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Newtown Company is in an industry in the early development stage, where there are minimal barriers to entry to the client's business model. Newtown Company's

  1. Newtown Company is in an industry in the early development stage, where there are minimal barriers to entry to the client's business model. Newtown Company's audit committee decided to put their 2022 audit out for bids.  One of the Big Four CPA firms had performed their audits from 2020-2021, and although happy with the previous auditor, the audit committee believed they should rotate to another firm. On the last audit, the Big Four's audit fees were $500,000.  SGV, CPAs, came in as the low bidder, making a proposal to Newtown Company regarding audit fees for 2022. Their proposed audit fee was $250,000.

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(1) Based on this scenario, describe the ethical decisions that an auditor must make during portfolio management decisions such as the client acceptance and client continuance decision. What is the relationship between ethics and high audit quality?
 

(2) What issues should the client's audit committee consider before going with the lowest bid?

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