Problem Three

Alan Johns was recently promoted to senior accountant at the WCSU CPA Firm. He was put in charge of the Natural Markets audit because of his experience with other grocery clients. Natural Markets has a small, but growing, chain of natural food stores. This is the first year Natural Markets has been audited. Because of their growth, Natural Markets needs additional capital and intend to use their audited financial statements to secure a loan. Alan is assigned two new staff assistants for the audit. Both staff assistants recently graduated from their accounting program at Western Connecticut State University. Because this is his first engagement as a senior accountant, Alan wants to bring the job in on the preliminary budget established by the quality control partner at the firm. To save time, Alan provided his assistants with a copy of the audit plan for Happy Time Food Stores, a different grocery client of the WCSU CPA Firm. Alan told the staff assistants this would make the audit go more quickly. He also told them that he could not spend much time with them at the client's place of business, because "my time is billed out at such a high rate, we'll go right over budget." However, he did call them once a day from another audit on which he was working. After beginning their audit work, the assistants told Alan that the audit plan of Happy Time did not always match up with what they found at Natural Markets. Alan responded "cross out whatever is not relevant in the audit plan and don't add anything it will only make us go over the budget, and don't spend any time on the internal controls." When Alan came to the client near the end of audit work, one assistant was concerned that no inventory observation was done at the out-of-town locations of Natural Markets (the audit plan for Happy Time had stipulated that inventory should be observed for in-town stores only). Happy Time had only one out-of-town location, while three of Natural Markets' seven stores were in other cities. Alan told the assistant to get inventory sheets from the client for the other stores and added, "make sure that the inventory balance in the general ledger agrees with the total for all the inventory sheets." The next day, Alan reviewed all audit documentation and submitted the job for review by the quality control partner.

Required: Describe the three performance standard of generally accepted auditing standards (known previously as field work) and indicate how the actions of Alan Fallon resulted in a failure to comply with the performance standards.