; i.e., the audit opinion was unmodified and your assessment of the internal controls has suggested that with the exception of a problem with segregation of duties, internal controls ap- pear adequate 2. The audit senior is new to this client, and her experience on her most recent engagement was not positive. The previous client was new to the firm, and the senior discovered that the accounting manager who had been employed by the client for 20 years had some unusual spending habits for an individual at that pay grade. With an annual salary of S75,000, the unmarried accounting manager purchased a home for $650,000 and a 2018 BMV M4 convertible with a retail price of $70,000. Nothing unusual in the accounting records was noted by the audit team, until the audit manager visited during fieldwork and discovered that receivables were overstated. The audit manager then led efforts that revealed skimming of receivables by the accounting manager, and the skimming was determined to have been ongoing for at least five years. As the audit senior on that engagement, she felt ashamed that her efforts did not reveal the fraud in the current year or in the prior three years that she was assigned to that client. 3. The staff auditor just graduated from college with a master's degree two months ago and did not participate in an internship in his undergraduate or graduate programs. His only prior work experi- ence is working as a server at a bar and grill, where he interacted with business professionals and those interactions were generally positive. In fact, the CFO of the current audit client was a regular customer at the restaurant where he worked. The CFO was jovial and tipped well. Required: 1. Explain how System 1 and System 2 thinking as well as the four cognitive decision-making biases may apply to each of the individuals assigned to the audit engagement 2. What steps could each of the individuals apply in mitigating cognitive decision-making biases that are present in this case